LEARNING


Moneylife Digital Team 11 August 2011
Never invest in something you don’t understand Are stocks new to you? Is ‘sector funds’ a term you are hearing for the first time? Does ‘balanced funds’ make you go blank? If so, you have no business buying any of these. You are more than likely to make losses if you buy a financial product...

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Moneylife Digital Team 28 July 2011
Patience is a key virtue in stock investing If value investing—buying well-performing companies when they are cheap—is the way to pick stocks smartly, what is the crucial ingredient of value investing? It’s patience. It’s not often that stocks are cheap—they must become expensive sometimes...

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Moneylife Digital Team 14 July 2011
Borrowing money to buy stocks is the road to ruin Leverage—using debt to finance assets—is a double-edged sword, especially if you finance risky assets like stocks. When it goes in your favour, your profits accelerate. But, when you lose money, your losses are magnified. The outcome of...

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Moneylife Digital Team 30 June 2011
Academics try to quantify risk as a number. Practitioners define it as permanent loss of capital In finance, risk is typically measured in terms of standard deviation, variance or beta. It is quantified on the basis of the volatility of an asset. But, according to value-investor Benjamin...

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Moneylife Digital Team 16 June 2011
It’s tough but rewarding Warren Buffett said “Be fearful when others are greedy and be greedy when others are fearful.” Contrarian investors, like Warren Buffett, sell when others are buying and buy when others are selling. Decisions of common investors are usually dominated by greed. They...

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Moneylife Digital Team 02 June 2011
Why this time is never different Sir John Templeton, the legendary investor-turned-philanthropist, identified the four most expensive words in investing as ‘this time, it’s different’. Before every major crash, like the Great Depression, post-Enron, after 9/11, the dotcom and housing bubble...

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Moneylife Digital Team 05 May 2011
Why Fortune’s pick of 10 stocks for the decade turned out to be foolish In August 2000, Fortune magazine put out an article that started as follows: “Admit it, you still have nightmares about the ones that got away. The Microsofts, the Ciscos, the Intels. They’re the top holdings in your...

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Moneylife Digital Team 21 April 2011
The government has allowed foreign nationals to invest in Indian mutual funds. The idea will hit a natural wall In the Union Budget of 2011, finance minister Pranab Mukherjee announced that mutual funds would now be able to accept subscriptions from foreign investors in equity-oriented...

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Prof Anil Agashe 18 April 2011
The level of ignorance and extent of unwillingness to learn, even among middle-management employees, is frightening. And while some companies may frown on this, it is critical that employees are made aware of the financial health of the institution, so it motivates them to improve  During...

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Moneylife Digital Team 24 March 2011
That’s hindsight bias in action In 1991, researchers Martin Bolt and John Brink asked students to predict how the US Senate would vote on the confirmation of a Supreme Court nominee. Prior to the vote, 58% of the participants predicted that the nominee would be confirmed. When the same group...

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Moneylife Digital Team 24 March 2011
Three signs that tell you when to sell To earn high returns at minimal risk, the right price to buy a stock is at/below 50% discount to its maximum retail price (MRP). We need to sell, once it crosses the MRP (or the right value of the stock). Since no one can time the market, knowing when to...

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Moneylife Digital Team 10 March 2011
After short-listing a wonderful company to invest in, you need to know at what price the stock is worth buying. For this, you need to find out the right value of the stock—its MRP (or maximum retail price). When you invest in a stock, you earn income in two ways: through dividends, which you...

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Moneylife Digital Team 10 March 2011
Why can’t we cut our losses? Imagine you have paid Rs250 for a movie ticket… and half-way through the screening, you realise that the flick is not worth it—the plot is slow and the acting is terrible. Would you ditch the movie and spend your time on something better or sit through the pain...

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Moneylife Digital Team 24 February 2011
How confirmation bias leads to skewed decision making Gaurav, an avid investor, is genuinely convinced about the future of a certain company and decides to buy its stock on the basis of that belief. Soon, some negative reports about the company start appearing. It turns out that the company...

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Moneylife Digital Team 24 February 2011
The ‘trader’ versus ‘investor’ debate continues to flummox shareholder-taxpayers Paying taxes involves a host of issues that can make life miserable for the honest taxpayer. A common bone of contention between taxpayers and tax authorities is regarding the classification of income from ‘sale...

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Moneylife Digital Team 24 February 2011
A wonderful business worth investing in is one which has an excellent financial track record and sustainable competitive advantage. Another equally important criterion is that the business should have respectable and trustworthy management. Strong financials and competitive advantage will amount...

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Moneylife Digital Team 10 February 2011
Anchoring may lead you to take ill-informed decisions In the early 1970s, Amos Tversky and Daniel Kahneman asked people to spin a wheel of fortune that was numbered from ‘0’ to ‘100’ and then asked them to estimate whether the percentage of total United Nations (UN) membership made up by...

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Moneylife Digital Team 10 February 2011
How your credit score impacts your ability to borrow Are you among those who keep rolling over your outstanding dues on credit cards? Do you have a habit of making late payments on your post-paid mobile connection? If the answer is ‘yes’, you better change your habits quickly. Because every...

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Moneylife Digital Team 10 February 2011
We saw that the first criterion for finding a wonderful business is an excellent financial track record. But a company worthy of investment must be able to grow its profits consistently, despite competition and tough economic conditions. Only a company with a sustainable competitive advantage...

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Debashis Basu Debashis Basu 27 January 2011
To be a successful investor, intense reading is important, especially since there is just too much of misinformation and myth floating about investing. Here is what Charlie Munger, partner on Warren Buffett, says about the importance on reading:   "In my whole life, I have known no...

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