Value Investing - Warren Buffet

Value Investing - Warren Buffet's Investment Approach:

Buffett's philosophy on business investing is a modification of the value investing approach of his mentor Benjamin Graham. Graham bought companies because they were cheap compared to their intrinsic value. He was of the belief that as long as the market undervalued them relative to their intrinsic value he was making a solid investment. He reasoned that the market will eventually realize it has undervalued the company and will correct its course regardless of what type of business the company was in. In addition he believes that the business has to have solid economics behind it. Buffett's investment style is also heavily influenced by Phil Fisher.

The following are some questions to determine what business to buy, based on the book Buffettology by Mary Buffett:

(1) Is the company in an industry with good economics, i.e., not an industry competing on price. Does the company have a consumer monopoly or brand name that commands loyalty? Can any company with an abundance of resources compete successfully with the company?

(2) Are the Owner Earnings on an upward trend with good and consistent margins?

(3) Is the debt-to-equity ratio low or is the earnings-to-debt ratio high, i.e. can the company repay debt even in years when earnings are lower than average?

(4) Does the company have high and consistent Returns on Invested Capital?

(5) Does the company retain earnings for growth?

The business should not have high maintenance cost of operations, high capital expenditure or investment cash outflow. This is not the same as investing to expand capacity.

(6) Does the company reinvest earnings in good business opportunities? Does management have a good track record of profiting from these investments?

(7) Is the company free to adjust prices for inflation?

Buffett also concentrates when to buy. He does not want to invest in businesses with indiscernible value. He will wait for market corrections or downturns to buy solid businesses at reasonable prices, since stock market downturns present buying opportunities.

Diversification in Investment

Diversification

You can do several things to offset the impact of some types of risk. Diversifying your investment portfolio by selecting a variety of securities is one frequently used strategy. Done properly, diversification can reduce about 70% of the total risk of investing. Think about it. If you put all of your money in one place, your return will depend solely on the performance of that one investment. Alternatively, if you invest in several assets, your return will depend on an average of your various investment returns. Here are three basic ways to diversify your investments:

(1) By choosing securities from a variety of asset classes, e.g. a mix of stock, bonds, cash and real estate

(2) By choosing a variety of securities or funds within one asset class, e.g. stocks from large, medium, small and international companies in different industries

(3) By choosing a variety of maturity dates for fixed-income (bond) investments.

By diversifying, you won. t lose as much as if you invested in just one security right before its market value goes down. However, if the market goes straight up from the time you started, you won. t make as much in a divserified portfolio either. However, historically most people are concerned about protection from dramatic losses.

Middle Class Salaried Investing in India

The following is an advice for middle class salaried person's investing plan...

The investment should be broadly in the following four categories

1. Savings for the future(LIC policy is a must)[30 %]

2. Mutual Funds (SIP =Systematic Investment plan is the best route to invest in mutual funds)[40%]

3. Direct Equities investment[15-20%]

4. Investment in gold is a really a good option since it appreciates with time for sure[10-15%]

% - % of your disposable income excluding your montlhy expenses.

Apart from LIC, you should also have medical insurance and general insurance to insure your immovable assets.

What is the best way to invest Rs.1 Lakh and get good returns

Whats the best way to invest Rs.1 Lakh and get more money back than a fixed deposit or regular saving account?

Personally for me, I find that the fixed deposits and stock investments are good. Fixed Deposits are slow, but safe. Also there is risk in investing in stocks as they carry a lot of risk. But without a little bit of risk, no rewards, which is why I suggest you should get a mutual fund.

Mutual funds are a group of stocks picked by PROFESSIONAL money managers in which you or any other investor can buy. Because money from a lot of people are pooled together, you can afford to buy more stocks as a group than individually.

The good:- Professionals manage your money, so less worry for you.
- Most banks offer these, quite reliable
- You can pick which ones to invest in, some safer ones would be "banks, grocery stores, electrical companies, telephone companies,..." Places or services that you use on a daily basis
- Pretty good returns

The bad:- Like life, nothing is guaranteed, if someone guarantees you a return of 5%+ per annum, they are cheating you.

Madurai Investment Strategy at ages 25, 35, 45 and 55

Twenty-five years is an ideal age to start saving and managing your investments.

Ideally, one should invest 90 per cent in equity and 10 per cent in debt. ELSS (equity linked savings schemes) and a pension fund are also two good investment options. Include life insurance and health policy in your portfolio for protection and tax deduction benefits. If you are planning to buy a house, invest in fixed deposits.

At 35 your priorities are different. Your child's education expense is now part of your investment portfolio. Besides this, home loan and insurance are a must as they get you a tax deduction. At this age, you should be putting 75 per cent money in equity and 25 per cent in debt. Also start planning for retirement at this age and include a pension plan in your portfolio. 35 is also the right age for investment in ELSS.

At 45 years of age, it is necessary to maintain the equity-debt ratio at 75:25. It is also time to invest in your child's higher education. Start putting money in PPF (Public Provident Fund) and equity fund. Five-year fixed deposits should also be on your portfolio.

A 55-year-old should invest in debt and equity in equal proportion. Also invest in NSC (National Savings Certificate) so that the cash flow is maintained after retirement. Don't wait till February and March to do investments. The best strategy is to begin your investments at the start of the year and continue it throughout the year.

Pay yourself first

When you get a chance, pay yourself first. When the salary or any income comes in, plan on automatic savings to transfer a certain small amount to get transferred from checking account to savings account.

Even I do that. I have set some automatic savings on every month 5th and 10th - for some minimal amount like $100 or so will get transferred from my checking account to my savings account.

If you have any not-often-reachable bank account, you can have an automatic transfer happen every specific interval of time. This will make sure that before you pay your bills and do expenditure, your savings account will get paid and there will a substantial amount of money get accumulated.

After you target an amount in savings account and if you have reached, make use of that amount or invest the money in appropriate places like money market, mutual funds or invest in real estate etc.,

PruICICI Invest Online - Mutual Funds Online

This is just to inform you all that Prudential ICICI company is providing a feature of investing online on all of the mutual funds, including Systematic Investment Planning.

Prudential ICICI is a venture being sponsored by Prudential, an UK based company and ICICI, our well known respected and trusted indian financial company.

You can invest in mutual funds online, wherever you are. then why wait?

Check it out here

Personal Finance: Investment Basics

Here are some investment tips for you - three types of basic investment:

Aggressive and looking for highest growth, with high risk and high gain. But If you try the same long term like 10-20-30 years timeframe, you have a bright chance: Stocks

Moderate, decent income in a reasonable intervals of time and medium risk and medium gain and the timeframe would be 4-6-10 years: Bonds

Low risk, low gain, but Safe Money and looking for 0-3 years investment timeframe: Bank Savings

You could mix the above with varied percentages to fit to your needs. We will discuss more about "at what age how much percentage anybody should invest?"

Moreover, this investment basics does not include anything about Real Estate! Will cover them in the forthcoming articles...

Key Investment Ideas for Middle Class Folks

Well, this is year end and we are in December, which happens to be the last month of the year. After this month, we have a fresh new year and new month of the new year starting.

We can do lot of things, before we start the new year. I would mostly talk about better investing here...Some key points to remember while you invest are -

(i) If you are young, single and started earning, that is the best! You can do wonders in your finance side.

(ii) First priority is to close or reduce all your debts. If you have increased your credit card bills, just try to close them as soon as possible. It is waste to pay interest for credit cards. Try to avoid them.

(iii) If you are an important person in the family and an indispensable bread-winner, be sure to have an insurance. It is the important stuff. Many ignore this, but it is highly important.

(iv) Couple of options for investing -

(a) Mutual Funds
(b) NSC, KVP and other post office schemes and small savings schemes
(c) LIC insurances such as Jeevan Shree, Jeevan Anand etc.,
(d) Real Estate
(e) Stocks and Shares
(f) Provident Fund
(g) Little Donations!!

HAPPY INVESTING and BECOMING WEALTHY!!

thank you