The Warren Buffett Way

Appearing on the PBS show Money World in 1993, Buffett was asked what investment advice he would give a money manager just starting out.  “I’d tell him to do exactly what I did 40- odd year ago, which is to learn about every company in the United State that has publicly traded security. “

Moderator Adam Smith protested,  “But there’s 27,000 public companies”

“Well”, said Buffett, “start with the A’s “

Para above is from the book The Warren Buffett Way. One of the great book of Investment one can have on   his/her Library.  Though book talk about Mr Buffett Investment philosophy which might not suite to many Investors today still I believe the core idea display in book will help individual investor to look the business from eye of Mr Buffett.

We here try to highlight essence of book in few words:

Author has classified Mr Buffett all investment in four core principles:

1. Business
2. Management
3. Financial
4. Value

With above four principle you would find how Mr Buffett has discovered his greatest investments like Coco-Cola, Washington Post  , Gillette, Wells Fargo  etc. The idea of finding successful business is still applicable but after Mr. Buffett no such a great investor came who have applied it with such a ease.

Later part of book displays how to manage portfolio and psychology of money. Robert Hagstrom,the author , did true justice to the idea of Warren Buffett in the book. Writing book on such a topic is not easy. He had kept the thing simple that reader can connect with it. Get your copy today if you have not yet read it from here:   The Warren Buffett Way

“We don’t need to be smarter than rest, we have to be more disciplined than the rest” ~WAAREN BUFFETT

Be Smart. Invest Smartly

Equity Index Fall: Oppertunity or Risk.

Hello Reader, last couple of month is been very hard time for investor across the globe. Most of the world equity indices fall 15-25 % in short spam.  Current oil crisis  triggered the panic button .

(Please read for more details: http://oilprice.com/Energy/Oil-Prices/Current-Oil-Crisis-More-Dangerous-Than-You-Think.html).

So, question is do you wait or start investing ? What should be strategy to not only sustain but also get maximum advantage from this situation.

As many world major Fund Analyst and fund manager said that India is better than any other emerging market in current situation. Currently India is in position where it could be recover faster than other .

FII outflow is the major reason for the fall in Indian market. Major stocks like SBI, L&T, Axis are almost 40-60% low from its 52 week high. So don't you think its actually a opportunity for investor to get maximum advantage. 

 As Mr Buffet said: 

"Games are won by players who focus on the playing field — not by those whose eyes are glued to the scoreboard."

If we stick to the ABCD of investment and keep adding fundamentally good stock then this volatile market could be your best opportunity.

A.    Invest regularly: Start MF SIP or Stock specific SIP monthly. This will help you in rupee cost averaging and you will sail through volatile market.

B.   Stay invested: Longer you wait better the return will be. Let the compounding play its magic. (Read this for magic of Compounding: http://kevaljethi2363.blogspot.in/2016/01/power-of-compounding-investment-magic.html )

C.   Diversify your portfolio: “Don’t keep all your eggs in the same basket?” The same applies for your investment portfolio as well. It is important to diversify your portfolio across various asset classes, financial instruments, sectors, geographies etc. Although diversification does not guarantee you profit, it will help minimize the overall risk of the portfolio. In a diversified portfolio, loss in one asset class can be offset by gains from another asset class.

D.    Keep it Simple: Invest in product which you completely understand. Get Mutual Fund rather than directly investing in stock.

Always remember the quote “The stock market is a device for transferring money from the impatient to the patient.”

Be Smart. Invest Smartly

Power of Compounding: Investment Magic

Einstein said once “Compound interest is the eighth wonder of the world. He who understands it, earns it ... he who doesn't ... pays it.” 

Let’s take example of Mr. Early X and Mr. Late Y.

Mr Early X thought to start planning for his retirement on age of 25 and started the 5000/ monthly SIP in Mutual Fund for next 15 years. While Mr Late Y thing 25 is not a age to thing about retirement and its time to enjoy the life but later stage Mr Late Y thing retirement planning is also very important and Mr Late Y started 1000/monthly SIP for next 15 years.

So now here is the comparison between both of our Mr X and Mr Y.

	Mr Early X	Mr Late Y
Amount invested	5000*15*12 =9  lakhs	10000*15*12= 18lakhs
Investment Horizon	60-25= 35 years	60-35=25 years
At age of 60 Retirement Corpus	3.88* Cr	2.09* Cr

(Note* : Assuming the average of 14% return from MF Compounding basis. )

 

At age of 60 Mr Early X has 1.85 times more amount than Mr Late Y with half of investment then Mr Late Y. It’s not how much you invest , it how long you invest make a difference.

Let’s take well known example of Wipro's  10000 to 528Cr Journey. 

Let’s just assume that you bought 100 shares of Wipro each at a face value of Rs.100 in the year 1980. Total investment: Rs.10,000. You don’t touch it at all, no profit booking or buying more shares. Wipro has done various bonuses and stock splits in its history of 1980-2014. Here is the list of all such corporate actions:

Wipro Investment growth
Year	Action	Number of Shares
1980	Initial Investment	100
1981	1:1 Bonus	200
1985	1:1 Bonus	400
1986	Stock split to FV Rs.10	4,000
1987	1:1 Bonus	8,000
1989	1:1 Bonus	16,000
1992	1:1 Bonus	32,000
1995	1:1 Bonus	64,000
1997	2:1 Bonus	1,92,000
1999	Stock split to FV Rs.2	9,60,000
2004	2:1 Bonus	28,80,000
2005	1:1 Bonus	57,60,000
2010	2:3 Bonus	96,00,000

After the year 2010, there were no more bonuses or stock splits. But with just that initial investment of Rs.10,000 (100 shares) you now would end up with 96,00,000 shares of the company because of all the stock splits and bonus shares. Current stock price of wipro is about Rs.550 per share, as of 22 Jan, 2016.

INR 550 × 96,00,000 = Rs.528 Cr. That is a CAGR (Compound Annual Growth Rate) of 47.39%. Does any of your bank FD give you 47% annual interest rate.

And we are not even considering dividend pay-out here. Recent dividend declared was 5 per share which make 4.8 Cr as dividend and we have many dividends like this. 

Just Amazing compounding is !!!

Mr Warren Buffet said it correct “Someone is sitting in the shade today because someone planted a tree a long time ago.”

 Be Smart. Invest Smartly