Learning investment lessons from movie “Rajneeti”

Posted on May 17, 2016 by Jimit Zaveri under Investment Philosophy

I again watched one of my favorite movie “Rajneeti” (Politics) and this time I get idea to connect this movie with an investments lesson. So I try to explain some of the lessons which I learn from movie in a simple manner. Lesson may or may not be as per the story timeline.

Clear with objective

In movie, Arjun Rampal (Prithviraj Pratap), Manoj Bajpayee (Veerendra Pratap) and Ajay Devgan (Sooraj Kumar) having clear objective of winning election. As same we must have to be clear with our investment objective. Many of us doesn’t have any objective for making an investment and also many of us not clear with making an investment or doing trading.

Both investment and trading needs different psychology so that its extremely difficult to handle both simultaneously. Thus, we have clear with making an investment or doing trading and what is the objective for making an investment.

Future is unforeseen and uncertain so never make much more expectations from future

At the time of election, president of political party faced severe heart attack, Murdered of new president, At the last phase of election, Arjun Rampal got killed who having better chance of winning election respectively.

These above all incidents teach us that future is highly uncertain and unforeseen. We ever never know about the future. So we should focus on what currently we have rather focus on future story. That story may or may not be true but on the basis of that story we should not get over optimistic or over pessimistic. Ex: – GST will clear and that benefits to many sectors but that may or may not be get clear. Based on such uncertain events we make many investment positions and if not get clearance then investment get fail. So rather focusing on such events need to make an investment in such a company which have shown growth, not depend on GST and if GST get clearance then that will be work as bonus for business. Thus, we have to keep ready for any of the situations.

Always remain calm & cool; never be fall in trap of aggression

My favorite characters from movie are Ranbir Kapoor (Samar Pratap) and Nana Patekar (Brij Gopal) who always seem to be calm & cool in any of the situations. Never get aggressive in any of the situations. From starting to end, they execute their every strategy with good control on temperament.

And on other side, Arjun Rampal (Prithviraj Pratap) has invited many troublesome situations with fall in trap of aggression and losing control on temperament.

So as same we also need to be remain calm and cool in every market condition. Either condition can be favorable or unfavorable. As we lose control from our temperament, we start inviting troublesome situations. In aggression, sometimes we can make an investment which we should not need to make. After making decision, we have to suffer a lot. The situation will not be going to change as we make changes our metal status and rather situation become more worst. Thus, we should make any decision, in any situation with remain calm and cool.

Always focus and trust on our decision and not get disturb with noises

In movie, Ranbir Kapoor (Samar Pratap) and Nana Patekar (Brij Gopal) are very clear with their decision, strategies and ideas. They don’t have doubt on their own decisions; also not make changes or get disturb with outside noise.

When Ranbir Kapoor ask to Arjun Rampal for putting resignation from post of party president then he not get disturb with arguments from Arjun Rampal and remain stick with original strategy.

As the same, we also have to focus and trust on our decision rather to focus on prevailing noise. As when we start focusing on noise then our decisions will not remain stronger; we start creating doubt on our decisions. One unreliable noise can influence us to change our decision and that will bring us in a miserable situation.

Need to change our strategy as our assumptions get change

We have seen in movie that whenever original assumptions get change, Ranbir Kapoor and Nana Patekar has make changes in their strategy.

As Ranbir Kapoor has seen that assumption of getting party fund by getting married with Katrina Kaif looks like failure then he makes changes in his strategies.

So as the same whenever our original assumptions of investment decision get change then immediately we have to make changes in our strategy. We must have to be remain dynamic to be change with changing environment and assumptions. Then and only then we can able to survive and also able to get decent returns from our investment.

Focus on sharpening our skill, luck can come to our door any a time

In movie, Ajay Devgan has sharpen his skill like to be a strong, smart and strategist but luck has supported him to become a member of core committee of political party. So if he has not skill then luck also can’t able to help him.

Luck and Opportunity never knock at our door frequently. So we must have to be ready with sharpening our skill. We don’t know when market provides us an opportunity and at that time if we don’t have a particular skill then that we have to lose lucky moment.

Successful are not those who only appear on public platform & on media

We have seen in movie that Ranbir Kapoor has worked as a backbone of Arjun Rampal. He never comes to public platform. But he was the real strategist. He helps his party for winning election by making good strategies. As real successful person need to consider as Ranbir Kapoor not Arjun Rampal.

So that it’s not necessary that those who appears on public platform and on media, they only are successful. There are many investors who never or rarely comes on public platform and they are really very successful investors. We generally get biased with to whom we see regularly on media, they are only successful. So we need to learn to do our work silently and getting close to our goal.

Always remain humble

In movie at last, Nana Patekar again provide job to father of Ajay Devgan. Though Ajay has created many worst situations for Nana Patekar & family.

We never have to forget that our success not only because of our skill, there is a part of luck. That help us for remain humble forever. Everything work as a pendulum, so that we never have to be egoistic whenever getting good returns on our investment.

Bonus

Nature and surrounding environment provide us an ample opportunity to learn and understand. So we just need to think and see the whole world with the learning attitude.

Watch movie “Rajneeti” for better understanding above article.

Equity Investment is as similar as a Human Life

Posted on April 17, 2016 by Jimit Zaveri under Behavioral Finance, Investment Philosophy

This article born at the train yesterday when I was coming back to Surat from Mumbai after attending wonderful seminar of Dr. Vijay Malik Sir. A good utilization of spare time which I got at train.

Yes, there are some of the similarities between our life and stock market or equity investment. Our life is as similar as we make an equity investment.

I basically try to encourage equity investment and sharing my learning in simple manner as much as possible.

As I always consider our life and equity investment in a similar manner. But I got inspiration to write this post from article (15 unknown flops of successful people) which I read few days back.

From that article I inspire to connect dots and try to explain that our life is as similar as an equity investment.

So how there is a connection between Human Life and Equity Investment????

Let me take examples of few successful persons.

1) Steve Jobs

a-collection-of-quotes-from-steve-jobs-10-638

One of the person whose life has impact on my life. We know him today as a very successful person but have we check that how was his earlier life when he was struggling.

In today’s world, we known him as a highly successful person but in his previous life, he also got many shock. And he fights against those shocks and run for his dreams.

We never try to focus on the pain which any successful person faced.

S.Jobs Life

Let me take one another example of our most favorite person in the investment field.

2) Warren Buffett

warren

We currently seeing him as a very successful person. But what about the pain he faced in his earlier life.

You all might thinking that at investment blog why I talking about philosophical talks. So let me give you an examples of few successful stories from our investment world.

1) Infosys

We everywhere found that Infosys is one of the biggest wealth creator. But my dear friends have we check pain which company faced at different phase of its life cycle.

IPO of company got withdrew from market due to not reached at minimum subscription. Anyone had an idea at that point of time about the company which rejected by everyone and that becomes biggest wealth creator.

INFY

If we look at above chart of Infosys, then we can come to know that many a times price of the stock goes down with many of reasons such as IT bubble burst, 2008 crisis, Narayan Murthy resign, etc.

2) Wipro or Eicher Motors

See the wealth creators, all stocks having some down moves in stock prices. That can be with any of the reasons such as global crisis, recession, internal problems. But the good company with good jockey can come out of from all such problems and able to create wealth.

So try to connect dots with my above example of Steve Jobs and Warren Buffett with this stocks stories.

Do you able to make sense?

Let me explain my view point. The people who got failed at some point of time in their life but becomes huge successful by fighting against their failure.

As same as many good companies facing trouble at some point of time and try to fight against those problem and try to come out of those problems.

If we have make an investment in such a good companies our life also become successful.

Just leave these big names; highly successful people and put ourselves in place of them.

We also faced many problems in our life. From our childhood to our current life. Every day we are facing many events. Some events make us much happier and some make us unhappy.

So with happier events graph of our life goes up and with unhappy events graph of our life goes down.

So as similar as daily movements in the stock price. When we are not focusing on our own daily behavioral fluctuations then why we are much seriously focus on daily price fluctuations of the company???

As with the unhappy moods, we don’t stop living our life then why with some down price moves, we ready to take an exit from our stock investment???

As we are comparing our life’s progress at some intervals as similar to that we should compare performance of the company at some intervals rather focusing on daily price moves.

If I try to put our minutes to minutes’ behavior in graphical format, then it also looks as similar as price moves of the stocks.

Our life

Then why we are not ready with similar kind of behavior with stock investment.

We are not feeling risk by making many decisions related to our life but feel risk when it’s comes at an equity investment. What a funny behavior!!!!

According to me, actually our behavior having much more fluctuations compare to fluctuations in stock price.

The main problem is that we are not focusing on fluctuations in our life.

We take monetary fluctuations at a more serious manner then fluctuations in our own life.

So my purpose of writing this post is that equity investment is also as similar as our life which we are living. Thus, handle it as similar as we are handling our life. Also provide time to your investment as time we are living our life.

If we are ready with providing other chance to our life, then should also be ready with same kind of behavior with our equity investment.

But in actual manner, we are not doing it. We focus on very smaller fluctuations and make our decision based on those smaller fluctuations.

If we think on a longer horizon, then might found our such behavior as a very foolish.

So now at last conclusion time I just want to mention that as we provide motivation to our life when adverse events happened with us as similar with the equity investment, we should try to add additional fund when good company facing adverse time in form of motivation.

This additional motivation creates real difference and that decides rather we become successful or meet failure. Rather we become another Steve Jobs, Warren Buffett, Bill Gates, Henry Ford, Richard Branson or die as an unknown personality. As our investment becomes successful or we just become spectacular to watch wealth creation by other people.

So treat our equity investment as similar as our life and keep motivate our investment with additional funds when we get an opportunity to build good wealth.

Bonus

Friends keep motivate our good investment not our bad investment otherwise at the end we keep facing problems.

KFA

Stay away with such a bad horse with bad jockey or else we have to suffer a lot.

Loser

And at last we regret on our own decisions.

Disclaimer: The stocks discuss in above article is only for an example purpose. This is not a recommendation to Buy-Sell-Hold. And I am not a SEBI registered analyst.

What is RoE (Return on Equity)? And Why always consider debt when calculating RoE?

Posted on March 31, 2016 by Jimit Zaveri under Investment Philosophy

Dear friends,

Let me try to explain Return on Equity in a simple manner.

What is RoE (Return on Equity)?

“Return on equity measures a corporation’s profitability by revealing how much profit a company generates with the money shareholders have invested.” — Investopedia

Return on Equity = Net Income/Shareholder’s Equity

That means in a simple manner % return which we earn by making profit from amount which we have invested, our own money.

ROE

If I had put Rs.100 in bank FD and on that Rs.100, I get Rs.8 then my RoE (%) on that particular investment is 8%.

Higher the RoE (%) means we can able to generate higher profit by utilizing our funds. So that incremental profit generation helps us for fulfilling our wishes and also can able to secure our future also.

The same concept applies with company’s RoE (%).

RoE16

Higher the RoE (%) means company can able to generate higher profit by utilizing their funds. So that incremental profit generation helps to the company to survive for the longer period of time and also can able to make good wealth creating decisions.

Always high RoE (%) is good and should believe it blindly ????? And not to believe it blindly then why?????

Now, question is why always consider debt when calculating RoE????

What is debt?

“Debt is an amount of money borrowed by one party from another.” (Investopedia)

A debt arrangement gives the borrowing party permission to borrow money under the condition that it is to be paid back at a later date, usually with interest.

Means borrowing Rs.100 with conditions to pay back with Rs.110, if 10% interest rate.

Let me explain 3 different situations with an examples —

So that with a higher debt level, RoE (%) shows higher because of lower level of own fund and profit is excess of interest payment. But what if odds get wrong.

Risk and uncertainty never comes to us with prior intimations. So we must have to be very careful.

Sometimes its happen that we stay lucky enough to not faced risk in our life time but surprise and shock happens as it never happens before.

https://www.youtube.com/watch?v=hQs47IT-d78

Now, let me take an example with the situation where surprise come and start earning low profit —

MB1

MC1

Thus, as company or an individual who having higher level of debt then they only benefited till negative surprises not come to their life. But as negative surprises start coming then survival become a question mark for the companies as well as the individual.

This is only the reason why we try to select business having no debt because if worst happens then also business can able to survive.

md1

And if we found business with debt then must need to check earning and interest payment situation. Earning must be much higher then interest payment; so that can chances to survive with the worst situations.

md2

Bonus

Same we do also in the stock market —-

We forget worst scenario when surrounding us all happens good and start believing that

this-time-is-different_b

But my dear friends, time is always the same.

And then result of believing this time is different is —

stock-photo-crying-drunk-businessman-committing-suicide-due-to-the-stock-exchange-crash-conceptual-15235576

Just one single moves enough to destroy us if we have built our portfolio on leverage or play with stock market with leverage.

Time always remain same; it’s a pendulum so not focus on making early huge returns which can cause to destruction of your life.

Inspired by — Safal Niveshak and Fundoo Professor

Pat Dorsey Moats

Posted on March 1, 2016 by Jimit Zaveri under Investment Philosophy

On 17th January 2016, I got an opportunity to address one group of investors. I am so thankful to all my friends who provided me such an opportunity.

Investor Philosophy – Pat Dorsey

This presentation (Click here Pat Dorsey) based on what I learned from Pat Dorsey and about his philosophy.

Company A earns High profit / High Return on Capital that attracts many players to the same industry; which resulted in a higher level of competitions. Higher competitions affect to the margins of the company A and continuously increasing competition affects to the earnings of the company A. and if company A doesn’t have any Competitive Advantage then the business of company A can be in problem.

So the question is what is the competitive advantage?

Now, let me explain with a simple example that how USP helps.

Above all are benefits of having a strong USP of Rajinikanth. Now, compare these benefits to the business class.

So before understanding, what is the competitive advantage? I explain what can not be a competitive advantage?

If a company cannot able to raise the price of the products/services then we should understand that there is an absence of competitive advantage. (Eg.: – ITC Ltd. – Budget imposes the duty on cigarette but company easily able to pass those costs to the customers and that’s the reason for the survival of the company in adverse situations.)

We can easily able to recall brands. Meggie is becoming synonyms for noodles, Fevicol becomes synonyms for adhesive, and Colgate is becoming synonyms for toothpaste.

Also, the company which has the ability to change consumer behavior that Amazon has done (From traditional bookstore to online bookstore).

Patents & Licenses can be useful for protecting the interest of business (not considering strong moats because after the expiry of patents other companies also can able to register it and licenses can fall in the compliance risk).

Any psychological barrier or any cost associated with a switch from using current product/service to other product/service.

S10

As the addition of new users make the network more and more strong and replicating such model becomes very difficult.

S11

Low-cost producer compares to other players in the same industry.

S12

Wide and strong moat resulted in the long-term Return on Capital generation and if absent of moat not able to provide long-term Return on Capital to the business.

S13

S14

S15

Bad managers destroy business for own enjoyment and ambitions.

S16

Now, what to select and what to avoid is up to us. If we able to select good business with the good manager then wealth creation become more effective. That is like the good horse with the good jockey that can able to win a race.

For more details, Kindly check — Part 1 , Part 2

Inspired by — Pat Dorsey Moats

Disclaimer: This is not a recommendation to Buy-Sell-Hold. And I am not a SEBI registered analyst.

I am really grateful to – Mr. Neeraj Marathe Sir, Prof. Sanjay Bakshi Sir, and Mr. Vishal Khandelwal Sir.