10 – Current temptation, future frustration

The tenth 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 trading has a 52 weeks low price of Rs.9.60 and LTP is Rs.62.2, a 52-week high of Rs.79.2. This company has rewarded ~6.48x of return in a year.

Let’s start looking at the numbers.

We can see that the company has high volatile sales, OP Margin% and not earning profits.  

We can see that higher receivable days and payable days where we can say that almost 3 years of receivables and a year of payable. Shocking…..

The major balance sheet item is advance recoverable and for that, there is no provision made by the company.

The company does not have a good return ratio.

When we look at the shareholding pattern then promoters hold only 6.89% now and the remaining hold by the public. If the promoters have trust in the performance of the company then they have to hold higher holding.

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.

Disclosure – Companies mentioned in the article are just for an example & educational purpose. It is not a buy/sell/ hold recommendation.

This series contains learning from books –

Financial Shenanigans

Quality of Earnings

The Financial Numbers Game

Creative Cash Flow Reporting

You Cannot See Money with Your eyes

If we see some tempting offer then we must have to be suspicious. There is no free lunch available.

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.

Read for more detail: Rich Dad’s Cashflow Quadrant: Guide to Financial Freedom

I am grateful to Mr.Meihol Jhaveri (Founder of Gatisofttech) for the development of the Lucky Idiot website.

09 – Current temptation, future frustration

The ninth 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 trading textiles has a 52 weeks low price of Rs.2.13 and an LTP is Rs.46.90, 52-week high price of Rs.52. This company has rewarded ~22.02x of return in a year.

Let’s start looking at the numbers.

We can see that the company has high volatile sales, OP Margin%.

We can see that higher receivable days and payable days where we can say that almost 5 years of receivables and 7 years of payable. Shocking…..

We can see that the entire receivable and payable are from a single entity.

The company does not have a good return ratio.

When we look at the shareholding pattern then promoters hold only 1.03% in March-2018 which is ZERO now and all hold by the public. If the promoters have trust in the performance of the company then they have to hold higher holding.

Disclosure – Companies mentioned in the article are just for an example & educational purpose. It is not a buy/sell/ hold recommendation.

This series contains learning from books –

Financial Shenanigans

Quality of Earnings

The Financial Numbers Game

Creative Cash Flow Reporting

The Five Levels of investors

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.

Read for more detail: Rich Dad’s Cashflow Quadrant: Guide to Financial Freedom

I am grateful to Mr.Meihol Jhaveri (Founder of Gatisofttech) for the development of the Lucky Idiot website.

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