Today there are multiple ways to invest. What do successful investors do? What are the options, tricks? How do these investors evaluate investments? Excerpts of the interactive Panel Discussion organised by TASMAC and Businessgyan.

The Panellists were :

Jayaprakash Pai
Vice President HSBC

Kiran Boal
Director  Boal Finance Services Pvt Ltd

Sriram R,
Regional Manager (South)
TATA Asset Management Ltd

Sanjeev Poddar
Branch Head (Bangalore)
Allegro Capital Advisors Pvt Ltd

Moderated by:
Balaji Pasamurthy:
Chief Catalyst, Business Gyan

Could you share some of your observations of styles of investing by which people have become successful investors?

Sriram: The market is not a very complicated animal, unfortunately the investors perception is different. Investing people can be of different kinds. The smart ones view it as buying or investing in other business. There are people who come into the market with a very definite view of how to make a little more sense out of the money - trying to get a little bit of leverage, and the most common variety is the gambling kind where investors get a high out of trading in the market.

Sanjeev: First you should have a mind of your own, you don't  have to be a gambler or a financial cowboy. If you don't know then you have to spend time learning about it. If you make a decision, live by it. The decision can go wrong in three or six months, but you have to decide that if I am a long term investor, a three-four month bad result should not matter.

ext, you ask yourself if the time you have spent researching a company is worthwhile, or do you need professional help? Weigh out the cost part of it, the transaction part. If your decision is based on somebody else's advice then -give him independence but you must remain informed and you have to be intelligent to be an investor. 

Jayaprakash: There are four ways of acquiring of wealth - one is having you own business. You see across the world that the richest people are those who have their own business, barring probably Warren Buffet. The next is investing in properties - people have created significant wealth by just investing in properties. Third is investing in equity. Fourth is getting married to an only daughter of a wealthy father!! I am sure that people would say that the last one is the easiest, but I would say that investing in equities is the easiest. Today you have an option where you just write an application with a cheque and your money is invested. It can go down ten percent tomorrow, it can go up ten percent, that's the volatility. The best way to create wealth is to have a financial plan, a detailed objective oriented plan. Survival of the fittest is the story today, so you have to focus on the job or your business. So professional assistance is a must. Spend time more on choosing trusted advisors rather than choosing your investment. If you have a right advisor, half the job is done.

Kiran: Get into the bank deposit mode and next get an insurance cover. Then looking at section 80C benefits, consider the Public Provident fund that is long term. An easy way of getting into equity markets is Mutual Funds, get into a Systematic Investment Plan (SIP), if you are comfortable with the stock market, today there is a wealth of information available, you can jump into the stock market, but you got to follow what Warren Buffet says - If you buy a stock, be sure that you are able to retain it for at least ten years, then you'll get the true value of the stock, so stock selection is the key, when you're getting into the equity market. Real Estate is  fantastic for growing wealth, gold and jewellery are a good form of keeping at least some part of your money. My final recommendation is that you save at least 10% of your gross income.

What is it that has made some investors better?

Sriram: An investor with a very strong financial plan, with proper asset allocation has time and again over a longer period of time performed better but better does not always mean very high returns. There are people who take a lot more risk, hence in the good times the returns are also astronomical.

Jayaprakash: Absolutely, I think people who have a longer term vision specially when the GDP has been have been growing at the rate of average 7-8% and If you invest in extremely good companies you can never go wrong.

Suppose you were having a ten year horizon and were investing in the stock market, what sort of returns should you expect?

Sriram: Statistically over the last 10 years the Indian markets have given 25% plus compounding rate of returns on the equity market in the large and madcap stocks. These are actually significant returns compared to the other asset classes. India and its businesses have been growing.

Jayaprakash:  In the equity market you get a return of corporate profits; on an average you will get a 15% return. Basically the economy is growing at 8%, agriculture is growing at 2-3%, the corporates are actually compensating.

So have you come across investors who have invested in companies and forgot about it for 10 years?

Sriram: Several in Bangalore itself. In fact the Infosys issue was under-subscribed when they were first issued in 1990-91. Now you can see the significant wealth creation.

But is it luck and if not, what is it? If you had gone to some other IPO at that time, would you have made as much money?

Sriram: To my knowledge there were some other good IPOs' which actually bombed as a business. When you buy a share of a company, you very clearly buy the profit or loss of the company. If businesses improve, automatically wealth creation will happen.

Jayaprakash: Other thing is that you've got 23-25% CAGR (Compounded Annual Growth Rate), despite having very unstable economic situation, we had unstable governments, political situations, the Kargil war, the Gujarat earthquake, cyclones, however for ten years things have been bright because we are growing, foreign exchange reserves have improved considerably, the economy is just booming, the entire country has become a knowledge economy today, I think there's a bright future for equities in the long run.

Kiran: If you buy stocks, it doesn't mean that you forget about them. An annual review is essential because some companies do slip into the negative. The key is to ensure that the companies that you invest in are either profitable, or they have a healthy growth plan, for example some companies that have given their capex (capital expenditure) plan for the next two, three or five years. So keep a tab on these companies.

Sanjeev: Greed is good and a part of investing, but it has to be tempered with rational expectations. If you've got your money- book your profits, go home and enjoy that money.

For investing you can get your tips from normal everyday interaction- things of personal use. Just look around your house, you will find 10 different companies that have solid projections for top line as well as bottom line over the next few years, so I know that they are going to fundamentally grow and I can invest in them. When I brush my teeth-I look at Colgate-Palmolive, a FMCG company, eat a biscuit, that's ITC - I also smoke their cigarettes, a phone call - Bharati, to know and do well in investing you do not have to know rocket science. You must be a long term investor. It is said that Warren Buffet does very few transactions and really for the long term.

In the long term what you are trying to do is get rid of the volatility, to get averaged. At what price you want to buy a stock and when you value it becomes a crucial thing. How do you understand what the correct value of the stock is?

Jayaprakash: There is the price earning multiple, which is nothing but market price divided by earnings per share (PE). Today say Infosys is trading at 35 PE, this means that if the company is earning Rs.10 per share, and if the multiple is 35, price will Rs.350. So what should be the ideal multiple for you to buy a stock? State bank of India (SBI) is trading at 8, so is it that SBI is very attractive? There are stocks available at 6 PE. Basically you have to look at what rate the company is growing. What the investors are getting is the profits of the company. 

Today for the Sensex stocks the average PE of forward earnings is at 16. We always see what the profitability for the next year is. So today is that expensive or is it cheaper? So if we are going to grow as an industry at 15%, I think if we have a situation of 20 plus PE then it is expensive. The thumb rule is PE should be equal to growth of the company or industry.  If a company is growing at 8% the fair PE value will be close to 8%. Unless you have at least an hours time everyday, it is better to back Mutual Funds.

In Mutual Fund, the track record of the manager rather than the equities which he holds becomes important, what is your opinion on this?

Sriram: A recognized company has a process which has been set that makes the organization independent of a particular individual. That's a business fundamental, to de-risk dependence on a particular individual. Yes individuals do make a difference, but most fund houses have a core team of 4-5 people who mange portfolios today.

What are the key things that you look at in a MF ?

Jayaprakash: One is the past track record of the scheme, the fund's pedigree, the process and the fund philosophy where you look at allocation of funds in various sectors. There is nothing to beat experience, however good an investor you are, if you take say 10 calls of which 6 are right, it means you have achieved your target. 4 calls are wrong, so take corrective action, immediately reverse the decisions . If 8 out of 10 go right then you are doing just great.

Kiran: Investors will stay committed to a fund manager, but they would also like to look at the other funds which he's moved to and try to see how he's faring there.

Sriram: The fund manager is not a God, he's a human who is equipped to handle portfolios, that's his core job, the manager is important to spot and pick up the right businesses, but the process is more important because it will not allow him to fall in love with a stock. 

Tarachand Wanvari  looks after the South India desk of http://.indiantelevision.com is a consulting correspondent for Business Gyan and www.businessgyan.com. He is a qualified Financial and Insurance Advisor. Feedback at This e-mail address is being protected from spam bots, you need JavaScript enabled to view it  

Issue BG65 Aug06

Related Items:

---

Be first to comment this article

Only registered users can write comments.
Please login or register.