Beat Inflation with Good Investment

 Beat Inflation with Good Investment

Warren Buffet - Investment Wisdom

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Warren Buffett, Chairman of Berkshire Hathaway, is arguably the world's greatest investor and the third richest man with a net worth exceeding $52 billion. He is also a great philanthropist: last year he declared plans to give away over $37 billion in charity, to the Bill & Melinda Gates Foundation.

But he is not just a man with a large heart and a matching wallet. Also known as The Sage of Omaha, he is also full of wisdom and wit.

Here are some of his gems of advice for investors who look at the stock market to make a fortune, culled from various publications, his speeches and writings:

• 'Never invest in a business you cannot understand.'

• 'Always invest for the long term.'

• 'Remember that the stock market is manic-depressive.'

• 'Buy a business, don't rent stocks.'

• 'Price is what you pay. Value is what you get.'

• 'Stop trying to predict the direction of the stock market, the economy, interest rates, or elections.'

• 'I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years.'

• 'Wall Street is the only place that people ride to in a Rolls-Royce to get advice from those who take the subway.'

• 'Buy companies with strong histories of profitability and with a dominant business franchise.'

• 'It is optimism that is the enemy of the rational buyer.'

• 'As far as you are concerned, the stock market does not exist. Ignore it.'

• 'The ability to say 'no' is a tremendous advantage for an investor.'

• 'If you're doing something you love, you're more likely to put your all into it, and that generally equates to making money.'

• 'My idea of a group decision is to look in the mirror.'

• 'Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can't buy what is popular and do well.'

• 'The smarter the journalists are, the better off society is.'

• 'Success in investing doesn't correlate with IQ once you're above the level of 25. Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing.'

• 'Diversification is a protection against ignorance. It makes very little sense for those who know what they're doing.'

• 'You're neither right nor wrong because other people agree with you. You're right because your facts are right and your reasoning is right - that's the only thing that makes you right. And if your facts and reasoning are right, you don't have to worry about anybody else.'

• 'There seems to be some perverse human characteristic that likes to make easy things difficult.'

• 'In the short run, the market is a voting machine but in the long run it is a weighing machine.'

• 'It's only when the tide goes out that you learn who's been swimming naked.'

• 'Somebody once said that in looking for people to hire, you look for three qualities: integrity, intelligence, and energy. And if they don't have the first, the other two will kill you. You think about it; it's true. If you hire somebody without the first, you really want them to be dumb and lazy.'

• 'There are three kinds of people in the world: those who can count, and those who can't.'

• 'It takes 20 years to build a reputation and five minutes to lose it.'

• 'The first rule is not to lose. The second rule is not to forget the first rule.'

• 'Wide diversification is only required when investors do not understand what they are doing.'

• 'Only buy something that you'd be perfectly happy to hold if the market shut down for 10 years.'

• 'We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.'

• 'Our favourite holding period is forever.'

• 'If past history was all there was to the game, the richest people would be librarians.'

• 'Why not invest your assets in the companies you really like? As Mae West said, 'Too much of a good thing can be wonderful.''

• 'Your premium brand had better be delivering something special, or it's not going to get the business.'

• 'You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right.'

• 'We do not view the company itself as the ultimate owner of our business assets but instead view the company as a conduit through which our shareholders own assets.'

• 'Accounting consequences do not influence our operating or capital-allocation decisions. When acquisition costs are similar, we much prefer to purchase $2 of earnings that is not reportable by us under standard accounting principles than to purchase $1 of earnings that is reportable.'

• 'Unless you can watch your stock holding decline by 50% without becoming panic-stricken, you should not be in the stock market.'

• 'The critical investment factor is determining the intrinsic value of a business and paying a fair or bargain price.'

• 'Risk can be greatly reduced by concentrating on only a few holdings.'

• 'Much success can be attributed to inactivity. Most investors cannot resist the temptation to constantly buy and sell.'

• 'Lethargy, bordering on sloth should remain the cornerstone of an investment style.'

• 'An investor should act as though he had a lifetime decision card with just twenty punches on it.'

• 'An investor needs to do very few things right as long as he or she avoids big mistakes.'

• 'Turnarounds' seldom turn.'

• 'The advice 'you never go broke taking a profit' is foolish.'

• 'It is more important to say 'no' to an opportunity, than to say 'yes.'

• 'It is not necessary to do extraordinary things to get extraordinary results.'

• 'An investor should ordinarily hold a small piece of an outstanding business with the same tenacity that an owner would exhibit if he owned all of that business.'

• 'It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently.'

• 'In the business world, the rearview mirror is always clearer than the windshield.'

• 'A public-opinion poll is no substitute for thought.'

• 'It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price.'

• 'The business schools reward difficult complex behavior more than simple behavior, but simple behavior is more effective.'

• 'Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it.'

• 'The investor of today does not profit from yesterday's growth.'

• 'Of the billionaires I have known, money just brings out the basic traits in them. If they were jerks before they had money, they are simply jerks with a billion dollars.'

• 'I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years.'

• 'I don't look to jump over 7-foot bars: I look around for 1-foot bars that I can step over.'

• 'I always knew I was going to be rich. I don't think I ever doubted it for a minute.'

• 'We enjoy the process far more than the proceeds.'

• 'You do things when the opportunities come along. I've had periods in my life when I've had a bundle of ideas come along, and I've had long dry spells. If I get an idea next week, I'll do something. If not, I won't do a damn thing.'

• 'I buy expensive suits. They just look cheap on me.'

• 'Let blockheads read what blockheads wrote.'

• 'I do not like debt and do not like to invest in companies that have too much debt, particularly long-term debt. With long-term debt, increases in interest rates can drastically affect company profits and make future cash flows less predictable.'

• 'My grandfather would sell me Wrigley's chewing gum and I would go door to door around my neighbourhood selling it. He also sold me a Coca-Cola for a quarter and I would sell it for a nickel each in the neighbourhood, so I made a small profit. I was always trying to do something like this.'

• 'A public-opinion poll is no substitute for thought.'

Unknown Source

Gold: Not always a bright idea

After a long wait, Indian investors finally have the means to "gild" their portfolio when they draw up their financial plans. With gold Exchange Traded Funds making a debut in India, you no longer have to visit the local jeweller, fork out making charges/wastage and take your chances on caratage when you buy gold.

Instead, you simply buy ETF units and hold them in your demat account, and you can be sure that your investments will closely mirror trends in global gold prices. But is investing in gold really a good idea? What return expectations can you have from the precious metal, if you hold it for the long term? We analysed monthly gold price trends for the past 10 years in the global and Indian markets, to arrive at some answers. Gold, in the global context, has delivered a compounded annual return of 6.6 per cent over the last ten years. The return for Indian investors in gold has been a shade higher, at 6.9 per cent (all returns annualised), mainly as a result of the depreciating rupee.

Expect modest returns

If this seems like a decent, inflation-beating return, do note that you would have earned this return only if you had managed to time your investment rather nicely to end-March 1997, and had held on till date. The recent ten-year window has been a particularly good one for gold, with rising oil prices and a weakening dollar prompting investors to rediscover the metal as an investment option. For those who didn't display such a fine sense of timing, long-term returns from gold have been much more modest.

If you invested in gold with a 10-year horizon sometime between 1987 and today, your returns could have ranged anywhere between a negative 4.8 per cent and a positive 6.7 per cent annually, depending on the month of initial purchase. In comparison, equities appear to have a much better track record of delivering long-term returns, irrespective of the timing. The minimum 10-year returns the Sensex managed between 1997 and 2007 is a negative 0.14 per cent; while the maximum return was as high as 24.7 per cent.

Message: If you are a long-term investor, gold, obviously, cannot substitute equities in your portfolio. In the Indian context, gold has an inferior track record to equities, both in terms of return potential and the probability of losses. Use gold as a supplement to your equity portfolio.

Five years better than ten?

When you buy equities, you are usually urged to hold on to your investments longer if you would like to improve the return potential. But evidence of the past 10 years shows that gold has delivered better returns if held for five years rather than 10. The best five-year return managed by gold between 1997 and 2007 was 19.7 per cent. This is much higher than the best 10-year return of 6.7 per cent. In equities, a shorter holding period pegs up the chances of earning negative returns on your investment.

But if history is any indication, the reverse has been true for gold. Investors who held gold for five years registered negative returns on fewer occasions (5 out of 10) than those who stayed invested for a 10-year period (6 out of 10)!

Message: Invest in gold with a 5-year horizon.

Likelihood of losses

Gold is generally preferred for its "safe-haven" qualities; it performs well when investor confidence in other asset classes such as equities is at a low ebb. However, this does not mean that your investments in gold protect you from losses.

Going by the record of the past 10 years, the probability of losing money on gold is fairly high, even if you stay invested over a five- or 10-year period. For 10-year holding periods, gold has delivered negative returns on 77 out of 122 occasions between 1997 and 2007. It has delivered negative returns on 64 out of 122 occasions for five-year holding periods.

Whatever the investment horizon, the odds of earning a negative return on gold appear higher than those on equities, going by the experience of the past 10 years.

Message: Gold is not a substitute for your safe, fixed return investments, such as bonds.

If gold has only moderate return potential and can erode in value over long horizons, why at all should one consider investing in gold, you may ask.

The case for gold

There are three key factors that support investments in gold:

Diversifier: Gold could be a stabilising influence on your overall portfolio. Trends in monthly returns on gold over the past 10 years show that gold prices seldom move in sync with returns on other asset classes, whether equities or debt. This makes the metal a good portfolio diversifier.

The correlation of monthly returns on gold with the Sensex over the past 10 years is at a negligible 0.06. Though this correlation has risen to about 0.2 in the recent five-year period, it remains statistically insignificant.

This means that if you hold both gold and equity investments in your portfolio, there is a negligible chance that values of both will decline at the same time, making a big dent in your net worth!

This is also borne out by anecdotal evidence. Gold was among the best performing asset classes just after the tech stock meltdown of 2000-01. Gold prices actually appreciated about 4 per cent in the aftermath of the dotcom bust between March 2000 and October 2001, a period when the Sensex lost a whopping 48 per cent in value!

During the recent corrective episode in May-June 2006, gold prices did peak out at the same time as stock prices and fell when stock prices did. However, the magnitude of decline in gold was much lower than that in equities.

Though gold has historically displayed a low correlation with equities and other assets, investors in gold need to be aware that this relationship could change in the years ahead.

There is a view that the commodity, currency, equity and bond markets across the world are developing stronger inter-linkages due to their dependence on liquidity from large institutional investors (read hedge funds) with a presence across markets and asset classes. Episodes such as the May meltdown (which encompassed stocks, commodities and gold) seem to support this view.

Less volatile: Though gold has offered lower return potential than equities, it has also witnessed lower volatility from month to month. Based on monthly returns for a 10-year period, gold prices have displayed significantly lower variation (standard deviation) than the Sensex.

Similarly, though gold has frequently registered negative returns, the magnitude of decline has been much lower than that on equities. The worst monthly return for gold between 1997 and 2007 was a negative 9.3 per cent, while that for the Sensex was a negative 15.8 per cent!

Insurance against crisis: The above analysis uses historical data to provide a reasonable indication of what gold has to offer as an investment option.

However, in the world of investments, past performance may not always be an accurate indicator of future returns.

Though gold delivered a modest performance over the past 10 years while stocks and bonds have done much better, there are several risks that could materially alter this situation over the next decade.

Gold has traditionally been a sought after asset during periods of intense crisis — a spike in oil prices, a run on a currency, runaway inflation, and so on.

Holding a portion of your portfolio in gold could help you ride out phases in which other assets don't deliver — say, steadily rising inflation (which could hurt bond returns), spiralling commodity prices (which could hurt corporate earnings and thus stocks) or a withdrawal of liquidity from the financial markets (which could hurt the entire range of assets).

An investment cookbook - Chetan Parikh

In a great book, Secrets of the Investment All Stars, the author, Kenneth A. Stern, writes about some steps for investment success.

“Being a successful investor requires skills similar to those of a successful chef. Every cookbook stresses that you need to read the entire recipe before beginning, make sure you have all the ingredients, and not deviate from the recipe until you have practiced it several times. This wonderful advice, if adhered to in investing, will virtually guarantee an improvement to your investment return.

1. Be observant. I respect and admire the all-stars, but I don’t believe they are inherently superior people. They are simply savvy at observing life. They are very good at looking under rocks for opportunities, trends, and cultural shifts that the rest of us don’t see. Or, where we just see a rock, than anyone else. And they know which ones of these rocks will unveil value that should make a stock rise. They are always thinking investing. When they go shopping, they look at what is being bought. When they listen to the news or read the paper they are thinking, “How will this event affect my investments?’ When their kids come home and tell them they have to have a new pair of green canvas shoes, the all-stars instinctively begin to analyze how this new schoolyard craze might affect not just shoe manufacturers, but also the sellers of canvas, cotton, and green dye.

2. Never think that being a successful investor is just picking stocks. Being a successful investor requires timing, proper asset allocation, and patience.

3. Learn basic accounting. Much of stock analysis is based on what companies are worth. To know the worth. To know the worth, you need to be able to read the financial statements and then be able to interpret them. Free cash flow, return on equity, price to earnings and sales ratios should be second nature to you. In the ‘Fundamental Analysis’ section of this book I provide a cursory overview of how to use accounting while evaluating a stock. While you don’t need to take an accounting class (accounting courses often don’t teach how to evaluate a company), I do recommend reading a book on accounting that focuses on how to use accounting to evaluate a company. Robert A. Cooke’s 36-Hour Course in Finance for Nonfinancial Managers (McGraw-Hill, 1993) is an excellent starting point.

4. Learn basic charting. Charting will help you spot trends and time your purchases.

5. Find out where to get information. We live in an information age. Just about anything you need to know is readily available on the World Wide Web and at your local library. Not only do you need to know where to get the information on the Web or in your library, you also will need to become proficient at sorting out useful information from noise.

6. Have clear investment goals. What are you trying to accomplish? How long will this money be invested? What are the tax consequences? Never invest unless you have a plan, unless you know do you need to save? What return on your investment do you need to meet your goal and time frame? Too many people invest aggressively in a way that could lose them money, even though their plan said they didn’t need huge returns. Now they jeopardize their whole plan if they lose money, whereas they would have been fine if they would have taken the low-risk approach and stuck to the plan.

7. Truly understand your risk tolerance. You and I have lied to ourselves about this before. You say you can stand risk, but only if you are making money, right? How will you feel if you invest $100,000 and the day after you write your investment check, your account drops 30% to $70,000? It happens fairly open. Are you really ready to weather such a market drop? Can you still follow your discipline? The bottom line is never invest without knowing the risk versus reward ratio. What are the chances of the investment going down and by how much? Embrace risk—without it there is no profit.

8. Forget what the stock price was a year ago. Forgot what you paid for the stock. You will learn that if you are worrying about buying a stock because it’s too high, or you don’t want to sell a stock because it’s either not up enough, too far up, or down, you’re focusing on the wrong stuff. Evaluating a stock has no bearing on what it was worth a year ago, or what you paid for it.

9. Stick to your discipline and don’t become emotional. This is easy to write, harder to say, and even tougher to do. However, maintaining a coolly disciplined, unemotional view of your investments will make you a better, richer investor. If you decide to be a value investor, stick with your value discipline through thick and thin. Understand, I am not recommending you chose only one discipline. Many investors use several disciplines. But what you should not do is become frustrated with the one-month or one-year return on your value investments, then switch willy-nilly to momentum investments. Time rewards your tenacity and discipline. In the words of Sir John Templeton: “Buy when the blood is in the streets, even if it is your own.”

Don’t invest in fads. You’ll continually hear new theories. For example, buy the lowest priced Dow Jones stocks with the highest dividends. If everyone begins to do this, the anomaly that might have existed is blown. Finally, don’t get emotional and don’t second guess yourself. The one time you second guess is the one time you’ll miss the “big one.’

10. Level with yourself. You aren’t going to pick every winning stock. You can be right and wrong, because if you invest properly, you probably need to be right only 55% of the time. I remember being shocked at first when I interviewed Foster Friess and David Katzen (of Zweig and Associates). I asked what percentage of stocks they actually lost money on. They smiled and said sometimes 40% or more. I then asked how they could still maintain such an incredible track record. Their response was because the stocks that they lose on generally go down less than the gain on the stocks that go up. I used to beat myself up if I had one losing stock. I don’t anymore.

If you ever get to the point where you think you’ve figured out the market, cash in everything. You’ll never completely figure out the market. There is no single key to the market. It is ever changing and it is rarely logical. Did you ever see a stock that just had the greatest news, but it went down? Why? You will be given hints, but remember that no hard and fast rules exist. And never forget that every time you think you bought a winning stock, someone was willing to sell you that same stock.

11. Invest for the long term. Attempting to guess short-term swings in individual stocks or the economy is a difficult, almost impossible, task for even the best stock pickers or economists.

12. Remember, cash is king. Regardless of the market you’re in, cash is, and always will be, king. Even if you’re earning only 4% or 5%, you need to always have some cash. The cash is necessary to buy more stock, limit losses, and be ready for a good deal. Never be 100% invested in stocks.”

Short term Investment Calls

BUY Gayatri Projects (283.95)
SL 270 Target 310, 315

BUY JB Chem (90.05)
SL 82 Target 104, 107

BUY Godrej Industries (173.60)
SL 159 Target 200, 205

BUY VSNL (383.90)
SL 366 Target 419, 423

BUY Titan Inds (709.65)
SL 692 Target 739, 745

Myriad of investment options

If you are an NRI, you must be celebrating already! You already remit your well-earned money into India. The Government of India, as indeed all of corporate India, has big plans for a billion-strong country growing at a blistering 8% today.

And the government is extremely keen that you and the now six million-strong diaspora of NRIs continue to play an important role in the growth story of the country. You should be happy to know that the floodgates are opening for a myriad of investment options. So, let’s put pen to paper and see how you would like your India strategy to work for you.

Ask some questions

Information is everywhere. Your favourite relationship manager from your bank may have met you already at your San Antonio home and discussed anything from the suddenly-rocketing demand for low-cost housing in Ahmedabad to the prospects of urad daal gaining over the next few months from a lower-than-usual summer harvest... to how with a mix of global bonds and equity or a specific structure with an option for leverage you can ‘sophisticate’ your portfolio immediately!

But before you write out a cheque to fuel your India-strategy—and especially if your investment has so far been confined to a bank deposit—do ask yourself these questions: Are your expectations realistic? Do you understand the inimical relationship between risk and return? Can you write out your India-money strategy on a napkin? Simple one-word answers to questions like would you like to preserve, create or enhance your wealth in India?

Choosing your bank

After you’re clear on your investment approach, you need to select a bank to facilitate your India-investment plan. Consider these while choosing your bank :

Presence in your city: Ideally, your bank should offer you both – local and international banking, with relationship managers or India desks in your city to understand and cater to your India-investment decisions. This way you can move money between countries, asset types and periods you choose to make investments for, quickly and at low cost.

Good India presence: While your bank may be a strong international presence with a reputation built over the years, it also needs to have a good India presence in terms of distribution points and INR products. Larger the canvas, more are your options. A little independent research by looking up websites will benefit you.

NRI community feedback: Do find out more about critical elements such as customer service and servicing channels. Chatting up with a good NRI friend or relative who may be banking already may be a good idea.

Counselling services: Find out if your bank offers you free counselling on tax planning and insurance-related matters, perhaps someone to help you interpret and even put to good use NRI-specific laws on investments.

Remittance facility: Does your bank allow you to remit funds into India in a cost-effective manner from your city of domicile. That apartment you’ve liked in an upcoming housing project in Mumbai... You should have comfort that your chosen bank can facilitate the funds transfer within the closing date.

Product Strategy

There always will be more India products than you can count! Here’s a suggested product strategy.

Products need to suit you: All products are risky – some more, some less. Indian equity may be growing at a brisk pace but it may not be good for you to put a bulk of your retirement money should you plan to earn a well-deserved rest and go back to gardening at your Kolkata home next year.

Have a wide canvas: Start with as wide a canvass as possible. A good range would comprise equity, bonds, commodities, mutual funds, real estate options, including a home for you to come back to. Most of these are appreciating today at a fair clip.

Check performance: Websites from reputed agencies who gain little by selling you, may help you arrive at a list of performing products.

Trust the wise guys: If you cannot follow up on your investments on a daily basis, choose a discretionary portfolio management product or a mutual fund and allow your banker to research the category for you.

Don’t get emotional with investments: This is what every successful wealth creator would tell you. Keep tabs on your portfolio performance at all times and know when to cut losses and relationships if necessary.

After you do write out that cheque, don’t stop collecting ideas and insights. Start a file for your India money affairs. Paste your thoughts in it and not just charts on fund performance. Give yourself an otherwise lazy Sunday afternoon to ponder over these. Always date your ideas. You could even make it a household thing and discuss your plans with your spouse and children.

Investment Strategy

One of our readers, Rajit writes ...

Ive just started working and was browsing through some blogs, looking for somethnig related to investments n other stuff.... I found your blog to be very informative and this happens to be a very smart way of investing!....i m really overwhelmed by the way you showcased how we can make money keeping our initial investment intact... Would definitely read the rest...thanks a lot for this...and btw will u suggest a proper investment policy for someone like me who has started working only about 2 months ago....i can invest upto 6K every month....but intend to take a break from work for about 2 years to finish my masters... Trying to help dad in financing his dream home is another objective...which would call for a loan of about 5-8 Lacs and is hence a purely ambitious one considering the present scenario.... Hope you'd have u have the time to help me out with this...but irrespective of whether you help out with this or not, i found your blog very interesting and thanks again for this wonderful idea! Keep it up.


Rajit - you could probably start off by investing through SIPs in mutual funds. Invest about Rs.1000 in each of the funds

My recommendations for investment would be tax saving funds - which accomplishes 2 things

1. Tax saving under 80ccc
2. These fund have a lock-in period for 3 years which gives enough time appreciation

You could consider the following funds

1. HDFC Taxsaver
2. Magnum Taxgain
3. HDFC Longterm Advantage

If you are looking for equity funds (non taxsaving)

1. Reliance Vision
2. Reliance Growth
3. HDFC Equity
4. Magnum Contra

You could probably go through some of the investment queries & answers at

http://valueresearchonline.com/story/askvroarchive.asp


I would like to congratulate you on thinking about investments so early in your career - the best strategy is to start early. Wish I were like you then :)

I am not the right person to advise you on the loan query.

Maybe our visitors can help you out.

Businessline - Investment Nuggets

If you cannot afford to ignore the advice of the Oracle of Omaha, Warren Buffet, the man who taught the Sage the core investing tenets must obviously be someone very special. Meet the legendary Benjamin Graham, christened the "Father of Value Investing" and sometimes called the "Dean of Wall Street". He has also immortalised himself by penning two investment classics: Security Analysis (with David Dodd) and Intelligent Investor — must reads for anybody entering and staying wedded to the investment profession. Enjoy the wonderful wit and wisdom through these quotable quotes:

Short- vs long-term investing

"In the short term, the market is a `voting' machine whereon countless individuals register choices that are product partly of reason and partly of emotion. However, in the long term, the market is a `weighing' machine on which the value of each issue (business) is recorded by an exact and impersonal mechanism."

On market fluctuations

"Since common stocks, even if investment grade, are subject to recurrent and wide fluctuations in their prices, the intelligent investor should be interested in the possibilities of profiting from these pendulum swings. There are two possibilities of profiting from these pendulum swings: The way of timing and the way of pricing. By timing we mean the endeavour to anticipate the action of the stock market — to buy and hold when the future course is deemed to be upward, to sell or refrain from buying when the course is downward. By pricing we mean the endeavour to buy stocks when they are quoted below their fair value and to sell them when they rise above such."

The madness of `crowds'

A story that was passed down from Ben Graham illustrates the lemming-like behaviour of the crowd:

"Let me tell you the story of the oil prospector who met St. Peter at the Pearly Gates. When told his occupation, St. Peter said, "Oh, I'm really sorry. You seem to meet all the tests to get into heaven. But we've got a terrible problem. See that pen over there? That's where we keep the oil prospectors waiting to get into heaven. And it's filled, we haven't got room for even one more." The oil prospector thought for a minute and said, "Would you mind if I just said four words to those folks?" "I can't see any harm in that," said St. Peter. So the old-timer cupped his hands and yelled out, "Oil discovered in hell!" Immediately, the oil prospectors wrenched the lock off the door of the pen and out they flew, flapping their wings as hard as they could for the lower regions. "You know, that's a pretty good trick," St. Peter said. "Move in. The place is yours. You've got plenty of room." The old fellow scratched his head and said, "No. If you don't mind, I think I'll go along with the rest of 'em. There may be some truth to that rumour after all."

Warren Buffet, relating a story by Benjamin Graham

DSPML - Investment Strategy - Weekly Rumblings

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Thanks Vishesh

India Investment Strategy - Merrill Lynch

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Thanks Akash

Dredging Corporation of India Ltd.

Company background
Dredging Corporation of India Ltd. (DCI) is the largest player in the maintenance dredging market in India with a market share of over 85%. It has a capacity of 80mn cubic meter and operates at around 100% capacity utilisation. Dredging Corporation has 10 Trailer Suction Hopper Dredgers (TSHD) and 2 Cutter Suction Dredgers (CSD). DCI executes maintenance dredging contracts at the Kolkata, Haldia, Paradip, Vizag, Kochi and other ports. The thrust on developing the port infrastructure would throw up opportunities worth Rs. 60bn for DCI. Further the Sethusamundram project alone would be throwing a big opportunity for DCI.

Key Investment Points.
•	Huge Dredging opportunities: The National Maritime Development Programme (NMDP)has earmarked an investment of Rs 603bn in port infrastructure creation till 2014.This would lead to investment in various dedging projects to the extent of Rs 60bn in various capital dredging projects. Dredging work worth Rs. 2.3bn is currently in progress at Paradip port. Going forward a large number of such kind of capital dredging projects are going to be executed. DCI being the market leader would get a large share of the opportunity. DCI’s growth rate has been impacted due to the lack of Dredgers. The company plans to get over the shortage of Dredgers by taking Dredgers on lease. This would impact the margins on incremental revenues as lease rentals would be high. Therefore operating margins on incremental revenues would be lower.
•	Sethusumandram Project is a mammoth opportunity: The Sethusamundram project proposes linking the Palk Bay and the Gulf of Mannar on the east cost of India by creating a ship cannel. The cabinet committee of economic affairs (CCEA) has approved DCI as the capital Dredger for 69mn cubic meter of work. The capital outlay for the project is estimated at around Rs 15-20bn and is to be completed within the next 2-3 years. The Sethusamundram project in itself presents a huge opportunity for DCI.
•	Focus on International opportunities: Dredging Corporation is also eyeing the international markets and is in the process of firming up a joint venture partner for setting up operations in Bahrain for carrying out dredging work in the middle east countries.
•	Attractive valuations: At current prices Dredging Corporation is available at 9.8xFY07E and 8.6xFY08E and 1.7x FY06 P/BV. Further the company has a zero debt status and has a cash balance of Rs 4.72bn in its books, which translates to Rs. 168 per share. The company also has a decent dividend yield at 2.5% (FY06 dividend).

Discipline while Investing is the Key to Success

The bull run before the market meltdown during the Q1FY07 was the longest and most sustained rally in the history of Indian equity market. The market seems to have come a full circle and the bulls have brushed-off the beers once again and emerged victorious. To everyone's delight it has taken just three months for the markets to regain the level of highs of 12500 from the low of 9000 in the month of June. The benchmark BSE Sensex and S&P Nifty are now nearing their record levels. Does this imply that stocks are again too expensive?

Although the emerging markets have witnessed a lot of volatility, it has been repeatedly said that India growth story is still growing strong and has the potential to sustain the momentum of the current pull back. The Indian economy is experiencing a paradigm shift, as it is moving away from being an agricultural driven economy to an IT-driven, service economy and such rapid economic growth has boosted the prospects of Indian corporate sector and consequently improved the confidence of global and domestic investors. With the Indian economy looking good in long term and GDP growth rate projected at 8% plus, markets have recognized the potential growth by escalating the stock prices.

Though some feel that the valuation are justified in view of the long-term opportunities that India offers, rest are cautious in their stance. This raises the obvious question, would the current rally be sustainable when considerable amount of buying from the institutional side has already pulled the market up quickly to all time high levels again.

Investors are already wary of their experiences in May and June, when the markets tanked. Unexpected gains could disappear just as quickly as they appear unless there is a workable strategy to help their money grow. There are some dos and don't of investing which if followed religiously could do wonders. Investing is not tricky; it is a simple process that requires planning.

* Instead of looking at the levels of the markets, investors should look to book profits whenever the portfolio has achieved the targeted appreciation levels, or when the investment objectives have been met and not be too greedy and adopt a disciplined approach towards investing.

* There are many investors who often lose sight of their long-term financial objectives in order to fulfill their short-term needs. While at times it may become absolutely necessary to do so, investors need to remain focused on longer-term goals. This can be made possible by analyzing various options rather than rushing to look for easier ways to make money.

* The key for successful investing is of "getting in" & "moving out" at the right time, which is easier said than done. The smart investor is one who enters the market at its bottom or at average levels and leaves the market when it gives the first sign of sinking, and since it is not possible for a common investor to correctly time the market; it is advisable to invest regularly in small amounts irrespective of the market movement.

*The effect of "moving in" at a wrong time i.e. at market peak can be negated to some extent if portfolio is built with longer-term perspective. This is because the market cycles will take care of the intermediate volatility. While portfolio rebalancing and booking profits periodically would negate the effect of moving out at wrong time.

Though markets are on a cyclical high but still there are sizeable opportunities in the market even at current level. What's required now is the focus not on speculative stocks but on those that offer real potential. Studies after studies have shown that equity provide superior returns in longer term. Ride through the market's swings and stay invested and do not forget to book the profits whenever investment objectives are met. If investments are actually guided by the strong fundamentals then certainly it won't pester the rational investors whether the market goes up or down.