Sunday, March 28, 2010

Journey So Far - Part 2

I promise this is going to be the last post on my personal experience and soon I shall get posting about 'Stocks'.Carrying on from where I left in the last post,soon after reading that quote from Buffett I got my hands on The Intelligent Investor. I found it a very enjoyable,absorbing and enlightening read(many people feel its too boring).It just made so much sense and the principles laid out were timeless even though the book was written more than 50 yrs back. Ben graham must have been a genius to have come up with something like this which made investing look like more science than art. No wonder Buffett held it in such high opinion. I believe any investor or anyone having anything to do with stock markets and investing would be well served if they read this classical work. Ben graham could easily be credited to be the founder of Value Investing even though he didn't call it that. I was an instant value investing convert after reading the book.

This book served like a catalyst and I was soon reading a lot of books on Investing particularly Value Investing. It was a very steep learning curve and as I read more ,I learnt  about mistakes I had already committed in buying certain stocks. I was caught in a catch 22 situation whether to read more books or get down and do the hard work of researching stocks.  Let me confess I took the easier route of reading books which was any day much easier and enjoyable than going through annual reports and other documents. Due to this I ignored doing much work on stock research and paid the price as the markets rebounded sharply.

As the markets started going up ,due to lack of research I sold a lot of stocks early and also missed out on picking up good stocks at depressed prices. The bounce in the market from March 2009 onwards was totally unexpected and took me by surprise. I was still in the process of learning and by the time I could differentiate a bad business from a good one ,the stock prices had already run away. I was kicking myself for not having started learning Value Investing much earlier than when I started. However as the smart investors say,one shouldn't get impatient and the market always gives opportunities. As the markets continued to rise,I was still looking for value stocks and found that one could still find them in the Small and Micro Cap space. I was also simultaneously reading books and blogs and was having all kind of ideas in my head ultimately going nowhere. However I was lucky to not suffer many losses and come away with decent gains in most of what I bought. Since I had entered the market at such depressed levels there was no way I could have made losses.However the question remained whether the gains were due to my stock picking skills or due to luck(most stocks have doubled from their lows and anyone picking random stocks could have fetched handsome returns).

Coming to the present ,I am still looking for bargains but am hardly finding any given the current valuations of the market.A lot of ideas like Quantitative vs Qualitative investing and small/micro cap vs large cap are going on in my mind. I have developed a bias towards small and micro cap stocks as I feel that this is an area where individual investors have an edge if they do their homework. However the problem with them is the low liquidity which also affects Bid-Ask spreads and the volatility. Additionally in India with the low standards of disclosures and transparency it becomes really hard to get information on small /micro caps(sometimes its hard to get just the Annual Reports). Even if one does find Annual reports they hardly contain any qualitative data.However I strongly believe that there are a lot of hidden gems to be found in this space and  I shall  strive to do that through this blog. I have also been pondering over how I can adopt a Quantitative approach with above market returns. This has the advantage of being free of behavioral biases and less time consuming which is very important for investors like me having day jobs.

I have started this blog with the aim  of documenting my reasoning and thought process and bringing discipline in my investing .I enjoy investing for the intellectual challenges it provides me more than the monetary gain(also believe that the process is more important than the outcome).Enough of talking now,time to get to work. I will try and post some stock ideas in the coming days and also hope to have rewarding discussions with other investors. If you are reading this,thanks for dropping by and surviving my long and boring posts,feel free to give your feedback.

Journey So Far - Part 1

After a lot of pondering and procrastination i have finally decided to start blogging and the only subject i could think of was Investing. I am a very average writer and haven't been writing too much off late so please bear with this long and boring post. This and the next post is about how i got into investing,my experience so far and the objective of this blog.

The Stock Market has intrigued me since high school as far as i can remember. A chapter on stocks in high school and overhearing my father as to how one can make money with them had piqued my interest .However studies took center stage pretty soon and my interest in stocks faded away. Fast forward to 2008 January , i was in my last semester of Engineering doing Internship in Bangalore. This was also the time when the Indian market breached the 21k mark and there was euphoria all around with newspapers carrying them in headlines.In short the stock market was the place to be and no one wanted to miss the bus. This coupled with the fact that my mother was now a part time Mutual Fund distributor got me interested  in the stock market again .I was soon discussing about Mutual Funds with mom and looking it up in the net.  The stock market seemed like a fun way to grow  one's  money provided you knew what you were doing. After reading a bunch of articles  i  fell for the cliched statements like 'let professionals manage your money' ,'invest in SIPs' , 'start early'  blah blah and started investing a part of my stipend in SIPs(Systematic Investment Plans) .I was lured by the performance and returns of the top funds unaware of the big crash that was to follow.Soon the market took a nose dive and kept going lower as i kept investing in  SIPs hoping for a bounce back. 6 months  down the line and i had lesser money left than i began with ,down 35 %.

This was a real disappointment as i was expecting a 100%+ return in a year,something which most funds had delivered in 2007 . I later realized that the Indian markets had had a fantastic bull run starting in 2003 all the way up-to 2007 and that explained those phenomenal returns produced by the funds. I had entered the markets at the peak and was expecting to make money,how stupid of me. This episode reaffirmed my belief that there was no free lunch in this world. Why should the media and financial analysts/experts give us advice about making money instead of they themselves doing it. However this didn't mean that the market itself was a bad place, it was a great place to grow one's capital provided one be ready to do the hard work. Now this incident actually inspired me to read and research more about stocks rather than shun them.The whole idea about making one's money work hard for him/her seemed too compelling to let go.But soon  priorities changed and i was concentrating on my Job search and investing got sidelined. A few anxious months later and after a couple of interviews i got the job i was looking for and joined soon after graduation.

Now with a steady source of income i decided to allocate a  portion of that to investing in the markets(Mutual Funds excluded,direct investing) . The time was Nov'2008 and i couldn't control my enthusiasm and jumped into the market.Looking back,I couldn’t have chosen a better time to invest as the markets were at an all time low owing to the credit crisis. I bought a couple of stocks immediately after getting a Demat account opened,few based on expert recommendations and few because they were selling near 52 week low. During this time as i was impatiently and enthusiastically going through all market tutorials and blogs i was helped a lot by Investopedia(excellent source for beginner investors) . It was here that i learned about The Oracle of Omaha  - Warren Buffett. There were tonnes of resources and articles available on him all over the cyber world and the more i read about him the more i got inspired. Whatever he said seemed to  make a lot of sense ,he had a simple technique that he had followed for decades beating the pants off the market . I came across a quote where buffett referred to this book called ‘The Intelligent Investor’ by his teacher Benjamin Graham. He went to the extent of calling it the best Investment book ever written. This book was about to change my whole outlook to stocks and investing in general..but more about it in the next post.Please feel free to share your thoughts on the post and about your first encounter with stock markets.