|»5 Minute Wrap Up by Equitymaster|
On This Day - 27 DECEMBER 2014
The investment secret almost everyone overlooks!
In this issue:
But if you thought Einstein's preparation that eventually led to his discovery was the most complicated thing ever, you would be grossly mistaken. There were no reams and reams of paper involving complicated mathematics. As a matter of fact, his knowledge of mathematics was elementary at best.
And he had no science labs to conduct extensive experiments. For he was merely a clerk at the Swiss patent office sifting through tens of patent applications every single day.
Consequently, the answer to how he got his unusual insights lies somewhere else. And in Einstein's own words, it wasn't the complicated stuff that helped him. Instead, what turned the world of Physics upside down was Einstein's obsession for simplicity. In other words, he grasped the simple point that had eluded all the other experts!
Elaborating further, Einstein was simply of the view that he was able to sort of separate the essential from the non-essential and thus ignore all the noise around a subject. Put differently, his spectacular achievement did not come from processing all the information he had at his disposal but instead from his ability to say 'No' to almost everything that came his way and focus only on the fundamentals.
Does this sound like Warren Buffett & Munger speak? Indeed it does. After all, these two gentlemen have stressed on this important point so many times.
'We have a passion for keeping things simple' is what you'll often find Charlie Munger say in one form or the other. And if you go through the annual letters that Buffett writes to his shareholders, there's hardly anyone who would disagree with the fact that no one makes investing look simpler than the Oracle from Omaha.
Unfortunately, this is the point that most investors don't get about these two great investors. They think these people possess some unique insights and have super human brains. The reality though is something else. Their great track record stems more from keeping their brains uncluttered and ignoring most of the noise out there. That way, they are better able to pick up only a few sensible things to do.
Now, this is something our ValuePro team is perhaps beginning to excel at. Given the mandate of picking Warren Buffett like stocks, it has built up a database of what they feel are the best 80-90 companies out there, the ones that meet almost all the parameters put down by Buffett. Thus, depending on which stock is best placed from a risk-reward perspective, they have created couple of portfolios, one comprising of large caps and the other mostly mid and small cap based.
This way, by narrowing down the list to only the best 2%-3% of the entire investable universe, they can truly focus on what's important and forget about the rest. And it is clearly showing in the results what with both the portfolios giving market beating returns to subscribers.
However, while China has toppled the Indian indices during the year, there's a question mark over whether the trend will sustain in 2015. For all you know, India, if it gets the big picture policies right, may actually end up besting the Chinese dragon over the medium to long term.
It seems that the multibaggers from this index have now come under the SEBI scanner. "Sebi (Securities and Exchange Board of India) is examining if speculators and persons acting in concert are behind the huge movements in these stocks," is what the business daily has reported.
Now one may be tempted to invest in such companies considering the annual returns of comparable indices such as the BSE Small Cap or for that matter the BSE-Sensex have been in the range of 68% and 29%. However, we would recommend investors to be cautious and well understand the fundamentals of the businesses before making such a move. Not to mention that valuations - which are seemingly sky-high at the moment - need be taken into consideration as well.
While analyzing performance of world markets (in dollar terms) since 1970, they found an interesting pattern. Every time the US markets outperformed in any given year, the rest of the world always caught up the next year! Does this mean that FIIs will flock to emerging markets like India in record numbers in 2015? We would not like to jump to an early conclusion just yet. In 2015, as always, investors will be best served if they focus on the basics and follow the simple but timeless investing advice. Buy fundamentally sound companies at attractive valuations for the long term and ignore the market noise.
Japan's inflation slowed for the fourth month in November. Even the industrial production and retail sales witnessed unexpected drops. These trends point toward further weakness in the economy. These are trends indicative of the pressures on the government. The government is slated to unveil a stimulus package in the next few days.
Chinese markets too witnessed buying activity. Drop in money-market rates and speculation that the government will take more measures to bolster the economy boosted the market rally. China's stock market closed up by 1.6% during the week.
The Indian stock markets closed marginally down by 0.5%. foreign institutional investors (FIIs) continued their selling activity in the week gone by. Among the sectoral indices this week, realty and BSE Mid Cap stocks were the leading gainers, while capital goods and consumer durables stocks registered maximum losses.
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