What is common between “searching for needle in a haystack” and “going fishing”? The common thing is you are trying to get one small thing (needle or fish) in a sea of unknowns. That’s where the commonality ends. The approach one takes is different in both cases. In case of fishing, you place your hook in the water and wait for fish to get trapped. Yeah, you may try to fish in location known to be breeding ground. But in the end, fundamentally, you have to wait for the fish to get trapped. In case of searching for needle, you are making a proactive effort to clean the haystack knowing there is at least one needle somewhere in there. A dumb person will try to dive in, but a smart person, will carefully remove small blocks of haystack to reduce search space. You cannot do that with water. Can you reduce water to increase your probability of catching your fish? Probably not.
It is in this context, I believe searching for a good company is like searching for a needle in a Haystack. If you make your search space smaller and smaller, you are likely to find that needle. The only question that remains is how you make your search space smaller? There are many different approaches to narrow down your search space. Continue reading rest of this article…
I am sharing a story sent to me via email by one of the readers of TIPBlog. Here, this reader is narrating this experience about multiple attempts to make quick bucks from stock markets. After the story I will present my views and thoughts about it.
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Sometime in 2002, March/April, I was doing my engineering and started working for a call center in the night to take care of my extra spending. I never knew or thought about stock market or any kind of investment. I spent two years in call center and spend many hours in the night watching CNBC after coming back from work. I learned few things about banking, credit cards, insurance, investment, and so on. In two years, I watched markets go up. I always thought I should invest in IPO and make some money on listing. However, I could not do so because I didn’t have a Dmat account. Continue reading rest of this article…
As a do-it-yourself investor, I enjoy the process of investing much more than finding my next company I will invest in. Admittedly, the process is much more challenging than finding the winning stocks. Yes, you read it right! Investing process is very difficult in many different contexts. Managing the portfolio requires wearing different types of hats. Sometimes you have act and behave like a leader, sometimes play the role of manager, and on many occasions you work like an employee.
Most of the investors spend a significant amount of time in looking at the quantitative part of the company analysis. We arrange data in different formats, different time scales, compare with analyst, check out google to see what others have to say, etc. In short, search and screen multiple stocks, collect data, and present observations and results. This is all about execution and is similar to what an employee will do. Is that really important? Have you asked yourself:
- Why this specific type of analysis?
- How you determine earnings per share?
- Is it only necessary to look at last one year or last three year or more?
- Do you include dividends?
- How do you decide multiples?
- How do you decide value? Continue reading rest of this article…
I have mentioned that one of my objective from my portfolio is to have dividend-based cash flow of Rs 500,000 by year end 2020. To show this feasibility, I could present a sophisticated excel based model with multiple different set of variables (i.e. make it complex). At a minimum, I know most of them would at least respect the effort. That’s how we are; we tend to appreciate complexity rather than simplicity. I like things to be simple. They are easy to understand and easy to implement. In this post, I am discussing a simple empirical exercise to demonstrate the feasibility of achieving my goal.
Before I demonstrate feasibility, following are few nuggets from Indian dividend landscape.
- There are more than 1400 Indian companies that pay dividends
- 2007-2008: Rs 52,150 crore is the estimated total dividends paid by Indian companies. This represents approximately 18.1% of estimated total net profits
- 2008-2009: Rs 51,500 crore is the estimated total dividends paid by Indian companies. This represents approximately 18.7% of estimated total net profits Continue reading rest of this article…
Graham number is one of the five method I use to estimate the fair value of a given company share that I am willing to pay. I have provided the formula I use and a very brief description. However, over the last few weeks, I have received questions requesting to help explain why this particular formula and is there any rationale on how this is derived. So here it is…..
Graham’s view was the price-to-earnings ratio should not be more than 15. At the same time, price-to-book value should not be more than 1.5. He also mentioned that it would be justifiable to have higher P/B ratio if PE ratio is below 15.
With this thought process, Graham proposed that the product of these two parameters should not be more than 22.5 Continue reading rest of this article…
Two readers of this blog left couple of intelligent questions in comment section on some of the articles. Both of these questions relate to what I term as rebalancing the portfolio (or profit booking). I wanted to wait until I posted articles on TIPBlog portfolio update and risk analysis. I wanted to discuss these two questions in the context of TIPBlog portfolio. It will help better understand the re-balancing and profit booking processes.
You may have read earlier post that discusses risk analysis. I made a comment that the portfolio has overexposure on few stocks like ONGC, LNT, etc. I also mentioned that I will not be selling any partial shares to bring down allocation. Many use the term profit booking for partial selling.
Continue reading rest of this article…
In an earlier post, I mentioned that I use XIRR as one of the metrics for measuring the individual stocks performance in my portfolio. In simple terms, XIRR is the interest rate you would need to make the same money from any interest bearing account (with same investments). While XIRR can be extended at portfolio level, in today’s post, I am only discussing how I use XIRR at individual stock level.
I have pulled out one excel sheet [copy is in my toolbox at TIP-Stock-Tracker] as a representative example for this discussion. The primary notion behind this excel sheet is to keep records and track the performance. It is not intended “to model an automated tracker” or “to perform any automated calculation across the board”. Except XIRR, I have used only few basic math formulas like addition, subtraction, divisions, multiplication, and percentages. In order to understand the formula, I suggest to use formula auditing tool bar (which will show arrows to linked cells) to understand the formulas. This excel is segregated into different regions.
Continue reading rest of this article…
