2007 Annual Report.

2007 Highlights
- Started to track securities investments as a fund.
- Studied books and articles related to Value investments esp. related to Buffet.
- Started this site. It is designed to contain two main subjects. First, general investor education and second to track my portfolio on a quarterly/half yearly basis. It will not contain discussion about any individual stocks.
- Portfolio grew by 84.3% in past 5 months.

Fund Performance Summary
Duration: Aug 14, 2007 - Dec 31, 2007
Price: 100.00 - 184.30: 84.30%
Sensex: 15,001 - 20,286: 35.23%

Annual performance report of my investments for the year 2007. Past year was good in terms of growth. I started tracking the my portfolio like a fund since Aug 14th, it helps me calculate the performance accurately. The portfolio was up 84.30% while sensex was up 35.23% during the period Aug 14 2007 to Dec 31 2007.

The best performing stock of last year was Jindal Steel and Power which rose close to 550%. And the moderate performing was Power Grid and Reliance Petro, both were added during past 3-5 months and provided average returns around 20%. Exited Wipro, during the beginning of the year and Infy towards the end after holding for couple of years.

Planning to continue is to limit the number of stocks holding under 20, preferably around 15, this will force to review the investments periodically and also help to weed out the weak stocks. Will try to reduce the number of transactions even more going forward, last year I entered and exited few stocks like Bhagiradha Chemincals, Banswara Syntex.

Performance Comparison Graph (vs Sensex)


Portfolio Details (*) (Rs)

Company Name	Avg Pur Price[Gain/(Loss)]	Lowest Pur Price[Gain/(Loss)]	Current Price(Rs)
Jindal Steel and Power Ltd.	1,760(774%)	487(3,059%)	15,395
Reliance Industries	602(379%)	280(928%)	2,882
Federal Bank	93(261%)	93(261%)	335
SBI	485(388%)	285(731%)	2,371
ONGC	369(234%)	238(419%)	1,236
Reliance Communications	196(282%)	0(**%)	746
Reliance Capital	856(202%)	0(**%)	2,587

* Split adjusted & without considering dividends.

New Additions (Last 1-12 Months)

Company Name	Avg Pur Price[Gain/(Loss)]	Lowest Pur Price[Gain/(Loss)]	Current Price (Rs)
GE Shipping	295(89%)	240(132%)	557
Tata Investment Corp	403(81%)	343(113%)	730
Sesa Goa	1,912(99%)	1,698(124%)	3,817
Tata Steel	567(65%)	517(80%)	935
Sunil Hitech	148(173%)	71(468%)	405
Reliance Petro***	198(12%)	168(32%)	223
Power Grid Corp***	116(23%)	98(47%)	143
Godawari Power***	294(17%)	285(20%)	345
Prime Securities***	186(61%)	177(69%)	300
Prakash Industries***	288(17%)	282(19%)	338
Sanghvi Movers***	223(38%)	204(52%)	310
SA Petrochem***	22(40%)	19(63%)	31

** Bonus shares from Reliance Industries.
*** Latest investment
Estimated tax liability(if all the investments are be liquidated today): ~1% of portfolio value.

Thank you for a wonderful 2007, and looking forward to 2008. Happy New Year!!

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Finding Firms with an Edge (Moat)

Morningstar's characteristics of identifying the moat of a company - by Pat Dorsey, Director of Stock Analysis, Morningstar.

First,
- Look at the numbers
Return On Invested Capital (ROIC) must exceed Cost Of Capital.

If this is true, then look for one of the following four characteristics which will enable the business to earn the high ROIC in future.
- Structural Characteristics
1. Intangible Asset (like Patent)
2. Low Cost Producer
3. Customer Switching Cost e.g: Oracle
4. Network Effect. e.g: eBay

Watch the Complete Video

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The World's Greatest Formula

Another 'Get Rich Quickly' scheme?? No, this one works; check it out yourself!!

The formula: FV = PV * (1+r) ^ n

Where:
FV = future value
PV = present value
r = rate of return
n = time (or number of years)

Compounding 101:
Now, some astute finance brains will know that equation not as some mystical secret but as the "future value of money" (FVM) equation taught in college.

The FVM formula simply states that your future wealth (FV) is a function of three variables: the amount of money invested today (PV), the rate of return generated (r), and the length of time in which that money is put to work (n).

So maximizing future riches requires three steps.

Step 1: Increase 'PV'
It takes money to make money. But by actively and consistently slivering off a portion of your earnings every month to save and invest, you'll have more and more of that money working for you.

All things equal, the greater amount you invest today (PV), the greater wealth you'll build for tomorrow (FV).

Step 2: Increase 'r'
Next, you'll need a way to grow that capital. Historically, the stock market has been the most effective wealth-building vehicle of all. Plowing your money into a low-cost index fund wouldn't be a bad idea. This is where the importance of right investment principles comes into play.

Step 3: Increase 'n'
The last ingredient in our super-simple wealth-building recipe: maximum time in the market.
Look back at the equation. You'll see that n is an exponential function -- meaning that for every year you're not invested, you give up the awesome (almost magical) benefits of compounding.
All things equal, the longer you're invested (n), the greater wealth you'll build for tomorrow (FV).

Final word:
So don't waste another "n." Start plugging whopping returns into your own real-life wealth equation today.

Source & Complete Article: http://www.fool.com/investing/small-cap/2007/12/05/the-worlds-greatest-get-rich-formula.aspx

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'An exclusive conversation with Warren Buffett' by Charlie Rose

http://www.charlierose.com/shows/2007/05/10/1/an-exclusive-conversation-with-warren-buffett

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Cyclical and Non-Cyclical Stocks

The idea behind cyclical and non-cyclical stocks is simple. When money is tight, what can you do without or put off, and what do you really need? You may want a new car, but if your budget is very tight, it may have to wait. However, toothpastes, toilet paper, and electricity can’t wait.

Cyclical Stocks
Cyclical stocks represent those items and services for consumers and businesses that they buy when confidence in the economy is high. Cyclical stocks follow an upward turn in the business cycle when businesses and consumers are spending money.

Cyclical stocks follow an upward turn in the business cycle when businesses and consumers are spending money.
Automobile companies are classic cyclical stocks. When the economy is good and people are working, car sales do well. However, if there are layoffs and uncertainty or high interest rates, people may decide to hold on to their car another year.

Businesses expand during good times. They buy new equipment and build new facilities, so equipment sales and construction are cyclical stocks.

When the economy cools, businesses run down inventory, put off expansions, and delay purchases. Cyclical stocks such as steel manufacturing and sales suffer when business slows down. Some of the very good examples of cyclical industries are automobile, heavy machinery, steel, furniture, airlines, etc.

Non-Cyclical Stocks
Non-cyclical stocks represent those items and services for consumers and businesses that they can’t put off no matter what the state of the economy. The stocks of companies producing these things are non-cyclical and are "defended" against the effects of economic downturn, providing great places to invest when the economic outlook is sour.

Two of the sectors, Consumer Staples and Utilities, are non-cyclical stocks and the rest are cyclical.

The classic example of non-cyclical stocks is utilities. Everyone from consumers to businesses needs water, gas, and electricity. When the economy is growing, these stocks tend to lag behind, however during economic downturns; their steady returns may look good.

Another classic example of non-cyclical stocks is household non-durable goods, such as toothpaste, toilet paper, cleaning materials.

Sources:
http://www.investopedia.com/articles/00/082800.asp
http://stocks.about.com/od/understandingstocks/a/CNCstocks.htm
http://ezinearticles.com/?What-Are-Cyclical-Stocks&id=396093

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Applying Behavioral Finance to Value Investing

What is Behavioral Finance?
Peter Bernstein states that the evidence "reveals repeated patterns of irrationality, inconsistency, and incompetence in the ways human beings arrive at decisions and choices when faced with uncertainty."

Behavioral finance attempts to explain how and why emotions and cognitive errors influence investors and create stock market anomalies such as bubbles and crashes. But are human flaws consistent and predictable such that they can be: a) avoided and b) exploited for profit?

Why is Behavioral Finance Important?
"Investing is not a game where the guy with the 160 IQ beats the guy with the 130 IQ…Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing."--Warren Buffett

Common Mental Mistakes
1) Overconfidence
2) Projecting the immediate past into the distant future
3) Herd-like behavior (social proof), driven by a desire to be part of the crowd or an assumption that the crowd is omniscient
4) Misunderstanding randomness; seeing patterns that don’t exist
5) Commitment and consistency bias

6) Fear of change, resulting in a strong bias for the status quo
7) "Anchoring" on irrelevant data
8) Excessive aversion to loss
9) Using mental accounting to treat some money (such as gambling winnings or an unexpected bonus) differently than other money
10) Allowing emotional connections to over-ride reason
11) Fear of uncertainty
12) Embracing certainty (however irrelevant)
13) Overestimating the likelihood of certain events based on very memorable data or experiences (vividness bias)
14) Becoming paralyzed by information overload
15) Failing to act due to an abundance of attractive options
16) Fear of making an incorrect decision and feeling stupid (regret aversion)
17) Ignoring important data points and focusing excessively on less important ones; drawing conclusions from a limited sample size
18) Reluctance to admit mistakes
19) After finding out whether or not an event occurred, overestimating the degree to which one would have predicted the correct outcome (hindsight bias)
20) Believing that one’s investment success is due to wisdom rather than a rising market, but failures are not one’s fault
21) Failing to accurately assess one’s investment time horizon
22) A tendency to seek only information that confirms one’s opinions or decisions
23) Failing to recognize the large cumulative impact of small amounts over time
24) Forgetting the powerful tendency of regression to the mean
25) Confusing familiarity with knowledge

Credits: Whitney Tilson
Complete Article

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Resouces for New Investors.

Moneycontrol Pehla kadam
Site dedicated for investor education
http://www.moneycontrol.com/pehlakadam/




ICICI University:
http://content.icicidirect.com/learning/university.htm



Motley Fool Investment Basics:
http://www.fool.com/school/basics/basics.htm



Wikipedia

http://en.wikipedia.org/wiki/Investment

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Interesting Quotes

"Investment is most intelligent when it is most businesslike" - Ben Graham

"Investing is a strange business. It's the only one we know of where the more expensive the products get, the more customers want to buy them" - Anthony M Gallea

Warren Buffett Quotes:
"I will tell you how to become rich. Be fearful when others are greedy. Be greedy when others are fearful."
"I don't try to jump over seven-foot bars. I look around for one-foot bars that I can step over."

“It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently.”
“Risk comes from not knowing what you're doing.”
“Wide diversification is only required when investors do not understand what they are doing.”
“Only when the tide goes out do you discover who's been swimming naked”
“You only have to do a very few things right in your life so long as you don't do too many things wrong.”
“If a business does well, the stock eventually follows.”
“There seems to be some perverse human characteristic that likes to make easy things difficult.” “Our favourite holding period is forever.”
“Rule No.1: Never lose money. Rule No.2: Never forget rule No.1.”
“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.”
“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 always knew I was going to be rich. I don't think I ever doubted it for a minute.”
“If past history was all there was to the game, the richest people would be librarians”
“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.”
“When a management team with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact.”
“We believe that according the name "investors" to institutions that trade actively is like calling someone who repeatedly engages in one-night stands a "romantic”
“Only buy something that you'd be perfectly happy to hold if the market shut down for 10 years.”
“I’d be a bum on the street with a tin cup if the markets were always efficient.”
http://en.wikiquote.org/wiki/Warren_Buffett

Charles T. Munger
"Read all the time"
"Be prepared, act promptly, in scale, on a few major opportunities."
"It takes character to sit there with all that cash and do nothing. I didn't get to where I am by going after mediocre opportunities"
"Compound interest is the eighth wonder of the world" - Einstein "Never interrupt it unnecessarily" - Munger

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Investment Advices

Investments based on advices/tips is tricky. We can get plenty of it from - Internet, brokers, friends, books.....

Few things to keep in mind about investment advices:

• The advice may be wrong!!
• Differences in investment style, the person who advised may have a different style of investment, stock may be volatile, and adviser may hold it through the price volatility.
• The investment time horizon for the adviser and the investor may not be same. In most of the cases, investment time frame is mentioned in the advice itself, but investor need to hold it for that duration.
• The way investor and adviser respond to news or market fluctuations may be different and it can affect the outcome.
• Chances of adviser acting not in the best interest of the investor.

Getting advice on investment principles and studying about it is good. But we need to be careful about advices on particular stocks. Even a good advice to buy a particular stock may not work the same way for all. Look at the advices as one source of information along with lots of other sources, but do own homework before investing. It's not adviser's money which is at risk!!

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Baby Boy!!

Oct 24th: 10:20PM

Baby boy 'Aiden' was born and I became a father!!

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Interesting Investment Articles

Links to interesting articles:

The Compounding Success Theory: http://www.frips.com/cst.htm

Gaining an Investment Edge (Fool.com): http://www.fool.com/investing/small-cap/2004/12/03/gaining-an-investment-edge.aspx

Articles by Sanjay Bakshi http://www.sanjaybakshi.net/Articles.html

Diversification: http://www.wallstraits.com/main/viewarticle.php?id=854

Buffet & Soros Investment Rules: http://www.typepad.com/t/trackback/763/4651946

Buffet Q & A: http://www.getrichslowly.org/blog/2007/08/26/questions-and-answers-with-warren-buffett/

The Psychology of Investing: http://www.nari-assn.com/news/psychology_of_investing.html

Thoughts on Value Investing - Whitney Tilson: http://www.fool.com/news/foth/2000/foth001107.htm

How Do You Compare? Thoughts on Comparing Well - Michael J. Mauboussin, Legg Mason
http://www.leggmason.com/funds/knowledge/mauboussin/Mauboussin_on_Strategy_080906.pdf

The Superinvestors of Graham-and-Doddsville - Warren Buffet
http://www1.gsb.columbia.edu/valueinvesting/research/public_archives/DOC032.PDF

How to Evaluate Management (6 part series): http://www.fool.com/specials/2001/sp010802.htm

Sustainable Competitive Advantage:
1. http://www.fool.com/boringport/2000/boringport000228.htm
2. http://www.fool.com/news/foth/2001/foth010306.htm
3. http://www.fool.com/news/foth/2001/foth010807.htm

How to Go Beyond the Financials : http://www.fool.com/news/foth/2001/foth010904.htm

Applying Behavioral Finance to Value Investing: http://www.tilsonfunds.com/TilsonBehavioralFinance.pdf

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My Guest Book

Please post your comments and feedback here.

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Diversification is for birds!!

My portfolio consisted of 24 stocks few months back. I have been reallocating the portfolio by reducing the number of stocks I am holding and allocating that capital to the stocks I consider better. As of today, I hold 16 stocks. My target going forward is to limit the holdings between 10-15 stocks.

Why would I do that? After-all diversification is 'the word' we read and hear a lot about. I started thinking about the subject after reading about some of the world's successful investors. I analysed my own portfolio and I am convinced that holding fewer stocks which I consider best investments is a better way to manage risk and to increase returns.

Another advantage of having limited number of stocks and setting an upper limit on number of stocks is that every time we come across a potential investment, we will be forced to evaluate and compare all the stocks in the current portfolio with the new one to find the least desirable investment. It may be one in the current portfolio (in this case we will have to sell the weak investment and buy the new one) or it may be the new investment under consideration (in this case we can eliminate the option of buying the new investment). This will force us to continuously evaluate the holdings & create a very sound portfolio. Read on...

Warren Buffet:
"Many pundits would therefore say the [this] strategy must be riskier than that employed by more conventional investors. We disagree. We believe that a policy of portfolio concentration may well decrease risk if it raises, as it should, both the intensity with which an investor thinks about a business and the comfort-level he must feel with its economic characteristics before buying into it."

Show the complete article [+/-]

"The strategy we've adopted precludes our following standard diversification dogma. Many pundits would therefore say the strategy must be riskier than that employed by more conventional investors. We disagree. We believe that a policy of portfolio concentration may well decrease risk if it raises, as it should, both the intensity with which an investor thinks about a business and the comfort-level he must feel with its economic characteristics before buying into it." - 1993 Chairman's Letter to Shareholders

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

"If you are not a professional investor, if your goal is not to manage money in such a way that you get a significantly better return than world, then I believe in extreme diversification. I believe that 98 or 99 percent — maybe more than 99 percent — of people who invest should extensively diversify and not trade. That leads them to an index fund with very low costs. All they’re going to do is own a part of America. They’ve made a decision that owning a part of America is worthwhile. I don’t quarrel with that at all — that is the way they should approach it. "

"We continue to concentrate our investments in a very few companies that we try to understand well. There are only a handful of businesses about which we have long-term convictions. Therefore, when we find such a business, we want to participate in a meaningful way. We agree with Mae West: ’Too much of a good thing can be wonderful.’"

Buffett likens a portfolio of 40 or more stocks as a Noah’s Ark way of investing--you end up with a zoo.

’If you have a harem of 40 women, you never get to know any of them very well.’ At the end of 1999 and 2000 Berkshire had 70% of its investment funds in just four companies. Buffett and Munger concentrate their attention, skills and experienced judgment because it is ’too hard to make hundreds of smart decisions.’

Buffett’s and Munger’s notion of risk differs from that of the standard finance textbooks, because they focus on the possibility of loss and injury. In contrast, academic finance courses focus on the relative volatility of a stock or portfolio of stocks (compared to a large universe of stocks). The two are related, but not identical. As Buffett says: ’For owners of a business--and that’s the way we think of shareholders--the academics’ definition of risk is far off the mark, so much so that it produces absurdities. For example, under beta-based theory, a stock that has dropped very sharply compared to the market--as had Washington Post when we bought it in 1973--became ’riskier’ at the lower price than at the higher price. Would that description have then made any sense to someone who was offered the entire company at a vastly-reduced price?’

George Soros:
"Diversification is for the birds."

Peter Lynch:
"The smallest investor can follow the Rule of Five and limit the portfolio to five issues. If just one of those is a 10-bagger and the other four combined go nowhere, you’ve still tripled your money... The part-time stock picker probably has time to follow 8-12 companies, and to buy and sell shares as conditions warrant. There don’t have to be more than five companies in the portfolio at any time."

The crucial consideration is allowing enough time to be able to develop and maintain a high level of knowledge about each of the companies. "Owning stocks is like having children--don’t get involved with more than you can handle." All stocks in the portfolio have to pass some stiff tests and you will not know if they pass the tests unless you are able to spend time analyzing them.

Philip Fisher:
"It never seems to occur to them, much less to their advisers, that buying a company without having sufficient knowledge of it may be even more dangerous than having inadequate diversification."

Fool's article on diversification: http://www.fool.com/investing/value/2007/08/13/why-diversification-can-leave-you-behind.aspx

Credits: http://www.wallstraits.com/main/viewarticle.php?id=854

investment style

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Soros & Buffett Investment Rules

In "The Winning Investment Habits of Warren Buffett and George Soros," its author outlines their 23 "winning" investment habits - tactics and strategies that he believes other investors can learn from.

Following are the 23 habits:

1. Believes the first priority is preservation of capital.
2. As a result, is risk-averse.
3. Has developed his own investment philosophy, which is an expression of his personality. As a result, no two highly successful investors have the same approach.
4. Has developed his own personal system for selecting, buying and selling investments.
5. Believes diversification is for the birds.
6. Hates to pay taxes, and arranges his affairs to legally minimise his tax bill.
7. Only invests in what he understands.
8. Refuses to make investments that do not meet his criteria. Can effortlessly say 'no'.
9. Is continually searching for new investment opportunities that meet his criteria and actively engages in his own research.
10. Has the patience to wait until he finds the right investment.
11. Acts instantly when he has made a decision.
12. Holds a winning investment until a pre-determined reason to exit arrives.
13. Follows his own system religiously.
14. Is aware of his own fallibility. Corrects mistakes the moment they arise.
15. Always treats mistakes as learning experiences.
16. As his experience increases, so do his returns.
17. Almost never talks to anyone about what he's doing. Not interested in what others think of his investment decisions.
18. Has successfully delegated most, if not all, of his responsibilities to others.
19. Lives far below his means.
20. Does what he does for stimulation and self-fulfilment - not for money.
21. Is emotionally involved with the process of investing; but can walk away from any individual investment.
22. Lives and breathes investing, 24 hours a day.
23. Puts his money where his mouth is. For example, Warren Buffet has 99 per cent of his net worth in shares of Berkshire Hathaway; George Soros, similarly, keeps most of his money in his Quantum Fund. For both, the destiny of their personal wealth is identical to that of the people who have entrusted money to their management.

Credit: http://www.typepad.com/t/trackback/763/4651946

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Buffet Q & A - Excellent

The Best Investment Advice you can get anywhere!! (10 videos)

In 1998, at the beginning of the tech bubble, Warren Buffett spoke to a group of MBA students at the University of Florida. He answered questions about his investment philosophy. Though this presentation was made almost nine years ago, his advice is just as valid today. He touches almost all the aspects related to investments. Its a series of 10 videos, be sure to listen to all. Click on menu to view all the 10 videos.



"I believe that 98 or 99 percent — maybe more than 99 percent — of people who invest should extensively diversify and not trade. That leads them to an index fund with very low costs."

"Wall Street makes its money on activity. You make your money on inactivity"

Read more about this Q & A

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My Investment Principles

- Stock prices without details about the company does not indicate if a stock is over or undervalued. e.g Rs. 10,000/- per stock may be undervalued for a company while Rs. 10/- may be overvalued for another.

- Do not invest in stocks if you cannot or have no plans to keep the money invested for at least 3 years.

- Don't panic on price fluctuations (for no reasons which affects the company/ industry). Check to see if it is a good opportunity to buy shares of strong companies.

- Before making the investments itself, be prepared to see the stock loose value of up to 50%. And think about what you will do in case that happens. This will act as a practice and you know know exactly what to do when that happens.

- Do your research at a regular intervals (3-6 months) on each of your holdings to verify if all the reasons for which you brought the asset still holds.

- Listen to others and advices, but always do your own research before acting on it. Remember: advice is free, but its your money which is at risk!!

- Invest in good companies only. Don't invest just because a stock is going up or down.

- Read about the investment principles, broaden your knowledge.

- Write down your investment principles, and look at it before you make an investment to make sure that is it according to your principles and does not deviate from your principles.

- Don't invest in stocks to make some quick bucks!! Yea, you may get lucky few times, but when you try to repeat it, you may loose everything. Invest for long term to create wealth.

- After making an investment, if you think you did a mistake, don't wait; just sell that asset and exit. Even if it is down, don't wait it to come back to same level, it could become worse. You will be able to find better opportunities; if not, you are better of not investing at that point of time and keep looking.

- Don't have too many stocks in the portfolio. Yea, diversification is good, but I would rather invest in few very good undervalued companies than to invest in many companies to reduce the risk. If you are not sure, choose index funds.

- Don't invest all of the available fund to an asset at one time. Make multiple transactions over a period of time. Don't think right now is the best time to buy or sell, and that you will miss the opportunity. Remember that you are investing for long term and investing everything at one time can do more harm than good.

- Understand that you are investing in a business. Allow the capital to be used and give the business time to grow and provide returns.

- Don't get into the game of chasing the price and timing the market. You may succeed a few times and make 'some' quick money, but I doubt that anyone can do it repeatedly over a long period of time. But remember, you are not in it for some small quick bucks, but to create wealth which lasts for a very long time.

- Choose an investment strategy which will keep you happy for a very long period of time, not just for few days.

- Never invest with money you don't have!!! "To make money they didn't have and they didn't need, they risked what they did have and did need. That is plain foolish!!" - Warren Buffet on Long Term Capital Management (LTCM) bosses.

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Real Meaning of Risk

An article I found very interesting (From fool.com)...

The world of academic finance tends to promote the modern portfolio theory, which says that, in investing, risk is equal to volatility. We're taught to look at risk in terms of a stock's beta. But I disagree with the notion that beta is an adequate measure of risk.

Now, I have the utmost respect for all of the teachers in my life -- the value they've added to my career is priceless -- but most academics tend to look at the world in neatly packaged scenarios instead of focusing on real-world applications. In the real world, viewing risk in terms of volatility is mere folly. I can even use a real-world example to prove my point.

An illuminating example
Back in 1973, Berkshire Hathaway's (NYSE: BRK-A) (NYSE: BRK-B) Warren Buffett began accumulating shares in Washington Post (NYSE: WPO). At the time, the Post owned a top-tier collection of media assets, including Newsweek, the Washington Post newspaper, and several television stations in major markets, and it was selling in the market for $80 million. Buffett concluded that the Post's assets could easily fetch some $400 million or more if they were auctioned off.

Shortly after he made his investment, the stock price declined. With a lower market capitalization, the beta of Washington Post stock would have been higher. So, to people who look to beta as a measure of risk, the Post was now a riskier investment. Yet to this day, I can't understand why it would be riskier to buy $400 million worth of assets for $40 million than for $80 million.

The problem with beta as a measure of risk is that it focuses on the one aspect of a stock price's movement that is of the least importance. Beta fails to consider business risk, asset valuations, and all other fundamentally sound business-like valuations. So the idea of selling a business only because its price has declined is not only silly, but it also guarantees subpar investment results in the long run.

Real risk
So what is risk? Well, risk should be viewed as the likelihood of permanent loss of capital. Betting at a casino is a good example. And it is in this context that the risk-versus-reward profile should be assessed. When you buy shares in a business for $30 apiece because you have determined through data analysis and your reasoning that the shares have an intrinsic value of $60, but then the stock tanks to $20, you have not taken on risk but mere price volatility. Of course, you should naturally go back and determine that the intrinsic value has not materially changed for the worse. If it hasn't, then your investment has really become less risky, and you should view the price volatility as an opportunity to take advantage of a better bargain.

It's this misunderstanding of risk that causes investors undue stress and results in sloppy buying and selling. Buffett used to say that you should be able to watch your investment decline by 50% and not feel pressured to sell. Mohnish Pabrai told me that a stock's price immediately tends to decline whenever he buys a stock and shoot up when he sells, yet the declines don't bother him, since he doesn't concern himself with price volatility.

Indeed, several years back, Pabrai was buying Universal Stainless and Alloy (Nasdaq: USAP) at around $15 a share, after which the stock eventually fell to $5 a share. Sitting on a paper loss of more than 50%, Pabrai viewed the decline as nothing more than excessive market volatility and believed that it had nothing to do with the stock's intrinsic value. He was right -- he sold years later for an impressive profit. If Pabrai had sold out at $5 out of fear, he would have taken a substantial loss in capital and would have been forced to look for a three-bagger just to get back to where he started.

With the right temperament and discipline, investing successfully can be rather simple. Just ask the masters.

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Launching NAV to track performance.

To help with tracking the performance of the portfolio, I am planning to use NAV (net asset value). The calculation is simple and the details and an example can be seen at http://www.fool.com/FoolFAQ/FoolFAQ0056.htm. This helps me to track the performance more closely and accurately.

Date of Launch: August 14, 2007
Initial Price: Rs. 100/-

The portfolio and share price calculations is based on the complete portfolio value which includes value of securities & cash holdings.

The latest NAV information can be viewed in the sidebar.

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Investment Opportunities

I believe Insurance industry in India could see tremendous growth in future.

With privatization of insurance, different insurance products are becoming popular. And there is a market for wide variety of insurance products. With the cost of medical care (especially for advanced medical care) there could be a lot of demand for insurance products. We are already seeing the push from companies which are selling these insurances. Many of the companies now offer medical insurance for their employees and families. Once the hospitals are equipped to use the systems this could become even more popular. I think investments in companies which manages the risks correctly, is a good investment opportunity.

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'Stock Guy' - a short story

Tom works in IT.. enjoys his work, & his time with friends... while they were chatting one day, he heard one of his friends talk something about the stock market. he didn't care much about it... then another day 'stocks' came in another friend's conversation, he was bragging about how much money he made the other day.. this happened couple of times. Hmm... Tom thought 'Man, I think I am missing out on it & MUST try my LUCK at it!!'. Sure enough, he goes and opens a trading account.

He asked for 'expert' advice from his friends, and he gets plenty of tips on 'hot stocks'.. advice on how to make quick bucks easily. Tom is all excited & follows the advice, makes few trades and his investments are luckily in profits. He made few trades based on 'secret' expert advices from his friends.

Hmm.. now Tom gained confidence and he thinks this is easy and he can handle it. He made few trades himself and made some money... aha.. Tom now considers himself an 'expert', he often mentions his investments & stock markets in his conversations. This goes on for sometime, and he started to 'loose' the excitement and slowly started to try margin trading, options, etc. Now, that is something good & exciting. Tom starts with small amounts & makes some quick money, hmmm.. he liked it and tries his luck with huge amounts. With help from the brokers and multiple accounts opened with different traders, he had a huge margin available. Everything was going well, brokers were happy and they talked every day. In fact, Tom was one of their 'best' client, he had special privileges and yes, he enjoyed it!!

One day it happened, market crashed a huge percentage, he was now in huge loss. And to make matters worse, the crash kept continuing. Now our Tom was in deep trouble, he was being chased by the same brokers to get their money. He had no where to go & took multiple loans to pay brokers, he knew that it will takes years of his earnings to pay for all his debts. Lost the glamour of 'stocks', in fact he hated stocks. Tom finally took that decision - NO MORE STOCKS!! He does not even want to hear about stocks!!! All he wants was his life back.

Its been couple of years now, all his debts are almost paid...

Tom is still in IT, enjoys his work & his time with friends... while they were chatting one day, he heard one of his friend talk something about stock market.....

Will he go back to the state where he started and repeat the same mistakes, or will he decide not to gamble, but to study and invest for long term or will he totally avoid stock? Let's wait and see..

Are you today at any stage of Tom's story?? Now that you already know the story, do you really want to experience it??

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Four Good Reasons to Sell a Stock.

Based on Morning Star report by Pat Dorsey

NOT a reason to sell:

Share price just went down 10%.

Good Reasons to sell:

1. Shares are overpriced.

Price appriciated far too much and far beyond anything reasonable. If you own a $1 really worth 50 cents, its time to sell.

2. Declining fundamentals.

Fundamentals were good when you initially purchased the stock, but over time the fundamentals of the stock/company has declined.

3. You were wrong.

You bought the stock based on certain calculations about the company, but didnt work out as expected.

4. Position too large.

Your initial allocation for the stock was 10% of portfolio, but now it has grown to a significant portion of your portfolio. Its may a good time to think about rebalancing the portfolio.

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Interesting readings

http://permanent-value.com/Research/Investing%20Thoughts.pdf


http://permanent-value.com/NewsArticles/2001%2001-13%20Graham%20-%20Forbes%20Greatest%20Investing%20Stories,%20Chapter%201.pdf


Lots of short topics listed here:
http://www.valueinvestigator.com/valuelibrary/

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Real estate market in India

Discussions & articles I came across on the topic - Real estate market in India.

http://indianeconomy.org/2006/12/13/is-there-a-bubble-in-indian-real-estate/

http://in.rediff.com/money/2007/may/07realty.htm

http://en.wikipedia.org/wiki/Indian_property_bubble

http://www.deepakshenoy.com/articles/realestate/realestatecf.htm

Interesting comparision
http://www.stock-market-crash.net/tulip-mania.htm

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Investments

Ongoing:
- Keep looking for great companies.
- Keep a list of stocks you would love to buy if you hit a Jackpot. And keep it updated.
- Buy the stocks in your list when it is below the intrinsic value. Market panic selloffs due to reasons which does not affect the company are good times to buy.
- Dont invest in too many companies.

One stock:
- Read/Study all possible things about the company.
- Buy only if the company passes your selection process & current price offers a 'margin of safety'.
- Buy it over a period of time (cost averaging).

Portfolio:
- Analize your stocks at a regular interval (6 months) to make sure that the reasons for which you invested in the company is still valid.

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Portfolio

Investments (*)

Company Name	Avg Pur Price(Rs)	Lowest Pur Price(Rs)	Current Price(Rs)
Jindal Steel and Power Ltd.	1150	487	2994
Reliance Industries	605	280	1626
Infosys	1022	545	2081
Federal Bank	93	93	241
SBI	485	285	1123
ONGC	369	238	919

* Split adjusted

New Additions (Last 3-4 Months)
Bhagiradha Chemicals
GE Shipping
Tata Investment Corp
Sesa Goa
Tata Steel
Allianz Securities

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Useful Resources

Portfolio Management:
I was using ICICI Direct (www.icicidirect.com) for my portfolio management which comes as part of the account. And it lack even the basic functionality. It is really poor for portfolio managment and tracking.

Recently I came across www.moneycontrol.com 's portfolio management, it is free and its great!! I love it. Also, they provide a consolidated view of all the news, messages related to the companies in portfolio.

Charting:
Yahoo India finance's (http://finance.yahoo.co.in) charting is good. They provide easy charting, comparision to sensex and upto 3 companies in same chart.

www.economictimes.com also have easy charting, but offer no comparision.

Research & Analisys:
Quots & ratios from moneycontrol and icicidirect.
Economictimes also provides helps.

Stock Screening:
www.icicidirect.com provides couple of predefined stock screenings and a basic custom screening tool.

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Buffet Readings..

Morning Star Article:
Good Article on Investment Style of Buffet.
http://news.morningstar.com/article/article.asp?id=191671&pgid=rss

http://permanent-value.com/NewsArticles/Buffett%20Speaks%20_2.pdf

Buffet Quotes:
http://www.wordpower.ws/quotations/warren-buffet-quotes.html

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Welcome

Welcome to Value Investment Blog!!

Forum for Investor Education and to discuss investment ideas for share market with a long-term view.

Welcome to share your ideas!!Please do your own research before investing in any stocks mentioned in this blog. Use this blog as a medium to identify potential companies to do own research and invest.

Thank You!!

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