There is one activity that an investor can never over do — reading.
But it’s important that you read things that build your knowledge and help you make better investing decisions. Avoiding the noise is as crucial as reading the timeless stuff.
In this post, we’re sharing few good pieces that we came across this week …
So my advice is: take advice with a grain of salt. Especially at the early stages, where it’s more art than science. Get comfortable operating with a lot of variability and learn to trust your instincts.
A basic tenet of long-term investing is to look for high quality listed businesses. This essentially implies 1) they earn returns above cost of capital (reflected by return on capital employed), and 2) generate strong free cash i.e. they don’t require a lot of capital (fixed assets and/or working capital) to grow revenues and profitability. Those retained earnings can then be utilised either to acquire other companies in same line of business or diversify. Alternatively, excess capital could be returned to shareholders via dividends or buyback.
But have you ever wondered why would a promoter of such a business list his company as it involves diluting a significant chunk of his ownership to minority investors?
Dalal Street has turned slower in creating multibaggers this financial year. Despite 15 per cent rally in BSE Sensex, the financial year is ending with least number of stocks giving extraordinary returns in 10 years.
Going by historical data, the poor show this financial year could be harbinger of a good harvest next year. Some analysts are already forecasting more big compounders on D-Street in 2019-20.
Another flaw with thinking about happiness is that because we’re thinking, we end up over-emphasizing easily-thinkable aspects. Whatever is easy to count is easy to think about. That is why we think more money will make us happier because a 30% rise requires only a couple of bits of information to store and process. We think going to a place, marrying a particular person, or taking a particular job will make us happier because all of these are simple, easily-thinkable ideas.
When it comes to happiness, what we fail to plan for is whatever is hard to think about. You cannot visualize that the day-after-day of slogging at an incredibly hard task for years could make you happy. Yet it does! (Ask Olympic athletes who paradoxically feel less happy after winning a medal than how they felt while training). What we fail to think is that perhaps meditating will make us happier because our thinking mind cannot comprehend how a not-thinking mind can be a more pleasant state.
It’s normal to look for short-cuts, but If you’re really trying to learn about a business, ratios are not a fundamental hack. Like Michael said, “Multiples are not valuation. Multiples are shorthand for the valuation process.”
My journey started with the price/earnings ratio. It ended with me buying index funds. I’m lucky I learned at a young age, through trial and a lot of errors, that there is more to being a successful stock picker than comparing a stock’s price to the company’s earnings.
If you’ve read something interesting, feel free to share it with us.