Book Reading Event – The Thoughtful Investor

Contributed by: Vinay Bagri, CFA

On 3rd May 2014, IAIP – Kolkata Chapter organized a book reading with Basant Maheshwari on his latest book – THE THOUGHTFUL INVESTOR – A Journey to Financial Freedom Through Stock Market Investing. In a first of its kind event, selected excerpts from his book were read out and the author elucidated the same. There was a lively discussion and Q&A on a broad spectrum of topics including – Risk Management, Stock Selection, Behavioral Finance, Portfolio construction.  In the latter half of the event, Basant shared his views and strategies on the market in different election outcomes.

Basant started out by giving a good quote “Most Investors can’t figure out, ki Paisa jyada banana hai yah jaldi” (You want to make more money or quick money). He suggested investors to avoid being in a hurry, else we might risk losing our principal amount also. The stocks markets according to him, are not the place to generate income, but an arena for generating wealth. He went on to suggest that wealth is not generated by buying ‘Flavor of the Month’ stocks.  One cannot, generate new ideas daily. Instead focus on stocks, which have good fundamentals and which are appreciating on the back of increased earnings and future potential. He mentioned that more than his 90% wealth has come from less than 10 ideas. Investors should be lazy while booking profits, and agile in cutting losses. He re-iterated that this concept was not limited to traders alone, but also for value investors. If earnings keep going up, and potential is still not fully utilized, one must not feel shy about buying stocks, even at higher levels.

He gave a few broad ideas, for identifying new stocks :

  • Stock should be from a sector, which has high demand
  • Keep in sync with global trends. Whatever happens globally in terms of sectoral trends happens in India after a gap of 10 -15 years. So if a Freddy Mac does good in US, a HDFC is born in India 10-15 years later.
  • Always, keep a track of sectoral trends. It is better to be late in a very strong trend, than to be early in a weak trend.

For young investors, Basant suggested that in order to attain freedom one should strive to attain 50 times his Annual Expenses as Portfolio Value. This carefully selected portfolio, can easily allow him to earn a dividend yield of 1-2%, thus allowing him to tide over his expenses. On being asked a question on how to avoid losses, he replied point blank that there is no hedging from a mistake. If one makes a mistake, losses will follow. This is the inherent risk in investing.

He emphasized some common investment thesis, namely :

  • Utilise the power of compounding. It can generate phenomenal wealth.
  • The maximum money has been made by concentrated investments
  • Further, concentrated investments cannot be done in cyclicals. For concentrated investments, one needs to buy secular growth companies.
  • One should focus on sector leaders within a sector. They are more robust and allow more stability.
  • Investors should realize that in the markets it’s not the winner but the survivor who generates maximum wealth. They should treat the market more as a marathon, than a sprint. Look to utilize the power of continuous compounding. A 25% compounding over 5 years yields more return than, a 100% return in first year followed by negative returns thereafter.
  • Be paranoid of bad investments. Not losing money is as important as making money.
  • Company with a satisfied set of customers, will always have a satisfied set of shareholders.
  • Cut your losses in a company, if the company changes track of its business.

He suggested a unique, way of identifying whether a short term top has been made in a stock. This can be checked, if stock has broken 10%+ from the highest level as soon as it reaches there. Market will not allow overpriced stock to remain there for a long time.

Click here for video link of the event: Basant Maheshwari – The Thoughtful Investor – Book Reading Event by IAIP, Kolkata

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