Pearls of Financial Wisdom

1) Bonds are for storing wealth and equities are for creation of wealth.

2) In my opinion, *the biggest asset one can have is zero debt*.

3) *The greatest discipline in personal finance is living below your means*.

4) As Ben Carlson says, emotions cannot be back tested. That’s why past bear market always looks like opportunities and future ones scary.

5) Early financial independence and early retirement are completely different. To me, the former is a blessing and the latter is a curse.

6) Don’t think how it would have been if you’ve started 10 years ago. Start today and visualise how you would feel 10 years from now.

7) The neighbourhood we live determines our life style & spending. Need to be careful in choosing one which matches our goals and personality.

8) Paying minimum balance regularly on credit card is the maximum sign that you’re getting into debt trap.

9) Many are long term investors till next bear market.

10) *Don’t take aggressive bets. Take measured risk*. Remember one blunder can push you back by a decade or more in terms of wealth.

11) *Big money can be made through high savings, wise investing and lots of patience*.

12) One sign of progress in individual investor’s portfolio is no churn or very less churn.

13) *Trying to get rich fast is a foolproof way to lose what we have*.

14) *Losing opportunities is far better than losing money. Don’t invest in fads*.

15) ‘Making as much money as quickly as possible’ is not an investment strategy. Unfortunately for most of us that is the strategy.

16) Aggressive strategy cannot be a substitute for high savings. *Save high and take moderate risk than saving less and taking high risk*.

17) *The day we realise not losing is as important as winning; we would stop blindly chasing returns*.

18) Good periods are more than bad periods. By *not timing*, though we go through bad periods, do not miss even a single good period.

19) We’ll stop looking for quick money the moment we consider stocks as businesses and realise that our wealth grows in line with business growth.

20) *There are periods of high returns, low returns, no returns and negative returns. We need to go through all these to get long term returns*.

21) *Listening to market forecasts is not only useless but can be very harmful too* if you start acting on them.

22) *The hard truth is only around 3% of our population are in a position to aspire for financial independence. Don’t waste this rare privilege*.

Here is a list of 10 mistakes you make that puts you in wealth destroyers' club

Mistake number 1 - you don't sell off your losing junk stocks

Mistake number 2 - you wait so long that you let your winning stocks turn into losers

Mistake number 3 - you get to emotional about your stock picks

Mistake number 4 - you bet all your money on only one or two stocks

Mistake number 5 - you are unable to be both disciplined and flexible

Mistake number 6 - you listen to or get tips from the wrong people

Mistake number 7 - you follow wrong crowd

Mistake number 8 - you are not aware of the worst case scenario

Mistake number 9 - you don't have plan B even if you are aware of what is worst case scenario

and finally....

Mistake number 10 - you don't learn from any of your above 9 mistakes!

There are always success stories in stock markets - with the likes of Infosys, Wipro, Eicher Motors circulating these days. But Does Long Term really and always pay off? Well, let's think again...

Stock Markets are fascinating. Indian Stock Markets can compete with the rest of world for the success stories, scandals, intrigue and the tales of disasters.

It is said that Stock Markets are the barometer of a nation’s economic progress. It is often debated but the majority argument favors this statement.

Stock market has given returns which are higher then any other asset class.

Then there are the great stories of Infosys, Wipro, Eicher Motors giving unimaginable returns on investment.

But there are two sides of every coin.

The Story Nobody Likes To Tell

In the NIFTY index, there are 50 stocks ( NIFTY actually means NSE FIFTY ).

( Oddly, though at present there are 51 )

These stocks are based mainly on market capitalization. When a constituent loses value significantly, it is removed from index and replaced by another stock. No one talks of these stocks which got removed.

They were the stars of the day at some point of time and are duds today. Those were the investment ideas of that time and relegated to horror stories now. I will talk about this aspect which no one talks about.

The Wealth Destroyers:

These stocks may be not in favor presently, but were the flavor of the month at their prime. They were part of the NIFTY index or otherwise very highly regarded and traded. Today they are shunned and forgotten, but there are real people holding these stocks wondering how they will ever recover their money. NIFTY going up does not have a meaning for them.

Reliance Communication:

On Jan 08, 2008 , the stock traded at a lifetime high of Rs. 844.70

The lifetime low was around Rs. 30 few days back

2. Suzlon Energy:

The huge fall in this stock made me look for other similar stories.

It was added to NIFTY in 2006. In 2008, it traded above Rs. 2000 and then there was a stock split. The comparison is made taking into account the effect of splitting.

The lifetime High- Jan 09, 2008 — Rs. 412.88

The lifetime Low— August 28, 2013— Rs. 5.70

And the funny part is:

You will get to hear on business channels that Suzlon Energy has gained 158% in last three years.

3. Unitech:

It was a NIFTY stock in 2008. It was valued highly and was at a high of Rs. 546.80 on January 2, 2008.

What is the current price?

Rs. 5.90

It is around 1% of the high price.

Can the investor ever expect to make good their losses?

4. DLF:

From a high of Rs. 1225 in January 2008 , it trades for around Rs. 147 today.  Appears better than the others listed above, but 90% loss is not something to be taken lightly.

Even if it goes up by 100%, it will be nowhere near 1225.

5. Himachal Futuristics:

In December 2000, one of my friend bought for Rs. 1560 on one day and sold for Rs. 1605 next day. A day later it was Rs. 1675. He blamed himself for not taking profit.

Few months later was shocked when he saw a price of Rs. 90 in April 2001.

Today it trades at around Rs. 13.

Do you know what was the highest price?

Rs. 2578.05 on March 08, 2000.

In 16 years, the value of investment has come down to about 0.5%

A stock value can not fall 100%, but it is as near as you can get.

6. Jaiprakash Associates:

It was part of NIFTY. A big conglomerate in construction, power and cement business.

In January 2008, the high was Rs. 339.

Now it trades for Rs. 13.

Why This Story Needs To Be Told?:

It is a widely held belief that in the long run, markets give good returns.

This belief is true.

But the indices do not give the true picture.

In most of the above cited cases, the high price was in January 2008 ( except HFCL ) when NIFTY was around 6100.

Today, NIFTY is at 9200 but these stocks are at just at a fraction of their highs. Market has gone up but they continue to be laggards.

I have listed only a few. There are hundreds of such horror stories.

Index is adjusted by removing or adding stocks. An investor is not so agile.

You can lose money even when ma

rkets are going up.

What should be done to avoid such situations?:

Hindsight is always twenty twenty.

We need a good foresight.

No one knows that an INFOSYS will multiply a thousand times and HFCL will reduce to half percent value. In year 2000, both were the future stars. What a contrast today?

Protect your portfolio, like index protects itself. And take action earlier than the index does. In a long term portfolio, get rid of the stock, when it has fallen by about 15–20% of your purchase price.

There will be pain at that time, but not the endless pain which the investors of Unitech, Suzlon, JP Associates are enduring year after year.

I can not suggest that you should stay invested in Blue Chips.

All these were Blue Chips in their prime.

Conclusion:

Indian stock markets are wonderful. There are success stories, but so are the doomsday tales. All make for fascinating stories.

There are inspiring stories of Rakesh Jhunjhunuwala, but the sordid saga of Harshad Mehta also looms in the background.

Do not let the euphoria of the bull market impact you. Pay heed to the beaten down cases also. Learn your lessons from them.

A balanced view will make you a better investor and trader.....