Various Investment Opportunities – My Explicit No List

456261_which_wayIn general, I have observed that it is easy for us to say, “I can do this”, “I will do this”. We tend to always say “yes” or “may be” for almost anything. Whether directly or indirectly, we hesitate to say “explicit no” for various reasons. Some of the reasons are; we want to keep doors open for us in future, we are not sure of certain things, many times somebody said so it could possibly have some bearing, on many occasions its just does not effect me so haan bolne mai kya jata hai, etc, etc. Same way we apply similar philosophy for investments (or trading).


Almost all of us have some strategy, some technique, and some approach, that we believe works. I am in the same boat. We jump on to something at a drop of a hat hoping it will work. Here also, the opinion or reason is so strong, we find it hard to say “no”. Reading few lines we tend to believe it will work.


I receive emails requesting my thoughts or opinions about a particular stock. Many times its just a one liner asking about the particular company, many times with certain news events, and many with little blurb about the company. If I do not respond in less than a week, then you should consider it has been ignored. Lately, I have bunch of emails regarding real estate companies. Is there an reason why suddenly so much interest in real estate companies?


I was pondering what to do with these emails. I decided to jot down few lines to discuss what are “explicit no” for me in my investment thought process. So here I go:


No margins based investing: This is a no brainer. One of my trader friend asked me, “…so you avoid it”. My response was, “I do not even think about it. It is not in my investment vocabulary”.


Do not short stocks: In my view, shorting of stocks is a form of speculation. I do not understand the logic behind shorting stocks. What I mean by this is, it is designed for folks who create this hysteria of end of the world and then go on to make money. You and me as an individual have no control over this. SENSEX went from 20K to 8K, on what basis? Speculation? or folks who have strength to take it down?


No options, futures, derivatives: Here also, I do not understand the logic or reasoning for such instruments. All these are devised to trade contracts, or linked securities, etc. Why not trade it directly in its original form? Why do you have to create this inter linking or derivates? So they you can earn some fees or commisions? some examples are ULIPs, commodity furtures, Gold/Silver ETFs, etc. These are all focused on some kind of arbitrage.


No mutual fund investing: Whenever I say this, readers of this blog present counter arguments about its benefits. To me, if I do not trust myself with my own money, then how can I trust another fund manager? Sometime in future, when I can find some time, I will discuss in more detail. In the meantime you may read some of my thoughts on various participants in financial services industry. My peeve with them is lack of accountability. They work on the philosophy of; You do not know anything about stock market. So give me your money and I will manage it for fee. But I do not even assure safety of your capital (so what the heck the fee is for ?). I do not take risk on negative. But I take huge bonus on positive.


No sin companies: These are tobacco and hard liquor companies. This is a personal choice and nothing do to with folks associated with this business.


No real estate companies: I own one house and one apartment which is used by my  immediate family members i.e. parents, siblings, myself. They are fully paid and hence no loans. Since, I have already spent enough money in real estate, I do not look into real estate companies. No more allocation to real estate. Hopefully this answers why I have not been responding to emails asking my opinion about real estate companies.


Do not hold non-conviction stocks: What this means is, I will not keep holding on to shares of companies that I have lost my initial conviction. Let me explain with couple of examples;


(a) Sometime back LNT wanted to buy tainted Satyam. I did not subscribe to this thought process. Had LNT acquired Satyam, I would have sold all my LNT shares. You may read my thoughts on why I planned the LNT exit strategy.

(b) If I do not think I will buy when 25% down (independent of allocation), then there is no point in buying a given stock in first place. During last year, I bought few stocks like graphite, hawkins, ABCIL, etc. At this point in time, I am convinced that I will buy more if they drop by 25% or more. There are no significant events that puts a question mark in my mind. The events here does not mean business challenges. It means M&A activies, signficiant changes in company fundamentals, scams, etc. I will sell it the day I have doubt about long term expected return. Continue to hold and pondering what to do is not an investment strategy.


As you can see, I do not question the existence of these financial instruments or companies. All of these instruments are devised, created, and traded for specific purpose. One needs tune yourself, orient yourself, and have setup to deal with those type of instruments. Just because it is simple to trade on your computer screen, it is not a justification to use them, and think you can may quick bucks.


Almost all of the items above, in my “explicit no list”, is driven by my own ability to understand them. Their objective, reasons for existence, and logic behind them does not jive with my comfort factor. They do not jive with my investment thought process. Dealing in them does not give me confidence of success. So I stay away from them. No broker, agent, advisor, planner, friend, family member can sway that.


What is your explicit no list? Why? Can you share them below?










Facebook User Comments:


53 Responses to “Various Investment Opportunities – My Explicit No List”

  1. Saif says:

    Hello Sir,
    As a off topic,is it possible to post views on another aspect of security operations which Graham was involved in..mainly arbitrage..

    There is a buy back offer of shares from Manaksia .Would like to hear your views on any arbitrage opportunities possible and how to carry them out .
    more details here
    http://www.manaksia.com/investor-relations/pdf/Public_Announcement_Final.pdf

    Short summary…buyback of arnd 9% equity .max of 50 crores reserved,and price not exceeding 200rd.(Stock locked in upper ckt for 2 days,and is now at 146)

    This could also give some more variety in the blog content

    thanks,
    Saif

    • TIP Guy says:

      Hello Saif,

      Nope, for now, not looking at such opportunities. Not my cup of tea yet.

      I think you are missing the point about this blog. My focus is to write on my experience of building a portfolio. Blog is just a diary. Focusing on portfolio is what gives me good returns. Adding variety to the blog does not!

      Yeah, in future, if I decide to use those strategies in my building process, then I will write about my experiences. But for now, I am not writing just for the sake of adding variety. That would not be my experience, and without it, there would be lack of conviction. It would be fluff.

      Hope you understand what I mean.

      Best Wishes,

      • saif says:

        sure sir…i understand…just thought of commenting about it…to see if you would be interested in such postings…
        thanks

    • Investologic says:

      For arbitrage opportnities and learning read Ninand Kunders blog at http://investingvalues.blogspot.com/.
      Tipbog.in, valueinvestor.blogspot.com and the above are enough for any newbie investor to venture on the road of equities.

  2. S R says:

    Being a newbie investor, I read your’s and few other blogs – which share their experience. I don’t do direct equity because I don’t understand the basics enough to dive in it. I looked at real estate for sometime and felt a necessity for strict regulations in this industry, before I give these guys any money.

    I have read John Bogle and believe in his approach. For now, I am a MF investor – diversified equity and index funds. I did make some mistakes in past to invest to save tax on some hybrid funds. In retrospection, they are not great but not very bad either, and do add some debt component.

    My take has been that if you dont have the skill set to pick & invest, then believe in good MF and pay those guys to manage your money. Change them (haven’t done one yet), if they suck at managing your money.

    Having said that, I would like to hear your experience on direct equity from a newbie perspective. In two or three year time frame, I think I should have better knowledge, mindset and experience to have a part of my portfolio in direct equity. Any suggestions on what to read to better analyze my ideas.

    • TIP Guy says:

      Hello SR,

      I think you have selected a good path (as a newbie) of MFs because you are not confident about equities on your own. May be you can consider me egoistic or a stickler, but I just do not believe MFs are good for long term for individual investors like us.

      The big positive in your case is; you know your limitation. Best way to address that is start equities in small values. Figure out what is good for you, and how long you are willing to hold out. Accept the fact that for first couple of years, you will stumble and make mistakes. But the fact that your values are small, won’t dent your net worth, and you will keep learning.

      First step, make a realistic expectation of what you want your portfolio to do in terms of returns and time frame. Without that it is will shooting in dark.

      Good suggestion for an article on experience from a newbie perspective. Make sense and will do it shortly.

      Best Wishes,

  3. Prasanth says:

    Very good article TIPguy.

    Here is my “explicit no” list :
    1. No real estate companies – 99.99% of them are not ethical.

    2. No Options/Futures – Like you, never understood the reasoning – for me this is akin to gambling – if these are allowed, why not legalize betting say in Sports?

    3. No ULIPS/childrens/fathers/mothers/sisters/
    cashback/his/hers policies. Pure term insurance will do very well thank you !!

    4. No penny stocks/hyped up ones – I do not get to hear much of this because I do not watch T.V

    Regards,

    Prasanth

    • TIP Guy says:

      Hello Prasanth,

      Thanks for sharing. Good one. No penny stocks is good addition. Yes, term insurance is sufficient for normal people like us. But what happens is we become greedy and in the process fail to realize the objectives of the insurance.

      Best Wishes,

  4. Young@Market says:

    Hi TIP,
    Thanks for a detailed article. May be one of my post made u write this up… :-) the first time i put a real estate company in one comment. Sorry about that.. also congrats for owning houses without any loans!!! that is something really great … when these real estate prices are simply kept high. me too not a hard fan of real estate!!! just came across .. so thought of sharing. If time permits will you be able to write about the following points?
    1. BOND – how to evaluate a bond (may be not easy as it sounds!)
    2. How the shares are distributed after IPO. Like the one which u gone for SJVNL … subscribed 6.8 times… (but majorly by QIBs) and the retail portion about 3.1 times… how the book bulding process works.. and how the issue price is determined? Lets say is they came to a price like 25.. (is that considering all the application/ each category is done separately?) . when they fix price at 25, lets say people bid at 23 and 24 might not get shares… so there is chance that people bid at 26 got what they bid for…. your understanding about the process would be helpful.
    3. I think insurance going to be a big business as the insurance penetration is low in India. how should one evaluate insurance companies? Came across one article : http://www.finwinonline.com/2010/04/best-life-insurance-provider-in-india.html (also worried if the claim settlement is not that great for some of these companies… how are they going to win in the market!!)
    Also I guess insurance IPOs should be coming to market.. if the liquidity continues… (I guess the foreign remittances flowing to India keeps the liquidity high and market high!!!)
    Thanks in advance for your valuable observations/ lessons

    • TIP Guy says:

      Hello Young,

      I welcome all questions. If I do not know, I have no hesitation is admitting it.
      (1) Bond, yeah I am planning to add this topic for my blog. This is one area I believe is underestimated in our portfolios. Right now, I am contemplating how much details I am willing to go. In addition, BOND markets are not very mature yet.
      (2) IPO process: can’t promise but will see. At least for me, this is a bigger topic. Primarily because, I think I understand the process superficially at higher level, but I am not proficient in nitty gritty. I think I will have to spend quite a bit of time to write articles on this topic. SJVNL is my only second IPO application in my 11 years of investing career.
      (3) Good question about insurance business and related companies. Claim settlement is concern in this industry – call it corruption, attitude, sense of responsibility, etc – but companies make it difficult to claim. We do not give back money easily, we care damn about our individual responsibility. And probably this reflects in claim settlement? Regarding insurance IPOs coming to the market… The existing insurance companies are most likely to come with IPO to cash on this popularity and media hype. As always, as an individual investor, the pricing will be critical. I expect them to milk the cash cow i.e. retail investor.

      Thanks for your suggestions/observations/ideas.

      Best Wishes,

  5. Hello Admin , i with u idea. i will come to your blog again tomorrow

  6. GRM says:

    Hi,
    I started reading your blog a few days ago. Am just a novice in the science of investing.

    I would add Forex trading to a NO list. Some people think this is a form of investment but it is gambling as are other examples you mentioned.

    Am I right?

    cheers,
    GRM

  7. social says:

    I like your thought process behind “no real estate”. As any home onwenr in USA and they will tell you this is so true..

    by now allocating your capital to any real estate companies your are following a asset allocation in true sense.. and not the generalized hypothecial ones.

    Great list!

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