Slay the Emotional Demons Greed and Fear

Many innocent investors get lured by greed to the stock markets. They are high on the fear and greed index. Most probably they have not had the opportunity to read the classic work on investing by Benjamin Graham, "The Intelligent Investor", yet. They still have to learn the Warren Buffet way of investing. They have to learn to slay the two emotional demons of greed and fear.

When the market is rising fast and is already highly priced, people innocently enter the stock market, purely out of greed, without having armed themselves with the true knowledge of value investing, expecting the market to rise even further, and not wanting to miss out on the opportunity to make a fast buck.

Slaying internal demons greed and fear key to investing success

Most probably they entered the stock market just when it is about to crash.  No wonder, soon the market crashes.  

The very same people who were ruled by greed sometime back, are now gripped by the other emotion, fear.  Fear of loss.  They sell their stocks to get out, at any price, fearing even further fall.

In order to be a successful investor, one has to learn to slay these twin emotional demons with the powerful sword of “Sa-Vidya” or true knowledge of value investing.

Armed with knowledge, the value investor is happy both during the market crash as well as the market boom. Knowing that the intrinsic or real value of the shares she holds, is much higher, she will be happy to buy more when the market is crashing and sell them, and make a handsome profit, when the market is booming.

Suggested Further Reading:

• How to Calculate the Intrinsic Value of Shares?
• Value Investor Buys From A Pessimist And Sells To An Optimist
• Market Is A Pendulum
• Can We Achieve Warren Buffett Like Success?

Conclusion:

Instead of entering the market hastily lured by the prospects of making a fast buck, investors better arm themselves with value investing wisdom imparted by Benjamin Graham in his classic book, "The Intelligent Investor", master to control the emotional demons greed and fear and learn the Warren Buffet way of investing.  Once they follow these precautions, investors are bound achieve significant investing success.

NMDC Ltd. - A Golden Egg Laying Goose

NMDC Ltd., earlier styled National Mineral Development Corporation Ltd., is a public sector company.  It is a Navaratna company (one of the nine gems - a recognition given to the nine best performing public sector companies).

The company is mainly engaged in extracting and exporting iron ore, a commodities business, nothin spectacular.

It is one of the main components of our value investing portfolio.

Let us examine its financial fundamentals.

Table showing NMDC Limited's Profitability Ratios

Besides enviable EBDITA and PAT margins, it has significant non operating incomes.  Non operating income constitutes nearly one third of its operating income.  It also constitutes 63 to 110% of the dividends paid in the last five years, which means even if there are no operating incomes, the company will be able to maintain the present dividends, which in themselves are very high compared to the other companies, at over 50% of the net profits in the last three years.

Table shows NMDC's dividend coverage by non-operating income

We have got dividend at 11.11% on our investment tax free, which translates into a whopping 16.58% return on our investment.  What else one wants?  What

After all these excellent advantages, the scrip is available at a price to earnings (PE) ratio below 10 and price to book value (P2BV) ratio of 1.18, both the parameters meeting the crucial value investing principles.

No wonder we call NMDC Ltd., a goose that lays golden eggs, year after year.

One financial analyst of a leading Indian financial newspaper dismissed the case of NMDC as just that of purely a dividend play, suggesting rather degradingly that the scrip offers no value other than good dividends.  What naivety!  Today every Tom, Dick and Harry, who dabbles in shares a bit or who has been employed in a mutual fund has become an investment expert and passes such ridiculous comment