Forget stocks... Invest in this biggest asset now!
(Jul 27, 2015)
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In this issue:
» Will markets react negatively to SEBI's review of P notes?
» Earnings so far suggest over-optimism in the markets
» Round up on the markets
» ...and more!
As the title suggests, I am not going to talk about stocks today. The other day I happened to read a quote by Warren Buffett and it struck me deeply. And my respect for the octogenarian billionaire investor just went up manifold.
Do you know which is Buffett's best investment recommendation ever? It seems that this is the biggest and the most important asset you have. And forget asset allocation, he recommends you put all your resources into this one asset. What could it be? It is not stocks... not real estate... not bonds... none of the financial instruments!
What is it then? Let's hear it from the horse's mouth...
"Invest in as much of yourself as you can, you are your own biggest asset by far." - Warren Buffett
He is talking about 'YOU'! Have you ever perceived yourself as your biggest asset?
Most people take their bodies and minds for granted. We often fail to recognize the incredible gifts that nature has bestowed upon. We spend most of our precious years pursuing petty goals and getting devoured by the so-called rat race. In doing so, we tend to become too myopic.
Let me ask you a couple of questions...
Are you wiser today than yesterday...or last year... or five years ago?
Are you taking good care to be physically and mentally fit?
These are critical questions I feel... Buffett is bang on when he says that "you are your own biggest asset". Here are two things I believe no serious long term investor can afford to ignore...
A myopic thinker cannot be a long term investor
I strongly believe that the kind of person you are in your day-to-day life has a big influence on your investing personality as well. If you are a person who spends too much time watching television, worries all the time about short term job targets and deadlines, your next appraisal, your neighbour's new car, then you are most likely to carry that same personality in the stock markets as well. In the stock markets, you will repeat those same myopic thinking patterns and be focused on daily stock price movements, short term performance and impatiently look for quick gains.
Body-mind fitness: A key factor that will determine how your wealth multiplies in the coming decades...
Next month, Warren Buffett is set to complete 85 years. Charlie Munger is 91 years old already. And neither of them looks like the typical 'old guy'. Again, the same principle is at work here. They have taken care of their body and mind. They are wiser, more knowledgeable today than before. Is their success in business and investing any coincidence? Isn't it easy to see how well they have taken care of and invested in their 'biggest asset'.
Do you think you are investing enough in your 'biggest asset'? Let us know your comments or share your views in the Equitymaster Club.
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That the stock markets have been a channel for money laundering is no news. As we all know, participatory notes (P notes) have been one of the biggest vehicles for turning the colour of money from black to white. At the core of this scam is tax evasion by misusing the provision of long-term capital gains. Not just that, P notes are also one of the reasons behind speculation in stocks, of which the ultimate victims are the retail investors. Already, 900 entities have been banned on an interim basis from securities markets. As fight against black money gains momentum, the P notes are under the scrutiny. As per an article in Business Standard, the regulator SEBI is likely to review the norms for P note investors.
It was in 2007 that P notes had been cracked down upon. What followed was a correction of 10% in the markets within a matter of minutes that led to a halt in trading. A lot has changed for the better since then. The share of P notes in foreign holdings has come down from over 50% to a little over 10% now. The regulations have become tighter. However, the notes are still transferable which makes it difficult to track the final beneficiary. And that makes the markets susceptible to their misuse.
The value of participatory note holdings stands at Rs 2.4 trillion and forms around 10.3% (both equity and derivative) of total FPI holdings. Hence, one should not be surprised to see markets correct in case SEBI decides to clamp down on P notes. However, if that happens, we believe it will be a good opportunity for long term investors to invest in fundamentally strong stocks.
Could SEBI crackdown on P notes rattle markets?
*Both equity and derivative , excluding debt
"Hope is a waking dream"....the phrase coined by the philosopher Aristotle seems to be apt in the context that 74% of the Indians believe that Indian economy is doing well (source: Pew Research Centre). We are relatively more reasonable than our neighbouring economy China where 90% believe that the economy is doing fine. However, if the earnings announcements so far are anything to go by, it is too early to be so optimistic.
So let's start with the topline. As an article in Livemint suggests, sales growth has declined for the third straight quarter. Weak demand, subdued industrial economy, weak monsoon and rural demand - all have combined to pull net sales down by 2.78% year on year (YoY).
While operating and net profit margins have improved, thanks to lower commodity prices; net profit growth has slowed down from 10.8% in the March quarter to 9.1% in June quarter. If one excludes banking and financial services firms, the performance is even more lacklustre on account of rise in interest costs. Since proof of the pudding is in the eating, the recovery seems afar. However, the valuations remain stretched, pricing in the hopes and discounting the reality. If the picture does not look better as more firms announce results, we suggest investors to be reasonable in their hopes and not invest just on the basis of expectations.
The Indian stock markets opened the day on a weak note and continued to trade in the negative territory. At the time of writing, the BSE-Sensex was trading down 277 points (down 1.0%). All sectoral indices were trading in the red led by the stocks in the metal and capital goods segment.
"Some people seem to think there's no trouble just because it hasn't happened yet. If you jump out the window at the 42nd floor and you're still doing fine as you pass the 27th floor, that doesn't mean you don't have a serious problem. I would want to address the problem right now." - Charlie Munger.
|| Today's investing mantra
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|This edition of The 5 Minute WrapUp is authored by Ankit Shah (Research Analyst) and Richa Agarwal (Research Analyst).
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