When is the Right Time to Buy the Stock of a Great Company?

"The best thing that happens to us is when a great company gets into temporary trouble... We want to buy them when they're on the operating table."

Warren Buffett

Gift Your Child Financial Freedom!

Actual Question:

Hello Anand. I agree that mutual funds cannot be looked at for short term. But is it practical to set a term horizon for 30–50 years? Most of us young professionals in late twenties/early thirties would be 60–80 years old by that time. So is mutual fund only applicable for retirement planning or can we realise goals in 10–15 years?

Answer:

Dear Friend!

Good results will certainly be produced in 10–15 years. There is no doubt about it. But the spectacular compounding benefits will only be produced after 30 years. Please read the article Miracle of Compounding to understand why it is so. 

Therefore, the best takeaway from this discussion is a parent can invest for the children a lump sum of say Rs.1,00,000/- at the time of birth and by the time the child grows-up to about 35 years the corpus will be so huge that the child (now a grown-up) is financially free. 

Can there be any better gift a parent can give?

Thank you,

With Best Regards

Anand

Why My Friends Lost or Earned Only Meger Returns from Investments in Both Stocks and Mutual Funds?

Dear Friend!

You have raised a very pertinent question that has the potential of addressing a similar doubt in the minds of many. Thank you.

I really do not know the background facts, still the a few reasons for poor results is quite evident and they can be listed as follows:

1. Investment Timeframe: For what time were had they remained invested? Share markets can remain depressed for a few years at a stretch and for the last few years they have not progressed very much. What do you think is the right timeframe for meaningful long term wealth creation? It is a bare minimum 20 years and ideally 40 to 50 years. Why such a lengthy spell? Only over such long periods, the ‘Miracle of Compounding’ discovered and propounded by Albert Einstein will get an opportunity to work for the investor.
2. What is the Actual definition of Returns: Most of have been conditioned to believe, in the context of investments at least, that return means increase in the market price of the investment. Of course capital appreciation is a vital ingredient ofreturns but it is in addition to regular and recurring returns: dividends, special dividends and bonus shares. Over 40–50 year interval if you aggregate the regular returns with the capital appreciation at the end, we will be pleasantly shocked at where we stand.
3. The quality and purchase price of stocks: Stocks, I am not talking about mutual funds here, need to be purchased of good companies at a ‘Fair Price’. If one buys a stock that has an intrinsic value of Rs.100 is bought at Rs.200, what upside can we expect from the investment, that too over a short period of time?

Friend, ‘Value Investing’ is a time tested and sure path to long term wealth creation. There is no room for doubt or argument about it. Please buy a copy of ‘The Intelligent Investor’ by Benjamin Graham, TODAY, your life will change!

Thank you,

With Best Regards

Anand

Is It the Right Time to Invest in ‘Welspun India Ltd.’ Shares?

Full and Actual Question: Is It the Right Time to Invest in ‘Welspun India Ltd.’ Shares?

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Dear Mr.Abhishek Dubey

You seem to have put a lot effort behind your question. I appreciate very much.

Your question seems to springing out of the steep fall of nearly 50% in the price of the share from around Rs.100 level to the present Rs.49.70 and perhaps also the news about M&A activity surrounding the company.

Unfortunately, in ‘Value Investing’ such a situation is not the fundamental criterion on which investment decisions are made. It does not figure in my ‘ Value Investing: Portfolio 2K15’ which suggests that the company’s fundamentals prima-facie do not meet the first filter criteria of market capitalisation of a bare minimum of Rs.500 crores (US$ 75 million) and a ‘Price to Earnings Ratio’ below 10. Further, I am not happy about the company’s present focus on solar energy, which is very good for the country and the world at large but not for the companies engaged in the business, on account of cut-throat competition and poor margins.

I sincerely urge you to please read the book ‘The Intelligent Investor’ by Benjamin Graham, become a successful and safe value investor. Please do not bet on short term events, hunches and tips which will certainly will prove costly in the long run.

Thank you,

With Best Regards

Anand

Please Note: This is almost a reproduction of the question I had answered on the website ‘Quora’, which I thought could be useful to the visitors to this blog site also.