One-minute investment tip for a wealthy future

Jul 26, 2010

In this issue:
» India's national carrier continues to feed on taxpayers' money
» Maruti's aggressiveness costs it heavy
» Affordable is out, luxury is in for realty companies
» IT companies getting stricter with departing employees
» ...and more!!

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When it comes to investing, it pays to learn from the experts. Wait, we are not talking about the talking heads on business channels, who are the 'self-proclaimed' experts. Instead we are talking about the legendary investors who have great long-term track records of investing their own or clients' money. It really pays (in the long run) to follow their footsteps.

Jim Rogers is one such legend. Rogers has earned his riches in commodities and from stocks across the world.

So when we came across a video interview of Rogers giving his sage-advice, we were all ears. In this interview, Rogers had investing advice and words of wisdom for young investors.

And the core of his advice was - "When you invest in a company, you certainly want to make sure it's well-run and competent." He adds that young investors must be skeptical of everything they hear, question and research everything, and make independent decisions. "If everybody's thinking the same way, it probably means somebody's not thinking," he says.

He also warned the young investors, saying, "Only invest in things you know a lot about. Following every tip you read about in the press is going to send you to the poor house very quickly."

Call this the one-minute investment tip that will serve you for a lifetime!

So, do you invest the way Rogers has suggested? Let us know your views or post your comments on our Facebook page.

 Chart of the day
It's a widely known fact how India's national carrier Air India has been mired into problems for the past numerous years. As today's chart of the day shows, the company's losses have magnified multi-fold over the past two years. The reasons have been numerous. High fuel and labour costs, and a weak overall environment are some of the key ones. Amidst this, it was only a matter of time that the government did something about it. But what we hear now does not inspire much confidence into the company's future. In sticking with its socialist agenda, the government has announced that it won't cut jobs or salaries even as it tries to restructure the stressed company. The word it uses is - rationalizing manpower - which, to us, doesn't mean anything! The turnaround plan does not seem to be turning around the company any much. So, what we will continue to have is a bleeding organization, continuing to feed on taxpayers' money!

Source: Air India's annual reports

Volume growth is all right, but things can really take a turn for the worse if a company loses its pricing edge. This was on evidence yet again when investors took the share price of Maruti Suzuki, India's largest passenger car manufacturer, literally to the cleaners today. At the time of writing, the stock was down 10%. This was in reaction to the company's poor first quarter results. The company reported a 20% drop in net profits. Sales, on the other hand, were up 27% YoY. However, even this impressive growth remained inadequate. It was still not able to cover the 31% jump in operating expenses.

Maruti's aggression in coming out with new models meant a higher royalty and technical fees payment to its parent Suzuki of Japan. However, thanks to competition, the company was not able to pass it on to the end users. Not only this, even the impact of slightly higher excise duties was absorbed internally. The company's other income also came off sharply as it diverted more cash towards capital expenditure.

In short, it is the predominance of these three factors that hurt the company badly. The only way to perhaps counter them was to take adequate pricing actions. But the competition currently seems too tough to consider the same without risking loss of market share. On the other hand, cost pressures are only likely to go higher from here. Clearly not the best of times for the company currently!

It wouldn't be an exaggeration to say that housing in India has become far from affordable. It would take the average urban Indian close to lifetime to pay off his liabilities if he decides to buy a home these days.

So how do realty companies react to this? In a sentiment reminiscent of the boom days of 2007-08, making expensive luxury homes has become their favorite activity once again. Reports state that luxury homes as a segment is witnessing early signals of an upswing in demand.

So if housing is not affordable for most, what is it that is propelling this trend? One realty company points out to 'rising aspiration levels' of consumers in India. This, it points out, is the factor driving growth in the luxury segment. Are such suave statements a reflection of ground reality? Or are they just clever ploys to stimulate realty prices to higher levels? Now that's a question every realty buyer needs to ask.

Facing rampant attrition off late, IT companies are becoming stricter with departing employees to serve their full notice period. This is to ensure that business runs as usual. Most IT companies work on time bound projects with strict deadlines. In case someone with specific skills quits without notice, it will be a huge risk. Having the employees serve the full notice period of 1-3 months ensures that projects run on schedule and there is time to find a replacement.

The revival in the job market has led to IT employees quitting mainly for other jobs with higher pay. This strict relieving policy however, works as an obstacle. A 90-day notice period might lead to the loss of some job prospects. With other positive retention measures not showing effect, maybe this measure will help ease attrition for the IT bigwigs. Maybe!

What phase is the global economy in at present? Is it likely to rebound back to levels of high growth? Will only a decent rebound take place? Will it have to contend with a 'new normal' or would it be a case of deflation, debt and destruction?

World largest bond fund manager Pimco's co-CEO Bill Gross opines that the global economy is in a state of new normal. And so he has asked US investors to brace themselves for a return of 5% on stocks and not 10%. What is more, he believes that US debt is still the best to buy. This is despite its worthiness not being very attractive in the future. Especially given the kind of debt that the US is mired in! However, given the crisis that has emanated in the Europe as a result of excess debt, Gross states that the US is still the 'clearest pond in the forest.'

Anyways, Indian markets faced another day of volatility today. The BSE-Sensex was trading with losses of around 120 points (0.7%) at the time of writing this. Selling pressure was specifically seen in stocks from the auto and realty sectors. Most other key Asian markets were trading mixed today. While China (up 0.7%) and Japan (up 0.8%) closed strong, weakness was seen in Indonesia (down 0.6%) and Singapore (down 0.2%).

 Today's investing mantra
"The primary test of managerial economic performance is the achievement of a high earnings rate on equity capital employed (without undue leverage, accounting gimmickry, etc.) and not the achievement of consistent gains in earnings per share." - Warren Buffett

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15 Responses to "One-minute investment tip for a wealthy future"


Jul 28, 2010

As far as stocks are concerned advise is sane.But you can not "know a lot about".only way is to ensure following- 1)select Industry you want to invest considering prospects of the industry 2)Select best financially managed company in that industry 4)Most importantly, Management belives in rewarding shareholders.
Otherwise every study is a waste.


Madhur Kotharay

Jul 27, 2010

Commodities might be fine for Jim Rogers but how on earth do we invest in commodities in India profitably (except buying stocks in commodity companies)? Have you checked the Contango on our commodity exchanges? Often, it is 2-3% a month. That means, just the cost of rolling over your long positions in commodities is costing you 30-35% a year. In other words, unless a commodity appreciates by more than 35% a year, forget profiting from it by buying futures.

And if you do not know what Contango is, well, idolise Jim Rogers but don't follow his advice about investing in commodities (instead, follow his advice about staying away from things you do not understand). I personally can't believe people who do not know what Guar Gum looks like try to speculate in it.


C F Joseph

Jul 27, 2010

I do agree to Mr.Rogers theory completely. However, in todays environment, most of people are looking for short term gains. No one has the patience to wait for a long term return. Hence, one makes the mistake to go by tips floating around and investing in scrips for which they have done no research.........



Jul 27, 2010




Jul 26, 2010

Yes, it pays to invest in solid companies that are financially sound,with good management and having a sustained competetive advantage-- in fact, that is what Value Investing is all about. The only problem is that "the-get-rich-quick" mentality is deep-rooted in our psyche, so our greed dominates the rational thinking process. After all, who would,nt like to be rich overnight?



Jul 26, 2010

What kind of a sick Policy is that the Corporates can kick out Employees at a 24 hour notice. When a Employee watns to leave a company it should be the same. What I mean to say is that the rule should be equal on both sides of the coin. Software cos ganging up and not accepting resumes from competitor companies is a Restrictive Policy and anti competitive. As Employers are free to hire and fire so do the Employees. It is kind of sick that your note seems to suggest that this is a welcome pratice. If they want to retain employees treat them well and give it a good shot



Jul 26, 2010

Yes, after burning my fingers Harshad era onwards, i have learned it a very hard way after loosing lot of money. Now I donot trust any recommendations, till I have sure of company mamagement, financial and other details myself. My best investment have been the research work of Equity Masters.Since, then I have stopped tuning in TV channels and reading Pink Papers.


J Thomas

Jul 26, 2010

The recent huge losses of Air India are mainly due to huge over capacity. They ordered far too many new aeroplanes. The only solution is to sell these excess aeroplanes and cut their losses.



Jul 26, 2010

I completely stopped watching CNBC etc, where the self declared experts bla blaing without any realexpertise..I do read the news in business papers and journals and make my own assessment of the situation.I had invested in some companies based on some hear say and burnt my fingers and now try to understand the company in which i am the financials..try to make a projection..based on that i take a decision on my own.even if it is a recomendation from equitymaster.after all it is my hard earned money...



Jul 26, 2010

One-minute investment tip for a wealthy future - what does this title refer to. I dont see the title relating to any of the matters you addresed in this issue

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