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Income Portfolio – Quarterly Update 1H09

TIP Guy 20 June 2009 process 3 Comments

updateOne common question that I continue to receive is about the efficacy of long term investing. The notable factor is almost all of them use two specific examples to explain that long term investing is not a viable solution. These examples are (1) Stock market tanking in 2008; and (2) Satyam going kaput.

To begin with, it tells me that many do not understand what is investing. Folks who ask these questions do not understand long term investing. I keep wondering, how to best explain what is long term investing.

In general, first half of 2009 can be characterized as roller coaster ride. While we saw multi year lows, at the same time, we also saw historical one day rally. In my post bull running for red flag, I showed that majority of SENSEX companies are showing reduced earnings. And surprisingly, it is being rewarding by increase value. I continue to believe, there is no way any individual can predict the markets. So who bother wasting time on it?

Continue reading rest of this article…

My Secret Asset for Building Wealth

TIP Guy 28 May 2009 commentary 10 Comments

Year 1997, I was freshly minted engineering graduate, secured well paid job in my first month of final year, and thinking I was smarter than the rest. My final year was what we call “bindass, with damn care attitude”. I was young, naïve, and believed being above few hundred odds in my class is being equal to best. Reflecting back, I couldn’t have been more wrong.

This continued in my early years of investing which can be characterized as impatience, that extra energy to do something, and continuous urge to make an immediate impact or getting results. Like everybody else, I wanted to earn quick bucks and what better way than investing (or trading?) in stock market. You see, I was under the impression that making those few hundreds (or thousands) in small trades and repeating that often will increase my wealth. In other words, it will make me rich. How can that be wrong? After all, I am increasing my cash flow with small profits, isn’t it? Again, I couldn’t have been more wrong. Continue reading rest of this article…

You can’t spend profits! Can you?

TIP Guy 13 April 2009 commentary 1 Comment

A statement that you can’t spend profits, might surprise you! Individuals might think that this is a very odd statement and perhaps incorrect. It is a correct statement and should be made as an investing proverb to be used by any type of investor. Let me present my case.

Companies make profit by selling or exchange of their products or services. At a very basic fundamental level, this can be done by making those products or services at lower associated cost (or expenses). In the end, what we all want is to somehow convert those profits into cash so that we can spend it. Some might argue that this is just semantics of words. I say, it is not! If that were the case than how can we explain the fact that many times companies report profits that are more than cash flow from operations? Take a pause and think for a moment. How can we have more profit when we are not getting that much of cash transactions? In one of my earlier post Cash Flow is Important Financial Statement, I discussed how cash flow is what ultimately drives the value of any given business. Continue reading rest of this article…

How to do a Realistic Valuation for New IPO

TIP Guy 8 April 2009 commentary 7 Comments

In general, when a new company goes for an Initial Public Offering (IPO) it is doing that in order to generate capital for growing its business of buying assets. The question then becomes how we investors can evaluate fair value of such a stock. Since my blog is focused on do-it-yourself individual investor, I will use that as my frame of reference. That is, how does an individual investor understand the fair value of such a company? In this process I will use Reliance Power’s IPO as an example.

Let us accept this; valuing any company stock is a very subjective process. Each of us will do it a different way and come up with different arguments. This is valid for a new IPO or established company. In case of IPO, we do not have any past data to make an informed decision. So I look at company’s present state, relative comparison the market, and realistic growth potential. Let me explain this using an example of Reliance Power’s IPO. Continue reading rest of this article…

NTPC: Top Dividend Stock to Invest

TIP Guy 6 April 2009 analysis 24 Comments

National Thermal Power Corporation (NTPC) is a Public Sector Navratna Company, with Government of India having majority stake. NTPC is a power utility company that has business interests in thermal power generation industry. It is engaged into engineering, construction, and operation of power plants.

Trend Analysis

The whole reason for any business to exist is to generate sales revenue and make more profits. At a minimum, the parameters listed below should have continuously increasing trends. All the data below is based on last 8 years 2000 to 2008. Trend charts are shown in image below. Continue reading rest of this article…

Measuring Progress – Yield on Cost or Dividend Yield

TIP Guy 12 March 2009 commentary, dividends, strategy 19 Comments

Individuals need to set a goal in order to succeed at anything, including our individual investments. Logically, the next step is to determine how we are going to measure our progress. In the realm of investments, most the individual investors (if not all investors) look at annualized returns and compare it with benchmark index. Here in India investors either use BSE’s Sensex Index or NSE’s Nifty Index. In addition, based on multiple discussions I have with individual investors, many investors use percentage based capital appreciation or depreciation which is devoid of time concept i.e. no time scale is involved.

For example, investors love to say “I made 150%, 200%, or 2x or 3x, or 0.5x times my money”. I cannot comments whether this progress measurement is right or wrong because I do not know individual’s objective and/or risk profile.

Ironically, of the many folks I have talked to in last ten years, more than 95% of them have always increased their original capital. Well if that’s the case then who is loosing it? If nobody is loosing, then why the market is more than 50% down from its peak. I am digressing from the subject, so coming back to the topic of measuring our progress…… Continue reading rest of this article…

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