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How I Lost All My Money... And Made It Back

May 27, 2016

In this issue:
» Is India Inc, losing pricing power?
» De-rating on the cards for rating agencies?
» ....and more!
Tanushree Banerjee, Co-Head of Research

Dear Readers,

My friend and colleague, Anisa Virji, Managing Editor of Common Sense Living, loves meeting people, particularly entrepreneurs. Along with her team she has already profiled dozens of entrepreneurs for her Startup eSeries. But some of her interactions with them have lent her lessons for life. Lessons that are key to investing, wealth building and living a richer life.

For today's edition of the 5 Minute WrapUp, we invited Anisa to share one such story. I am sure the story and the lessons that come with it will help you be truly free of money worries.

Happy reading!

Tanushree Banerjee


'Lucent made me a lot of money,' Dheeraj said. 'But they took it all back, and more.'

At its dotcom bubble peak, shares of Lucent Technology, a telecommunications equipment company, were worth around US$84. When the bubble burst in 2001, the stock price was US$9.06, and bottomed out around US$2.13, a result, some analysts say, of a combination of technology and management problems.

Dheeraj lost many millions of dollars, but even though he couldn't see it right away...sinking, as he was, in the quicksands of despair caused by loss...he eventually came to see that he had gained something more valuable than money. He had learned a lesson. Many lessons, actually. Here are three:

Lesson 1: Embarrassingly enough, it took him such a big loss to learn the first rule of investing...that most basic of rules: Diversify.

He realised that although he had started off with a diversified portfolio, he had been so swayed by the gains of one stock that he had let the balance tip over. To understand sensible portfolio diversification that will keep your equity investments protected, you must study this asset allocation pyramid and burn it into your brain.

He also learned, however, to truly protect and grow your wealth, you need to diversify outside of the stock markets.

Where is your money now?

Is it all in equities, maybe a savings account and FD, maybe a few biscuits of gold, some property, some sort of insurance... Do you have a strategy? Do you have a systematically organised wealth portfolio that can grow your wealth safely?

If you don't, here's a comprehensive blueprint you can use to build a plan for retirement, and all your other financial goals.

Lesson 2: He learned a fact of life many learn after having their fingers burnt once or twice: If it seems too good to be true, it probably is.

A healthy scepticism can help you separate great deals and good ideas from those that are simply too good not to explode in your face.

If you don't know about something, it's not for you. So stay updated, keep abreast of new information. When I read the new Equitymaster Secrets book, frankly, I was astounded by how little I had bothered to understand about the markets my money was in, and I was glad to be finally explained the truth. If you haven't read it, do so now.

And lesson 3: His favourite lesson because it is making him a lot of money right now, which is this: The best way to build wealth is by building businesses.

And this lesson now has Dheeraj successfully running several businesses. After his losses, Dheeraj 'begged, borrowed, and stole' his way into some money and invested in a Dunkin' Donuts franchise. Now, from the money he made, he has expanded into several stores, including other fast food chains, and has quit his full-time job to run the businesses.

Dheeraj decided to invest in a franchise instead of starting from scratch because he believed that in doing so he would inherit a brand name with established value.

Running a franchise business or a self-owned business successfully require the same things: the ability to manage people, a basic understanding of finance, familiarity with an industry, and the willingness to work hard.

However, to make your own business successful, you also need to build up to a successful brand (if you want to expand). In today's incredibly competitive market, that is not so easy to do.

But if you choose the right franchise, you can enjoy the benefits of owning a business (income and equity) but with less risk and fewer headaches. And that's why franchising is catching on, especially in India.

The key to success, of course, is choosing the right one.

Before choosing a franchise, you need to find answers to many crucial questions. For example:

  • How does the business make money?
  • How much will it cost me, all in?
  • Do I understand the industry, the product, the demographic of the location I am buying?
  • What kind of time and effort will I have to put in, especially of I am starting this in addition to a full-time job?
  • How long will it take to start generating positive cash flow?
  • What will the business be worth if and when I want to sell it?
  • What will be my return on investment after all is said and done?

If you are interested in starting a business or investing in a franchise, you would do well to read our essays on 'Franchising: What You Need to Know to Make It Work'.

It is part of our Creating Wealth newsletter series, but you're lucky enough to catch us in the middle of a trial offer so you can read it free for thirty days by signing up now. We also talk about a great new franchising opportunity we have discovered here in India, and all the resources you need to start.

PS: Whether you start a business, buy gold, or need other ways to invest your money outside the stock market, we believe one resource can give you all of that and more. You can find it here.

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3:25 Chart of the day

Earnings growth has been tepid for India Inc over the past few quarters. But the March quarter of 2016 (4QFY16), has shown signs of improvement for some companies. As reported in Business Standard, most of the earnings growth has come on the back of volume growth. Reportedly, of the 33 large companies that announced their quarterly results so far, 16 of them saw poor realizations (price cuts). In today's chart of the day we have taken few of these 33 companies. Since this data is for a small universe, one cannot draw conclusions on the trend in realisations. However, it is interesting to see the mix of companies that have retained or failed to retain their pricing power.

Pricing Power or Volume Uptick?

 Pricing Power or Volume Uptick?

Companies like JSW Steel, Ultratech Cement and Apollo Tyres have seen poor pricing gains. On the other hand, companies like Maruti Suzuki and Emami were able to take price hikes.

So what allows the second group to take price hikes whereas the former group could not? Companies with moat in the form of strong brands enjoy pricing power irrespective of economic and business cycles.

Now when we talk about the companies with pricing power, our ValuePro team certainly needs a mention. Identifying business having strong pricing power lies at the heart of our ValuePro portfolios. Here is what Radhika Pandit, the editor of ValuePro, has to say about the virtues that she looks for in strong brands:

  • A good brand is one that commands good market share and pricing power. And adds a lot more value to the company than what was spent to create it. In short, it offers high return on investment to the company. And to investors as well, provided they do not over pay for it.

It's hardly surprising that companies with top brands have been amongst the best performers in ValuePro portfolios.


We have been writing about the conflict of interest in the business of rating agencies since 2008. Global rating agencies like S&P have been penalized for their actions prior to the subprime crisis. But agencies in India are yet to become accountable to regulators and investors. There have been several cases of rating agencies acting in the interest of the companies they rate and fetch fees and commissions from. Investors who were victims of such misguided ratings lost tons of money in Kingfisher Airlines and Amtek Auto. But clearly there are no lessons learnt. Rating agencies continue to flourish under regulatory oversight.

Just when the Amtek case went out of investor memory, the story of Ricoh India has come to light. While the case is one of alleged fraud, it begs the question of why the rating agency paid no attention to the loopholes in the company's financials. The company saw a sharp jump in revenues and liabilities between FY11 and FY15. There was, however, no corresponding increase in fixed assets or profits. The company also delayed declaring its September 2015 quarter earnings until last week. Despite this, India Ratings, in January 2016, upgraded the company's non-convertible debentures. In the absence of reported financials, the upgrade in ratings seems ridiculous.

So, until the regulators make the rating agencies more accountable, investors will have to be extremely cautious about their views.


Ever heard of Wall Street fools? Well, my colleague, Apurva Sheth, editor of Swing Trader, has a very clear definition of the term. It goes like this...

  • A Wall Street fool is a person who thinks he must trade all the time.

    Many traders think they should trade daily. They desire constant action irrespective of market conditions. They think they are working for daily wages and should take home some money every day. This is foolish.

Apurva himself has very strict criteria about when to trade and when to refrain from it. Read on to know more about them.


After opening the day in the green, the Indian indices have continued to gain momentum during post-noon trading session. At the time of writing, the BSE Sensex was trading up 225 points (up 0.9%) and the NSE Nifty was trading up 68 points (up 0.8%). Among the sectoral indices stocks from the oil & gas, healthcare and IT sectors witnessing maximum buying interest. Stocks from mid cap and small cap spaces are also in demand with BSE Mid Cap index and the BSE Small Cap index trading higher by 1.2% and 0.7% respectively.

4.50 Investing mantra

" Risk comes from not knowing what you're doing." - Warren Buffett

This edition of The 5 Minute WrapUp is authored by Tanushree Banerjee (Research Analyst) and Bhavita Nagrani (Research Analyst).

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