The ultimate secret to your success...

Nov 17, 2010

In this issue:
» India needs to pull people out of poverty, stress MNC chiefs
» Conditions are perfect for gold to rise, says George Soros
» Indians hold US$ 462 bn 'illegally' in overseas bank accounts
» Is Ben Bernanke a politician?
» ...and more!!

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"Know your strengths and weaknesses," is a common high-school advice. This is when students choose their specializations that ultimately define their future careers. Those who heed to this advice and then choose their options have a higher chance of succeeding in their work life. And those who don't bother about this, struggle.

Knowing about our own weaknesses and strengths is what is called 'self awareness'. And it is very much relevant in our investing lives. So if we know we do not have patience to wait for things, and still try our hands at long term value investing, we will be moving on the wrong side of the investing path. Similarly, for those who worry a lot and can get easily distressed, trading in stocks and derivatives is like walking a tightrope between life and death.

See, there is not a single best investment philosophy that works for all investors. The right investment philosophy for you will depend upon what kind of a person you are. And for that, self awareness is very important. It is the ultimate secret to your success as an investor, or a day trader.

So, are you a self-aware investor? Share with us, or post your comments on our Facebook page.

 Chart of the day
Today's chart shows the average return on equity (RoE) of India's top fifty companies by market capitalisation. And as the chart suggests, the performance has been a bit weak over the past three years. Over the past five years, the highest average RoE that these companies touched was in the heydays of FY07. And since then, in line with the fall in profitability, the RoE has also shrunk, falling in three consecutive years starting FY08. The ratio in FY10 was in fact the second-lowest in the past seven years.

Data source: CMIE Prowess

Gold prices have been on a consistent rise this year. But if one were to believe investor and trader George Soros, the current economic conditions are 'pretty perfect' for the yellow metal to rise further in price. As he recently told a business gathering in Canada, "The conditions for gold are pretty perfect. The big negative is that too many people know this and a lot of hedge funds are very exposed." Soros also added that gold has a tendency to go parabolic, which was an indication towards the metal's tendency to fall as quickly as it rises.

India is the third largest economy in Asia and the second in the world in terms of growth. But it is also home to the poorest people in the world. As per the chief of the world's largest retailer Wal-Mart, India needs to concentrate on pulling these people out of poverty in order to sustain economic growth. This view is further endorsed by French company Alcatel, which states that by spreading out benefits of the economic growth, India can create more consumers. This would further boost the economy wherein growth is largely dependent on domestic consumption. Unless the benefits are well spread out, the economic divide would just continue to grow. This would be detrimental to our future and to the demographic dividend that we so proudly boast of as of now.

Indian stock market were closed today on account of Bakri-Id. As for the other key Asian markets, all except Japan (up 0.2%) were trading in the red. While China was down 1.9%, Hong Kong was weaker by 1.5%. Today's selling in these markets was led by worries that China will tighten its monetary policy thereby putting brakes to its growth. Persistent concerns about the Euro zone debt crisis also kept investors cautious.

The past few days have not been good for a firm believer in the India growth story. Three instances of large scale corruption have come to light and that too, at about the same time. Already, Transparency International, the international watchdog for corruption has downgraded India in its corruption rankings. And going by the turn of events, it will not be surprising to see India slip further. However, are the country's politicians doing something about it?

Very little we believe! Their hands seemed to be tied by political compulsions. And in cases where they have taken action, the punishment has not been very severe to say the least. On the contrary, the ruling party is hell bent on undertaking a massive expansion in the welfare program, an activity that is notorious for its corruption levels.

India Inc. on the other hand seems to be emboldened by the recent admission by Ratan Tata that his conscience didn't allow him to bribe a minister in order to enter an industry. Others too have come out in the open and have admitted that corruption is indeed a part of the cost structure of doing business. As most of them point out and also does the Wall Street Journal, the creation of a truly independent and empowered anti-corruption agency may help stem the rot. But what remains to be seen is whether there will be any inclination at all towards establishing the same.

So what is the number that you can put to the level of corruption in India? The task seems tough. But as per the Wall Street Journal, a US-based company has tried to measure India's corruption cost. As per its report, Indians illegally hold a whopping US$ 462 bn in overseas bank accounts. And this is all the money that has been transferred to these accounts over the past sixty years!

After having had quite a success with the previous rounds of monetary easing, the US Federal Reserve tried its hands at it once again. But this time around the attempts seem to have fallen flat. This time some members within the Fed as well as a host of politicians and economist have been criticizing QE2. Thus Fed chief Ben Bernanke has little to his defense. An article in Fortune calls Bernanke more of a politician than a central banker. His callous stance towards liquidity control has little economic sense. Hence QE2 is seen more as political will than a central banker's logical monetary policy. Thankfully, the Indian central bank so far has chosen to remain independent of political mandates. And it is this attitude that has made the RBI one of the most revered central banks globally. It is time that politicians around the world realize that articulating monetary policies as per political needs could be devastating even for the richest economies. Hope China is listening!

 Today's investing mantra
"Even with a margin [of safety] in the investor's favor, an individual security may work out badly. For the margin guarantees only that he has a better chance for profit than for loss - not that loss is impossible. But as the number of such commitments is increased the more certain does it become that the aggregate of the profits will exceed the aggregate of the losses." - Benjamin Graham

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10 Responses to "The ultimate secret to your success..."


Nov 20, 2010

i am a vivid stock market frenzy human . if i am successful today or will be so tomorrow that should be attributed to
1.LUCK & 2. ACTION and that's all

First of all u have to believe that u r lucky for everything whatever u got in life so far may be some r good and some r bad - no matter. this belief will give u the primary strength for action.

secondly,in your action u need to be logically and emotionally convinced whether u act independently or taking help from someone.

in regard to stock market investing may be the following r to be kept in mind.
a)believe in india and its growth
b)believe in ur stock and its growth
c)believe in long term for its growth
u cant select ur country but can select ur stock-while doing so understand.....its management,its business,its track,its relation with india's growth and its tecnicals.


invest and smile........



Nov 18, 2010

My investment philosophy: Generally after careful consideration of value/PE/industry leadership/ management/risk/recommendations/beta, I'll choose to invest in a company based on news, research, home work, gut feel, etc. And whenever it loses more than 25%, I'll review if the stock still has value, if I still think yes, I'll start averaging my cost. Since I would like to be long-term investor would not want to liquidate shares that are providing more % return unless I need money. If I need money, would look from the top stocks that have provided more % return and to liquidate them if I see their price is exceptionally high and correction is due. Also, I would look at the stocks that have failed my growth targets and liquidate them at an appropriate time at their nominal highs. Please let me know if my strategy is correct.



Nov 18, 2010

Its true that one investment philosophy does not suit all, hence the best strategy would be to play the market according to one`s needs and risk taking capacity. All in all one golden rule that must be followed by all is that in stock markets never play with other peoples money (OPM), thats best left to the professionals, play with whatever money is with us and have a clear idea of the return expected by this I think we can have a good strategy.


Sampath Kumar

Nov 17, 2010

My option is long term and wait for fantastic returns around 300%,had book profit of some around 250% - 300%.As per your advice bought some stocks( 20 scripts) ie., large,Mid & Small caps.please advice me what am in a right path. Thankyou.



Nov 17, 2010




Nov 17, 2010

Two points: Very rightly said self awareness and analysis is very important for an investor and extremely important for a day trader.
Two Corrupt politicians and officers should be first sent to Jail and than an enquiry should be started. A raja should have been sent to Jail first and than to chennai. Same for Kalmadi or those involved in Adarsh scam.


sunilkumar tejwani

Nov 17, 2010

Indeed India is one of the biggest corrupt country in the world, & majority of the US $ 462 billion is ill gotten money of politicians & bureaucrats. Among all the central ministries, telecommunication is a den of corruption, be it Sukhram,Pramod Mahajan or A.Raja the biggest scams have happened in this single ministry alone.From day one, after the government is elected every tom dick & harry wants this ministry to rule for the obvious reasons. Mr. Manmohan Singh should this time be careful while choosing a minister for this particular ministry.



Nov 17, 2010

Yes..One should be aware of what his strengths/weakness wrt investing..For instance after trying i learnt i am totaly unfit to be a day or short term trader.the best way to go is buy when the price is less than intrinsic value and sell when Price is higher than the intrinsic value ..But how does one know that the intrinsic value arrived is allright..Since one can never be certain on this aspect one has to have sufficient margin of safety.


G. Natarajan

Nov 17, 2010

There r so many good stocks. So whats wrong in booking profit on the share that yields more than 10% and invest in another promising share.
this may yields as good return as the long term investing. f my logic is wrong pl tell me. I have tje time to review the portfolio every day.



Nov 17, 2010

I will look forward to your training anxiously.

Thanks and yours truly,

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