The best qualification for stock investing - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster

The best qualification for stock investing 

A  A  A
In this issue:
» India's choice between technical knowledge and growth
» Life after patents for Indian pharma
» Telecom subscriber base falls for the first time
» Bond fund manager turns gold admirer!
» ...and more!

------------------------------------ Our Top 5 Recommendations for just Rs 499 ------------------------------------

We have launched a rare trial offer for our best performing stock recommendation service...

If you sign up now, we will give you immediate access to our 5 latest buy recommendations.

Plus you will also get our latest special reports
  1. 3 Money Doubling Stocks
  2. Top 5 Stocks For 2015
Click here to know more about this limited period special offer... (Hurry! Opportunity ends shortly)


"As I look back on it now, it's obvious that studying history and philosophy was much better preparation for the stock market than, say, studying statistics. Investing in stocks is an art, not a science, and people who've been trained to rigidly quantify everything have a big disadvantage. If stock picking could be quantified, you could rent time on the nearest Cray computer and make a fortune. But it doesn't work that way. All the math you need in the stock market you get in the fourth grade". Can there be a better way to invite lay investors to stocks? In his bestseller 'One Up on Wall Street', multibillion fund manager Mr. Peter Lynch, uses his myriad experiences to give an insight into the rules of stock investing.

The book is meant for a simple investor and highlights the edge he has over the big fund managers. Since there is a company attached to each stock and playing by certain rules helps. Mr. Lynch insists on using what is evident (and often ignored) to make the most in investing. This is an age of information overload. The investor is flooded with real time information that is hard to process and can leave one baffled. Here , the author comes to the rescue and suggests what counts and what can be weeded out, what one should try to predict and what should rather be left on its own.

The tips cover all aspects of stock investment - right from the idea on how to pick up stocks and companies, the must have's and absolute no's, the ratios that are important and what they actually mean and so on. His advice to know the products/service of the company that one invests in; reading the annual reports, giving due importance to earnings and assets, not falling for herd mentality etc may seem obvious and simple. Unfortunately, it is these simple things that investors often miss. Mr. Lynch makes sure that investors retain them as he backs them up with relevant anecdotes making the book timeless read. In short, the book is an effort to make the art of investing simple, interesting and rewarding and deserves a place on the bookshelf of a long term investor.

Which important information do you think investors often tend to miss while investing in stocks? If you have already read the book let us know your views or post them on our Facebook page / Google+ page

01:30  Chart of the day
There is no doubt that the Reserve Bank of India (RBI) is one of the most conservative central bank. But it seems that the RBI's conservative approach has rubbed off on some of its peers in Asia and Africa as well. While banks globally gear up to comply with the Basel III norms for capital adequacy, ones in Asia have gone a step ahead. They have mandated minimum capital adequacy ratios that are in fact a little higher than the Basel norm. In fact as today's chart shows, several emerging economies including India have chosen to keep their banks adequately capitalized.

Data source: RBI

After Moon now it's Mars. It seems India's space ambitions are getting bigger by the day. But we are confused whether one should be proud of this achievement or pity it. On one hand we are planning to conquer the space by spending millions of dollars. But on the other the condition on the ground is getting worse. India is marred with power shortages, poor infrastructure, poverty and sanitation issues. Our power grids fail more than they run. Infrastructure doesn't even need a mention.

Now, instead of focusing on solving these issues we are spending dollars to showcase space supremacy. Is this a quest for superpower status? Or is it that scientific and technical knowledge is more important for growth of any country. Well, to be honest we need technology for growth. But not at the cost of sacrificing the present well being of the poor. True that US$80m, the figure expected to be sanctioned by the cabinet for the Mars mission, is not a huge amount. But when 1/3rd of the country's population lives below the poverty line even a penny is valuable. Flaunting excellence at the cost of basic amenities is certainly disappointing.

Indian pharma companies are reaping the benefits of a slew of patent expiries in the US market over the next couple of years. According to IMS Health, 2012 will have patent expiries worth US$ 44 bn of sales in the US market. This is more than double that of last year. Next year, it will be only about US$ 15 bn. This would subsequently rise to a maximum of US$ 22 bn in 2015. However, the question that arises is what companies intend to do post that. Many pharma companies are already beginning to have a few back up strategies in place.

One strategy that companies are adopting is to focus on niche and speciality products that have limited competition. Such products do not face severe price erosion. Therefore they have the potential to generate higher sales and profits. These niche areas could be injectables, pediatrics, primary care segment and the like. Some of the companies are also looking to make small acquisitions in the developed markets catering to these niche areas. Generic competition in the US has only intensified over the years. Further, many companies vying to grab a slice of the same drug has led to severe price erosion. That is why it is important to keep up the pace of new product launches and that too in areas where the competition relatively is limited.

In 2008, an act changed the face of the telecom sector. The issue of mobile licenses to new companies led to nearly 15 operators in the country. The result was cut throat competition. Everyone tried to vie for a bigger share of the subscriber pie. And their methodology was the same. Rock bottom tariffs combined with freebies. But come 2012, this aggressive move seems to have taken its toll on nearly all the operators. Operating on wafer thin margins, if at all, most operators are tired and are seeking ways to revive their businesses. But with the upcoming spectrum auction, their debt laden books are only set to get heavier. And financials set to get weaker. At the same time, the customers have very little reason to prefer one operator to another. As a result they have started to put away their second and third connections that they used to maintain earlier. Result being the number of telecom subscribers in the market has dropped down for the first time in August 2012. Though this maybe a one off event, it is still a matter of concern for the business prospects of the operators.

But the Chairman of TRAI continues to remain optimistic about the future. He has stated that these conditions would get sorted out over the next 2 to 3 years. This would be through consolidation in the sector which is inevitable. At the same time, the liquidity condition of the operators would force them to end their predatory pricing policies. Kudos to the Chairman for pointing out the obvious. But will he realize that it is the telecom policy that is deterring the consolidation in the sector? With ridiculous rules there is no incentive for operators to consolidate. The only thing that seems to be happening is operators folding up operations due to ludicrous rules and running out of cash. Well these will still lead to consolidation but not of the kind that the Chairman has envisaged. Hopefully, he would realize this and formulate better policies.

We believe it is only natural for a gold bug to keep praising the virtues of the yellow metal. Or for that matter, for a stock guru to always keep talking about how stocks are the best investments. But what if say a guru of a certain asset class chooses to pitch for an entirely different asset. We should certainly be all ears isn't it? That's exactly what we did when we heard bond guru Bill Gross advising investors to invest not in bonds but gold instead.

Yes, that's correct. Gross is the latest entrant to the swelling list of gold admirers. In an interview to a leading financial media company, Gross opined that gold is a better investment than a bond or a stock at the current point in time. He believes that while gold can certainly be taken out of the ground, there is only a limited amount of it. However, there has been an unlimited amount of paper money over the past 20 to 30 years and things would only get worse as per him. Thus, when a central bank starts writing checks and printing money in the trillions of dollars, it's best to have something tangible that can't be reproduced, Gross concluded. Well, we couldn't have agreed more.

Once again, the decision on fuel price hike has been deferred at the last moment. The country is facing risk of rating downgrade due to mounting fiscal deficit. The oil companies are bleeding as rupee remains weak and oil prices stubborn. However, nothing seems enough to compel the government to allow a price hike in regulated fuels.

The lack of political will is creating a mess in India's economy. While the Government may go for a hike in petrol prices in the next meeting, it will hardly make things better. This is because majority of losses are incurred on diesel on which the Government is unlikely to bite the bullet. Ironically, a major chunk of diesel subsidies is going to car owners and industries leading to dieselization of economy. All we have to say is that the Government may choose to dodge the bullet, but it will do so at the risk of opting for an economic disaster, the clock for which is ticking fast.

The indices in Indian equity markets managed to stay above the dotted line due to buying interest in commodity, pharma and auto stocks. The BSE Sensex was trading higher by around 56 points at the time of writing. Most other Asian indices closed higher today while Europe also opened on a positive note.

04:50  Today's investing mantra
"We are searching for operations that we believe are virtually certain to possess enormous competitive strength ten or twenty years from now. A fast-changing industry environment may offer the chance for huge wins, but it precludes the certainty we seek." - Warren Buffett

  • Test Your Warren Buffett Quotient Now!
  • The 5 Minute WrapUp Premium is now Live!
    A brand new initiative of Equitymaster, this is the Premium version of our daily e-newsletter The 5 Minute WrapUp.

    Join us in this journey to uncover the sensible way of managing money and identifying investment opportunities across various asset classes including Stocks, Gold, Fixed Deposits... that over time can help you realize your life's goals...

    Latest EditionGet Access
    Recent Articles:
    How Unique Are the Companies You Invest In?
    August 21, 2017
    One of the hallmarks of successful investing is to look out for companies that have a unique and enduring moat.
    You've Heard of Timeless Books... Ever Heard of Timeless Stocks?
    August 19, 2017
    Ever heard of Lindy Effect? Find out how you can use it to pick timeless stocks.
    Why NOW Is the WORST Time for Index Investing
    August 18, 2017
    Buying the index now will hardly help make money in stocks even in ten years.
    This Small Cap Can Drive Chinese Players Out of India (and Make a Fortune in the Process)
    August 17, 2017
    A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.

    Equitymaster requests your view! Post a comment on "The best qualification for stock investing". Click here!

    3 Responses to "The best qualification for stock investing"


    Sep 12, 2012

    I am disappointed to read of your comments of spend on Mars mission. Did not expect such a drastic statement and relegated comparision, is this amount bigger than the scams? it is a miniscule amount and am not sure that amount is good enough for the mission. The dedicated scientists of India require this right to be given to them to explore the space for more innovation for the benefit of the country. America never compromises on such spends and remains the most innovative country, result they dominate the world. All initiatives should be simultaneous uplifting the poor or innovations in space or on land or economic boosters whichever.

    Like (2)


    Sep 12, 2012

    I am disappointed to read of your comments of spend on Mars mission. Did not expect such a drastic statement and relegated comparision, is this amount bigger than the scams? it is a miniscule amount and am not sure that amount is good enough for the mission. The dedicated scientists of India require this right to be given to them to explore the space for more innovation for the benefit of the country. America never compromises on such spends and remains the most innovative country, result they dominate the world. All initiatives should be simultaneous uplifting the poor or innovations in space or on land or economic boosters whichever.

    Like (3)


    Sep 12, 2012

    Absolutely right Sir. " Lack of political will is creating a mess of Indian economy"
    We will see economic disaster - Days are not far long.
    Frankly speaking there is no need for mission Mars at this critical situation of Indian economy. Priorities are not the ones which will make life more difficult. No minister is answerable ! Rulers are least bothered about welfare of common man.

    Like (2)
    Equitymaster requests your view! Post a comment on "The best qualification for stock investing". Click here!


    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.

    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement

    Disclosure & Disclaimer: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. The Author does not hold any shares in the company/ies discussed in this document. Equitymaster may hold shares in the company/ies discussed in this document under any of its other services.

    This document is confidential and is supplied to you for information purposes only. It should not (directly or indirectly) be reproduced, further distributed to any person or published, in whole or in part, for any purpose whatsoever, without the consent of Equitymaster.

    This document is not directed to, or intended for display, downloading, printing, reproducing or for distribution to or use by, any person or entity, who is a citizen or resident or located in any locality, state, country or other jurisdiction, where such distribution, publication, reproduction, availability or use would be contrary to law or regulation or what would subject Equitymaster or its affiliates to any registration or licensing requirement within such jurisdiction. If this document is sent or has reached any individual in such country, especially, USA, the same may be ignored.

    This document does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Our research recommendations are general in nature and available electronically to all kind of subscribers irrespective of subscribers' investment objectives and financial situation/risk profile. Before acting on any recommendation in this document, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek professional advice. The price and value of the securities referred to in this material and the income from them may go down as well as up, and subscribers may realize losses on any investments. Past performance is not a guide for future performance, future returns are not guaranteed and a loss of original capital may occur. Information herein is believed to be reliable but Equitymaster and its affiliates do not warrant its completeness or accuracy. The views/opinions expressed are our current opinions as of the date appearing in the material and may be subject to change from time to time without notice. This document should not be construed as an offer to sell or solicitation of an offer to buy any security or asset in any jurisdiction. Equitymaster and its affiliates, its directors, analyst and employees will not be responsible for any loss or liability incurred to any person as a consequence of his or any other person on his behalf taking any decisions based on this document.

    As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: Website: CIN:U74999MH2007PTC175407