SIR John Templeton, the founder of Templeton Funds was a multi-faceted personality, a legendary investor, fund manager and an astute philanthropist. He wrote 16 rules of investment success, which can be found here.
They are the crux of his investment ideas and philosophy. Let us examine their relevance in the Indian context.
Rule 1: Begin with a prayer
Prayer helps you think clearly and make fewer mistakes. Meditation is known to reduce anxiety and stress, helping in better decision making.
Rule 2: Invest for maximum total real return
It is important to only consider the total real return i.e. the money you make in your investment lifetime after inflation and taxes. Many investors get carried away by short-term movements. They tend to ignore the long-term opportunities. Thus, it is wise to invest for total real returns.
Rule 3: Remain flexible and open-minded
Flexibility comes from being agile. Open-mindedness is learning from new ideas and perspectives. Many old-timers missed India's IT sector growth in the early 90s, which gave multi- bagger stocks like Infosys and Wipro. Cut to early 2005, many people were enamored with IT sector. They neglected the infrastructure and banking sectors, whose stocks multiplied within a couple of years. Hence it is important to be flexible and open-minded.
Rule 4: Invest, do not trade or speculate
Almost all successful people in the stock market are investors and not traders. They invest for long-term and are patient. There are many investors who have become millionaires solely on return of one stock in their portfolio over a decade. Sure they bought lot of other stocks which went nowhere but the one or two stocks that did well made all the difference. Traders think of the market as a casino where you play daily to win, investors think of markets as a long-term wealth building exercise.
Rule 5: Search for bargains
Just as we buy garments at discount sale, we need to buy and not sell stocks when markets are crashing. In October 2008, many high dividend yielding stocks were sold for meager amount. People who bought them have reaped huge profits.
Rule 6: Don't buy market trends or economic theories
Remember the India story told when the sensex was at 21,000 and markets dipped to 7,500 within a year. The boom gave way to gloom, economists and market experts were expecting a correction not a crash. Thus, you should not rely on economic theories and market trends while investing as they are told only after the event has occurred.
Rule 7: Diversify across assets and across markets, there is safety in numbers
Last year, when stocks dipped, gold and bond mutual funds thrived, an investor who had invested across all three assets would have got negative return in stocks but would have made good returns in bonds and gold. Thus, it is advisable not to put all eggs in one basket.
To spread risk, investments should be diversified across assets such as:
- Stocks / equity mutual funds
- Bonds/ bond mutual funds
- Gold/ gold exchange traded funds
- Real estate
- Foreign mutual funds
- Traditional assets such as fixed deposits and public provident funds
Investment opportunities come with risks. When markets are high, investors want 100 per cent equity exposure and forget the downside risk. When markets have crashed they want 100 per cent safety and ignore the upside potential.
Rule 8: Do your homework or hire experts who will do it for you
Some of us invest based on tips and rumors, that is speculating not investing. You should read and research all investment ideas well, take time to understand the upside and downside of each investment before buying. Or else, you must engage quality financial advisors before investing.
Rule 9: Aggressively monitor your investments
No investment is forever. Expect change and react to it. There are no permanent bull market and bear market.
Way back the BSE Sensex had bluechip companies like Scindia Steamship, Asian Cables, Crompton Greaves, Mukand Iron, and Premier Auto.
Today, these companies have become small or midcaps. Some are not even quoted. Indices and markets keep changing. Investors should be on guard always.
Rule 10: Don’t Panic
Many people panic and exit the market when there is a dip. It is better to sell before a crash not after. Panic and euphoria are the two facets of same investors. Both selling after a crash and buying after a huge rally make no sense.
Rule 11: Learn from your mistakes
The only way to avoid mistakes is not investing which is the biggest mistake of all. Those who didn't invest after losing money in 1994 crash wouldn't have made money in 1999 boom. Those who lost money and exited in 2000 would have missed one the best times to invest in India from 2002 - 2008.
Rule 12: Beating the markets is a difficult task
Even professional fund managers have tough time doing it. Hence, an investor should remember that getting above market returns year after year is difficult.
Rule 13: Buy low
So simple in concept, yet so difficult to practice. Humans tend to think in herds and not alone. Only a brave person would have invested in October last year when people were shell shocked and wanted to forget about stocks.
Rule 14: Anyone who has all the answers doesn’t even know the questions
Markets make even the most brilliant fund managers humble. We have seen big fund managers make wrong decisions. An investor who thinks he knows everything doesn't usually know anything. Success is a process of seeking out answers to newer questions.
Rule 15: There is no free lunch
Never invest based on a tip or rumor. Everyone talks about their profits however small and no one talks about their losses however big.
Rule 16: Do not be fearful or negative too often
There will be corrections and crashes in the markets, but markets do recover and reward diligent and patient investors. This century or next it's still buy low and sell high.
Tuesday, January 19, 2010
Monday, December 21, 2009
Some gems from RJ
Rakesh Jhunjhunwala Talks:
A) 'Enter the market when no one else does'
February 15, 2008
Jhunjhunwala takes the cue from Warren Buffett when he says: "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."
Don't follow stock picks by big investors
Remember: the market is always right
You can never be taught about market, you have to learn it
You must balance fear and greed
Jhunjhunwala says he is 'well invested' in key growth areas like banking, retailing and infrastructure, all of which are based on India's domestic performance.
His private equity interests offer more detail -- education (private schools in Mumbai), hospitals and health care, a security company, pharmaceuticals, and dredging.
B)
'Markets are like women -- always volatile'
February 15, 2008
"Markets are like women -- always commanding, mysterious, unpredictable and volatile," 'Big Bull' Rakesh Jhunjhunwala had told a gathering in Mumbai a few months back.
For Jhunjhunwala, trading by the hunches is the best thing to do. "If in doubt, listen to your heart," is what he tells young investors. Given below are some investment gems from him:
Be optimistic
Be opportunistic
Study the market thoroughly
Maximise profits and minimise losses
Invest in a business not a company
Have an independent opinion, always
Be happy with your gains but take losses in your stride
Be prepared for risks
Despite sharp corrections, early this year Jhunjhunwala predicted that the Indian markets will reach its peak by 2010
C)
'Markets plunging? Don't sell in panic'
February 15, 2008
Jhunjhunwala states that there is nothing to fear despite a sharp plunge in the Sensex this year. He assures investors thus:
Nothing has changed as the Indian market is 'deep-rooted'
Corrections, however sharp, are indispensable
Panic selling during a sharp fall is the worst thing to do
Stay invested and calm when the markets nosedive
The country is poised to soon achieve a double-digit economic growth along with an impressive corporate profit growth
This is bound to drive the bourses
It does not take rocket science to understand that India's economic growth will be in double digits
D)
Tips for beginners
February 15, 2008
And for beginners in the stock market, this is what he has to say:
Whatever you can do or dream you can, begin it. Boldness has genius, power and magic in it
Do something you love
The means are as important as the end
Aspire, but never envy
Be paranoid of success -- never take it for granted. Realise success can be temporary and transient
Build a fighting spirit -- take the bad with the good
When you see a horizon, it seems so distant. When you reach that horizon, you will realize how many more horizons are within reach
Jhunjhunwala said enormous wealth was created over the last five years because opportunities in India have grown manifold.
Admitting that gains were going to be moderate in future unlike the manifold rise over the last few years, he advised investors to be realistic in their expectations.
A) 'Enter the market when no one else does'
February 15, 2008
Jhunjhunwala takes the cue from Warren Buffett when he says: "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."
Don't follow stock picks by big investors
Remember: the market is always right
You can never be taught about market, you have to learn it
You must balance fear and greed
Jhunjhunwala says he is 'well invested' in key growth areas like banking, retailing and infrastructure, all of which are based on India's domestic performance.
His private equity interests offer more detail -- education (private schools in Mumbai), hospitals and health care, a security company, pharmaceuticals, and dredging.
B)
'Markets are like women -- always volatile'
February 15, 2008
"Markets are like women -- always commanding, mysterious, unpredictable and volatile," 'Big Bull' Rakesh Jhunjhunwala had told a gathering in Mumbai a few months back.
For Jhunjhunwala, trading by the hunches is the best thing to do. "If in doubt, listen to your heart," is what he tells young investors. Given below are some investment gems from him:
Be optimistic
Be opportunistic
Study the market thoroughly
Maximise profits and minimise losses
Invest in a business not a company
Have an independent opinion, always
Be happy with your gains but take losses in your stride
Be prepared for risks
Despite sharp corrections, early this year Jhunjhunwala predicted that the Indian markets will reach its peak by 2010
C)
'Markets plunging? Don't sell in panic'
February 15, 2008
Jhunjhunwala states that there is nothing to fear despite a sharp plunge in the Sensex this year. He assures investors thus:
Nothing has changed as the Indian market is 'deep-rooted'
Corrections, however sharp, are indispensable
Panic selling during a sharp fall is the worst thing to do
Stay invested and calm when the markets nosedive
The country is poised to soon achieve a double-digit economic growth along with an impressive corporate profit growth
This is bound to drive the bourses
It does not take rocket science to understand that India's economic growth will be in double digits
D)
Tips for beginners
February 15, 2008
And for beginners in the stock market, this is what he has to say:
Whatever you can do or dream you can, begin it. Boldness has genius, power and magic in it
Do something you love
The means are as important as the end
Aspire, but never envy
Be paranoid of success -- never take it for granted. Realise success can be temporary and transient
Build a fighting spirit -- take the bad with the good
When you see a horizon, it seems so distant. When you reach that horizon, you will realize how many more horizons are within reach
Jhunjhunwala said enormous wealth was created over the last five years because opportunities in India have grown manifold.
Admitting that gains were going to be moderate in future unlike the manifold rise over the last few years, he advised investors to be realistic in their expectations.
Saturday, November 14, 2009
25 Best Warren Buffett Quotes on His Strategies and Investments
**************************************************************************
1. "Rule No.1: Never lose money. Rule No.2: Never forget rule No.1"
2. "In a bull market, one must avoid the error of the preening duck that quacks boastfully after a torrential rainstorm, thinking that its paddling skills have caused it to rise in the world. A right-thinking duck would instead compare its position after the downpour to that of the other ducks on the pond."
3. "The fact that people will be full of greed, fear or folly is predictable. The sequence is not predictable."
4. "Be fearful when others are greedy. Be greedy when others are fearful."
5. "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price."
6. "When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is usually the reputation of the business that remains intact."
7. “You only find out who is swimming naked when the tide goes out.”
8. "Risk comes from not knowing what you're doing."
9. "If I was running $1 million today, or $10 million for that matter, I'd be fully invested. Anyone who says that size does not hurt investment performance is selling. The highest rates of return I've ever achieved were in the 1950s. I killed the Dow. You ought to see the numbers. But I was investing peanuts then. It's a huge structural advantage not to have a lot of money. I think I could make you 50% a year on $1 million. No, I know I could. I guarantee that."
10. "Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down."
11. "I try to buy stock in businesses that are so wonderful that an idiot can run them. Because sooner or later, one will."
12. "Price is what you pay. Value is what you get."
13. "I don’t look to jump over 7-foot bars: I look around for 1-foot bars that I can step over."
14. "If a business does well, the stock eventually follows."
15. "Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it."
16. "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."
17. "The line separating investment and speculation, which is never bright and clear, becomes blurred still further when most market participants have recently enjoyed triumphs. Nothing sedates rationality like large doses of effortless money. After a heady experience of that kind, normally sensible people drift into behavior akin to that of Cinderella at the ball. They know that overstaying the festivities — that is, continuing to speculate in companies that have gigantic valuations relative to the cash they are likely to generate in the future — will eventually bring on pumpkins and mice. But they nevertheless hate to miss a single minute of what is one helluva party. Therefore, the giddy participants all plan to leave just seconds before midnight. There’s a problem, though: They are dancing in a room in which the clocks have no hands."
18. "Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks."
19. "Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good results."
20. "Investors making purchases in an overheated market need to recognize that it may often take an extended period for the value of even an outstanding company to catch up with the price they paid."
21. "I like to go for cinches. I like to shoot fish in a barrel. But I like to do it after the water has run out."
22. "We don’t get paid for activity, just for being right. As to how long we’ll wait, we’ll wait indefinitely."
23. "In the business world, the rearview mirror is always clearer than the windshield."
24. "The investor of today does not profit from yesterday's growth."
25. "Someone's sitting in the shade today because someone planted a tree a long time ago."
*****************************************************************************
1. "Rule No.1: Never lose money. Rule No.2: Never forget rule No.1"
2. "In a bull market, one must avoid the error of the preening duck that quacks boastfully after a torrential rainstorm, thinking that its paddling skills have caused it to rise in the world. A right-thinking duck would instead compare its position after the downpour to that of the other ducks on the pond."
3. "The fact that people will be full of greed, fear or folly is predictable. The sequence is not predictable."
4. "Be fearful when others are greedy. Be greedy when others are fearful."
5. "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price."
6. "When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is usually the reputation of the business that remains intact."
7. “You only find out who is swimming naked when the tide goes out.”
8. "Risk comes from not knowing what you're doing."
9. "If I was running $1 million today, or $10 million for that matter, I'd be fully invested. Anyone who says that size does not hurt investment performance is selling. The highest rates of return I've ever achieved were in the 1950s. I killed the Dow. You ought to see the numbers. But I was investing peanuts then. It's a huge structural advantage not to have a lot of money. I think I could make you 50% a year on $1 million. No, I know I could. I guarantee that."
10. "Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down."
11. "I try to buy stock in businesses that are so wonderful that an idiot can run them. Because sooner or later, one will."
12. "Price is what you pay. Value is what you get."
13. "I don’t look to jump over 7-foot bars: I look around for 1-foot bars that I can step over."
14. "If a business does well, the stock eventually follows."
15. "Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it."
16. "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."
17. "The line separating investment and speculation, which is never bright and clear, becomes blurred still further when most market participants have recently enjoyed triumphs. Nothing sedates rationality like large doses of effortless money. After a heady experience of that kind, normally sensible people drift into behavior akin to that of Cinderella at the ball. They know that overstaying the festivities — that is, continuing to speculate in companies that have gigantic valuations relative to the cash they are likely to generate in the future — will eventually bring on pumpkins and mice. But they nevertheless hate to miss a single minute of what is one helluva party. Therefore, the giddy participants all plan to leave just seconds before midnight. There’s a problem, though: They are dancing in a room in which the clocks have no hands."
18. "Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks."
19. "Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good results."
20. "Investors making purchases in an overheated market need to recognize that it may often take an extended period for the value of even an outstanding company to catch up with the price they paid."
21. "I like to go for cinches. I like to shoot fish in a barrel. But I like to do it after the water has run out."
22. "We don’t get paid for activity, just for being right. As to how long we’ll wait, we’ll wait indefinitely."
23. "In the business world, the rearview mirror is always clearer than the windshield."
24. "The investor of today does not profit from yesterday's growth."
25. "Someone's sitting in the shade today because someone planted a tree a long time ago."
*****************************************************************************
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