This will change the way you look at investing

Oct 28, 2010

In this issue:
» It is defense over offense for Warren Buffett
» India fares poorly on prosperity index
» The enemy number one for the US
» Markets boom but yields go down for brokers
» ...and more!!

------------------- Our Portfolio Is Up 40% Already... ------------------- Exactly a year ago, we launched our long term portfolio recommendation service - ValuePro.

In this period, our research team recommended 6 stocks for the portfolio. And all of them made money for the members... In fact one stock even doubled; and it still has a long way to go!

All put together the portfolio is up well over 40% now.

Given the performance, all we can say is that we are solidly on course to grow the portfolio 4x - 6x in the next 5 - 10 years. The goal we had set ourselves at the time of launching this service...

Now, I don't know what's been keeping you from signing up for ValuePro. But given the performance I recommend you consider signing up for it... We're even offering you a 30 day trial period precisely for this reason.

For full details about ValuePro and its benefits, read on...

So, the speculation has finally been put to rest. Warren Buffett, arguably the world's greatest investor has finally announced an investment manager who would help him oversee Berkshire's portfolio. Indeed, many were stunned when he picked the relatively unknown 39-year old fund manager Todd Combs. But not for nothing is Buffett such a successful investor. Throughout his long career, he has shown an uncanny knack of backing the right people more often than not. And this time too, we believe it should be no different.

So, what qualities did Mr Combs possess that tipped the scales in his favour? He is certainly not an investing luminary. Nor has his track record gotten so much of attention. Money News reports that it is Mr Combs approach that won over the approval of the Oracle of Omaha. Mr Combs, it is believed, has a really good eye for spotting all the relevant risks in an investment.

Spotting investment risks? Is that what Buffett was looking for, you would wonder. Indeed. We believe that a fund manager's job is not about picking the next multibagger. On the contrary, he should always strive to protect his downside risk. As Buffett puts it quite wonderfully, "Our defense has been better than our offense".

Hence, the next time you are looking at an investment, try to focus on defense rather than offense. In other words, try and minimise your downside risks. Look for companies that you understand, both business wise and financially and that you believe has some sort of a competitive advantage. See to it that it is run by honest and sincere people and finally ensure an appropriate margin of safety before taking in the plunge. There are strong chances that this approach could help you beat the benchmark indices comfortably over the long term. It has certainly done so for a lot of successful investors like Warren Buffett.

If you were to nominate one person who could step into Buffett's shoes, who would it be and why? Tell us or share your feedback on our Facebook page

 Chart of the day
Yellow metal Gold has really had a stellar run so far this year. However, Gold is not the only commodity that has made investors rich. There are a few others that have also done quite well. Today's chart of the day shows the major commodities that have done better than Gold in 2010 so far. And leading the list is Coffee, which is up a stellar 48% this year. Global shortage of crop has led to the price of some forms of coffee breaching multi-year highs. However, with production likely to be robust in the coming months, prices are expected to come down a bit. With gains of 42%, Gold's close cousin silver is not far behind. With gold/silver ratio still way higher than historical averages, it is being believed that silver does have a long way to go from here.

Source: Bespoke Investment Group

Who do you think is the US economy's biggest enemy? If you just said Osama bin Laden, you're wrong. At least according to Jeremy Grantham, a renowned investor and chairman of GMO, a large American asset management company. Grantham has proved to be an extremely astute observer of the health of the global economy in the past. And has been spot on in pointing out past bubbles, before they have burst. So who does he feel is the US economy's biggest enemy? The US Federal Reserve.

In his recently published newsletter, Grantham openly criticized the Fed and its policies. He opines that the Fed has been dreadfully wrong in its policies in the past. And the US has paid the price for its mistakes. And instead of learning from them, they are making exactly the same mistakes all over again. Most notably, the Fed has continued to use policies of low interest rates, large quantitative easing, and deliberately stimulating asset prices. The only thing all these policies do is create massive asset price bubbles. All the positives that flow from these bubbles are washed away when these bubbles break. And overcorrection usually follows, causing intense financial and economic pain. All in all, he opines that Fed policy is nothing but a large net negative to the production of a healthy, stable economy with strong employment.

We live in two Indias. One that belongs to the Dalal Street and the South Block, and the other that belongs to every other place within the confines of our international borders. So while one India grows and develops, the other India isn't prospering, and now having resigned to its fate. This fact has been brought out by the Legatum Prosperity Index, which ranks countries based on their overall prosperity. And as per the latest index, India has fallen in ranks. Out of 110 countries that form part of this index, India stands lowly at the 88th spot! And this is despite ours being one of the fastest growing economies in the world.

As per the analysis, India's low rank is due to our poor performance on measurements of entrepreneurship, education, and health. But doesn't long term prosperity come from making significant improvements in these areas rather than worrying whether the GDP growth will be 7% or 8%, and whether the Sensex will hit 25,000 or 35,000?

Indian stock markets are booming. This is evident to all. Markets have been touching new highs in recent times. However, brokers are facing lower yields despite the boom. Top brokers have seen yields declining in recent times. This has been majorly due to a shift in investor focus towards the derivatives segment. This segment yields much lower returns for the brokers as compared to the cash segment where stocks are bought and sold directly through the market. This shift in investor focus reveals a change in their risk appetite. While derivatives maybe used for hedging, they still represent higher risk as compared to common stocks.

Emerging market stocks have been the apple of the investors' eye for quite some time now. And why not? While the developed world has been reporting quarter after quarter of poor growth, emerging markets have set the GDP trail blazing. But will equities in emerging markets continue to outpace US stocks in the future too? Not really, says Jack Bogle, founder of the Vanguard Group. He opines that overall the market will be an equalizer. This means that international and emerging markets will probably do more or less the same as the US in the next 10 years. As far as the international markets are concerned, Bogle believes that Great Britain is worse off than the US. And Japan is in the same troubled shape as it was almost two decades ago.

As to emerging markets, he believes they are fraught with unseen risks, currency and sovereign risks. With his view, Bogle will find himself in the minority given the way stockmarkets in emerging markets have skyrocketed. But with valuations in those markets already having run ahead of fundamentals, Bogle's prophecy may not turn out to be entirely wrong.

Meanwhile, after languishing close to the break even line for most part of the morning session, Sensex took off post noon and was trading around 170 points higher at the time of writing. Heavyweights such as HDFC, Infosys and HDFC Bank were seen driving a significant chunk of the gains. Most of the other Asian indices also closed strong today. Europe has also opened on a positive note.

 Today's investing mantra
"As investors, we are only the limited product of our own experiences and therefore vulnerable unless we read and assimilate the accumulated wisdom of the great ones. And Financial history definitely tends to repeat itself." - Barton Biggs

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3 Responses to "This will change the way you look at investing"

Naval Anklesaria

Oct 28, 2010

5 Minute Wrapup is one the best & very accruately written report on Indian Stock Market. It is a mix on Indian as well as International news which makes it more interesting to read. Every day I read some 10-15 reports written by famous authors on world markets but this is the Best.


rakesh parashar

Oct 28, 2010

i agree with mr mahajan. i am reader of 5 mt for long time but same thing has puzzled me too.


Vivek Mahajan

Oct 28, 2010

The "5 Minute Wrapup" makes an enjoyble read. Besides being informative, it adds to ones learning process. But off-late your editions have been making an excessive refrence to Warren Buffet - to the point of sickening. There are dozens of books, thousands of articles and volumes of information in soft format (web)about him that that can be accessed easily and I am sure readers as obsessed/impressed with his persona as you would already know a lot about him.

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