The eleventh part of the Series is “Current temptation, future frustration”. This series is based on the companies which are currently darling of the market and many trying to catch such opportunities but it has a probability to become a reason for future frustration. It can wipe out the majority of gains in wealth. I am trying to put some of the number-crunching facts by which we can identify ongoing issues in the companies and can be saved our wealth.
I am starting this article with one of the company which is engaged in the business of providing IT Consulting and Software Development Services has a 52 weeks low price of Rs.1.68 and LTP is Rs.7.59. This company has rewarded ~4.52x of return in a year.
Let’s start looking at the numbers.
We can see that sales of the company keeps falling losses at the operating level and not earning profits.
We can see that higher receivable days and lower payable days where we can say that almost 3.96 years of receivables.
The company has ~87% & 89% of other current assets to staff advances in FY21 & FY20 respectively. These advances keep growing and do not get repaid.
We can see that lower return ratio and worsen over a period as financial worsening. Also, the company has worsened with the worst performance.
We can see that majority of borrowings from related parties and interest expenses are very lower still the company cannot able to perform well.
This entire series is based on past available data and ignored the future development in companies and the stock market always looks at the future.
We have to analyze various aspects before making any investment. We may make mistakes and mistakes are essential to learning about and correcting them for better growth.
People make an investment with emotion rather than with mind which led to losing money by a majority of people. At last, they become a dreamer, speculator, or broke down. When someone told us about a good deal and earning good in the future then our emotional bias comes into the picture and become greedy as well. This emotion stops us from making wise decisions.
If we want to be successful in the B and I quadrant then we have to train our mind that we can observe what others used to ignore. We can start by getting more about financial literacy. Our ability to create more money will bring more money for us. This education helps us with taking proper steps and investing becomes less risky for us. Education will help us to differentiate between good and bad advice.
Also, when we know about investing, we or our advisors choose to provide us higher yield with a less risky avenue.
We need to understand that when we buy any property on a mortgage then that’s not our assets rather than its and assets of a bank. It will fall under the liability side of the balance sheet. When we fail to make payment on time, the bank will take over that property from us. Taking debt is not always bad but if we take personal debt then it must be small. And if we go for a huge dent then someone working for paying it. That’s means business debt.
As we have learned in the series of rich dad poor dad that we consider assets to only be those properties that generate a cash inflow to us. All other properties are considered as our liabilities.
Now, comes to savings and deposits then yes those are not taking any cash flow out from us so that is our first level of assets.
Many of us spending our life on the opinion of others rather to focus on the fact. We should only trust facts nothing else.
When it comes to money, most people are either lazy or searching for shortcuts, so they don’t do enough due diligence. And there are still others who are so afraid of making mistakes that all they do is due diligence and then do nothing. Too much due diligence is also called ‘analysis paralysis.’ The majority cannot become financially free because they live in debt till die. So, this will not bring freedom for them.
Being Financially uneducated is riskier rather invest.
Learning investment is more essential than any other profession. Because other professions teach us to work for money and investment teaches us how money works for us.
We have to learn financial knowledge by ourselves because if you go for the insurance salesman and ask that insurance is essential or not then he sells you his product. If we want to learn about investment then go with the advisor who is investing their fund, not to them who just sell advice. Also, we need to keep in mind that there is not a single assets class that is responsible to create wealth.
Success or failure, wealth or poverty, depends solely on how smart the investor is. A smart investor will make millions in the stock market. An amateur will lose millions.
Different levels of investors
The Zero-Financial-Intelligence Level
These are people who do not have any financial intelligence, they spend more than they earn. They believe in looks like rich rather be rich. Though they are earning well, they will reach zero due to their zero financial intelligence. If we do not have any savings, have liabilities, no income generation from the assets column then we need to first focus on repayment of liabilities. These will help us to come out from these levels.
The Savers-Are-Losers Level
These people know that savings are essential for future unforeseen events. But they keep saving money either into a saving account or into the government bond / FD. These all instruments are considered safer but when we compared them with inflation, these instruments do not provide us with protection against inflation. Due to its nature of not protecting against inflation, it even becomes riskier. In general, savers are losers.
The I’m-Too-Busy Level
These people are busy with their careers, family, other interests, and vacation. And due to such a busy schedule, they do not have time to become financially intelligent. So that they deliver their money to the expert to manage on behalf of them. They consider experts have expertise. When the market is into the bull phase, everyone is an expert but we can come to know about the real expert during the bear phase of the market. They invest in many of the avenues but if the market phase changes to the bear then they will also lose everything.
The I’m-a-Professional Level
This is the do-it-yourself investor. This investor may buy and sell a few stocks, often from a discount broker. They think that why should pay a broker when they can do investment by themselves. These people spend their lives in a small area of assets class but we have to understand that investment is a huge subject and we should keep learning about the wider area of it. Those who understand this concept and invest time in learning about investment can able to move to level five. Level-4 investors take control of their lives, knowing that their mistakes are their opportunities to learn and to grow. The fear of investing does not frighten them. It challenges them.
The Capitalist Level
These can be rich people, businessmen, or moves from level 4 to level 5.
These people know that they have to give more to receive more. They focus on raising more money which requires them to focus on their skills, business systems, and people.
We have seen in the first article of the series that the author did not have money and from zero, he has created wealth. So we also can create wealth from zero. Thus, we stop giving the excuse of not having money.
We have to perform a self-analysis about where we stand today? What is our level?
The “I” quadrant is the most important quadrant for our future. If we do not focus on it then we cannot have a good financial future.
When we have to choose the B quadrant then we have to create a system and people will work for that system.
In the B quadrant, we need to know both system and people. It can be possible that our initial business might not work but we just have to focus on improving ourselves, our knowledge of the system, and people. Improvement in our knowledge only brings success in front of us. And it’s essential to get failure in initial business because if not then we will end up with big blunders later on. So, success is a poor teacher and failure teaches us a good lesson. Welcome failure, not run away from it. Learn from it and grow well.
If both the people and the system are leaky, the chances of failure are great. Sometimes it’s hard to know whether the problem is the person or the system that is failing.
There are few ways by which we can get support for starting a business
Find a mentor
A mentor who has operated his own business, not an advisor who has not operated any business. We need to learn from a mentor. Mr Sanjeev Bhikhchandani (Founder of Naukri) has supported Zomato.
We have to become a leader, not a manager. A manager sees subordinates as inferior but the leader appreciates smarts and brings them with him.
Buy a franchise
Franchises are a proven system. So here we are directly buying a system, not building our own. Now, we have to work as an E and follow what they told us to do. Because they have done it rightly, we should follow it right to get succeed. Investors or bank would lend money to a system rather than to a product.
Get involved in network marketing
Here also buy the existing system at a reasonable value and build own business. We get infrastructural benefits from a network marketing company. It’s a kind of buying a personal franchise.
For becoming a successful B, we require to have a few things to keep in mind
Don’t be fearful
People feel fear of what others say to them. Feel fear of getting a rejection.
Have to work with different kinds of people. For becoming successful, we need to learn to work with different kinds of people, lead them.
The system is only going to help us to drive successfully towards the B quadrant from the E or S quadrant. Building a system and working with people is lifelong learning for becoming successful in the B quadrant.