WHY PEOPLE CHOOSE SECURITY OVER FREEDOM

Posted on by under Bibliophile: Cashflow Quadrant

Why we seek job security over freedom? Because we taught in such a way at school as well as at home. Our mindset has to get developed in a similar way where we seek security first. So, E & S quadrant people are motivated by security whereas B & I quadrant people are motivated by freedom.

Similar to the debt trap, there is a very interesting success trap. When B quadrant person gets success, they expand their system, then hire new talent, they work hard. B quadrant person also invests and when it meets succeed, they reinvest it. So that as time passes, they attract more success and which results in the freedom of time. They have time for family, for their hobby, etc.

Financial intelligence does not mean by how much money we make but it’s how much money we keep and that work for us. Also, money keeps working for how many of our generations.

Rather than this, what middle-class people do it. They work hard for a paycheck then they make a plan to save tax, take a home loan to write off interest to save tax. So, they again work hard to pay bills. When people get a job with a high paycheck and benefits, they work hard more to pay bills and increase more liabilities which increases more bills. They jump from one job to other to get a higher amount of paycheck with job security.

S quadrant is the riskiest and needed huge efforts. As they have to do it by themselves so for achieving success and keeping it, they have to work harder.

Many of the E quadrant people start a business by deploying their lifelong savings, borrowing from friend’s family to start a business. And after 2-3 years when the business starts generating cash flow then they have to pay debt first. ~99% of the business getting disappeared in the first 10 years of establishment.

B and I quadrant person also legally take tax advantages compared to the E and S quadrant person. Most people do not focus on the asset column to generate more income but they focus on income and increase in liabilities. Knowledge is a power which used by B and I quadrant people to grab opportunities when it arises. This also gives them confidence. So, if we are into an E quadrant and simultaneously learn about the I quadrant then it will help us to get financially free, also make us confident. Few people are good with both the side of a quadrant, they get a good paycheck, security as an employee and also invest to create more wealth. People those do not have investment knowledge, then they tend to park money in FD or other deposit which is good compare to people who do not save or invest. But this investment does not help us to fight against inflation. If we rely on our employers that they will make us rich then it’s not to be their responsibility. Their responsibility is to provide a steady paycheck to us. It’s our responsibility to create investment to become rich. When we have an abundance of money and time then we directly jump to the I quadrant. But if we do not have time and money then we have to follow the safer path.

Investing is also an investment into the business so it’s advisable to understand businesses. Investing is capital and knowledge-intensive so we have to ready with both for being successful in it.

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

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

Annual Report Review

Posted on by under Annual Report Review

As we all know that Annual Reports (ARs) can help us a lot to analyze any company. This is a communication bridge between investors and the management of companies. ARs provide us details such as business, past performance, management comments on performance, outlook, challenges, opportunities, industry information, financial position, financial statements with notes, etc.


Annual Reports review is a review provided by me, comments, and highlights on the important part to focus on. This will help investors with saving lots of their time as well as can get one other perspective. It also can be helpful to investors for generating investment ideas.


All information provided by me is just for an educational purpose and not any BUY/SELL/HOLD advice.

One Stop Solution for Annual Report Review –

Consumer Durables
Whirlpool of India201620172018201920202021
Crompton Greaves Consumer201620172018201920202021
Orient Electric2018201920202021
Blue Star20172018201920202021
Mattress
Sheela Foam20172018201920202021
Logistics
TCI Express20172018201920202021
Alcohol beverage
United Spirits Ltd.20172018201920202021

Disclaimer: This is not a recommendation to Buy-Sell-Hold. This post is just for an educational purpose.

06 – Current temptation, future frustration

Posted on by under Current temptation, future frustration

The sixth part of the Series “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 save our wealth.

I am starting this article with one of the company which is engaged in power generation has a 52 weeks low price of Rs.5.49 and LTP is Rs.45.25. This company has rewarded ~8.24x of return in a year.

Let’s start looking at the numbers.

We can see that the company does have ~Rs.36 lakh of revenue and generating losses due to higher expenses. It can be possible if the business is at a nascent stage. But major expense is depreciation so have to check why huge depreciation charge.

When we look at the balance sheet then it seems that the company has repaid the entire debt and not issue any share capital. But when looking at the loans and advances then it has higher loans and advances & other assets.

The company has Rs.30 cr of loans and advances in FY20 which keeps raising y-o-y. There is no detailed description available for loans.

When we compare payable and receivable with the revenue then both are much higher than revenue. This means the company has to higher pending payment to pay and receive.

In the above image, we can see that the company has bad debts of Rs.5.76 cr in FY16 which was 35% of total debtors. And the company does not have any revenue in that year.

The company has Rs.35 cr of other payables which has advanced for sale of assets. This indicates that the company has made a commitment to sell assets to other parties and taken advances from that party, but still, the company has not sold out that assets. This item helps the company to improve CFO but actually, this is a clear artificial boosting of CFO.

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

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

YOU LIKE ME, YOU REALLY REALLY LIKE ME – Liking Bias

Posted on by under Behavioral Finance

Liking bias says that the more we like someone, the more inclined we are to buy from or help that person.

We like attractive people, have similar interests as us, having similar origin as us, similar personality as us and we like them.

When a salesperson a language similar to us, similar habits, hobbies then it has a higher chance to crack the business deal. Our mind tells us that the person is similar to us and that creates comfort in our mind.

Business – Advertisers also uses such concepts in their advertisements and they select different celebrities as a brand ambassador because people like them and that creates liking bias. Nowadays, advertisements telecast under various regional languages which can impact more to viewers’ mind.  

Investment – When we give complement to others then it works like a magic. And slowly person starts liking us. Many companies put forward information which we generally like to see such as shareholders friendly management, huge growth potential coming forward, good dividends, asset-light business model, competitive advantage etc. and that creates liking in our mind towards the company. And once we start liking the company, we are not able to see the negatives of it. Rather than get trapped, we should see everything independently and need to be suspicious with everything.

Nowadays, annual reports are getting prepared by agencies that know about what investors like and what investors want to hear, so they print those things only. More people like the company, the more valuable it becomes. For overcoming this bias, we need to check everything mentioned in the annual report supported by data. For example – if they have mentioned assets light business model then they must have higher assets turnover, higher RoA, lower depreciation expense, etc.

This entire series will be review with various examples from books which are “Thinking, Fast and Slow” and “The Art of Thinking Clearly“.