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My Take on Investing and Life

On Technical Analysis (TA):

Nothing but mumbo-jumbo. Makes enough sense that it is easy to fall prey for it - the lure of fast money, after all, is too much for most people. I myself have tried it and failed miserably. I learned my lesson. I think if you live by TA, then you will die by TA. TA is an art, rather than a skill. Most people cannot expect to make any money using TA. See
A Tale of the Speculator and Technical Analysis for more.

On gambling:

I don't gamble in the stock market. Nor do I play the lottery. Taking some calculated risks in the market is not the same as gambling. I'm primarily a long-term investor with an investment horizon of 10 years or more. I won't be jumping off a bridge if the market drops 30% tomorrow!

On volatility:

I love market volatility. I think most people misuse that word; they use it without even understanding what it means. They think volatility is bad. In fact, volatility is what gives me the opportunity to make money in the stock market. Whether I actually exploit those opportunities is another story! One of my New Year's resolution is to have more courage to open doors when investment opportunities knock. I think I'm on the right track.

On Modern Portfolio Theory:

Not everything needs to be "measured" or "quantified". Security analysts these days are obsessed with measuring everything from risk to volatility. Standard deviation and variance are standard measures of risk, and volatility can be measured by beta. Small investors cannot be expected to know how to calculate these things and are therefore easy to entice to seek professional help. Nor can anyone expect small investors to know how to construct a portfolio in which the correlation of any pairs of securities is close to zero (this is one of the definitions of a "diversified portfolio"). The calculations involved here are indeed mind-boggling! I don't think one needs to know these calculations to make money in the market. The impression given to a small investor is that you cannot do it alone. I disagree. I think in most cases you can do better alone. In fact, I think you are better off not knowing these things!

On EBIT and EBITDA:

Analysts pay too much attention to useless numbers like EBIT (Earnings Before Interest and Taxes) and EBITDA (Earnings Before Interest Taxes Depreciation and Amortization). The problem with these numbers is that interest and taxes are "real" expenses that we cannot simply ignore. What is the purpose of excluding interest and taxes from earnings when both have to be paid? As far as non-cash expenses like depreciation are concerned, they too are very real. You will find out exactly what depreciation is if you buy a car today and sell it tomorrow, or if you've ever had to do repairs/maintenance on your home. Depreciation accounts for these expenses.

On analyst ratings and recommendations:

Analysts are constantly upgrading and downgrading stocks. They have to do this to justify their existence. Frankly speaking, I don't think it is possible to make money listening to analyst recommendations. Many times I have seen analysts upgrading a stock when it has hit a 52-week high or even an all-time high, and downgrading a stock when it has been beaten down by too much pessimism. Not that they're always wrong, but they're wrong enough times to blur the distinction between a professional and an amateur. Generally speaking, I tend to pay more attention to their research on a company (which can be insightful) than their rating or recommendation.

On EPS:

Assuming all else is equal, is a company that earns $5.00/share a better value than a company that earns $2.50/share? Yes. What about a company that earns -$5.00/share compared to one that earns -$2.50/share? Which one is a better value? It is not necessarily the company that earns -$2.50/share. An understanding of how EPS is calculated will clarify why this is so. EPS is calculated by dividing net income by the number of shares outstanding. The fewer shares a company has outstanding the more income is attributed to each share (and therefore, each shareholder). This means that if a company has a large loss, then it can make its loss appear smaller, in EPS terms, by simply issuing more shares, which is bad for existing shareholders. This is why a negative EPS is not always very meaningful.

On charity:

If I donate, I want to donate because I want to. If I volunteer, I want to volunteer without expecting anything in return. It's sad to see some people who volunteer because they want a prestigious 'certificate of recognition'. Donating a suitcase full of clothes from Canada to a remote mountain village in India is probably the best thing I have ever done in my life. I think I was inspired by Dr. Prakash Amte (son of late
Baba Amte).

On mountains:

Why do I love the mountains so much? They give me immeasurable peace of mind and happiness. There's a certain excitement in hearing and watching a bird swoosh past you. Watching an everyday phenomenon - a sunset - is a much-anticipated event and a real treat for the eyes. Every time I'm there, I say to myself, "what a wonderful world!"

Besides that, I have learned so many things about myself because of mountaineering - that I have an incredible amount of energy and will power. Now I just hope to harvest some of that energy and will power for other things.

My life ain't promised but it'll sure get better... until then, you'll find me in a cubicle!

1 comment:

Sushil said...

nice post raj!

 
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