Let your baby play in the mud or the value of experiments

Expert Advice or Who to believe Adapted from the book Mindware – Richard Nisbett We get it all the time. Advice meant to improve our careers, our children, our bodies, our lives. Only, a lot of it is often contradictory. And unlike twenty years ago when there were three national dailies, two television channels and 1 radio station,  there’s an unending stream (literally) of tweets with links to online self-improvement resources. It’s the same with investing. “Time to buy consumer staples” “Get out of commodities” “Cyclicals are the next mega trend” or even “Sell Everything!“, the warning from the good folks at RBS in

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Have you been framed?

Nicotine addicted monks and framing You have probably heard this one about the two trappist monks. Monk 1 asked his abbot whether it would be alright to smoke while he prayed. Scandalized, the abbot says “Of Course Not! That borders on sacrilege!” Monk 2 asked his abbot whether it would be alright to pray while he smoked. “Of Course” says the abbot, “God wants to hear from us at any time” The way the same information is presented to us has an impact on how we process and react to it. This effect is called ‘Framing’. Next time you pick up a pack of

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Life and investing lessons from picking up a new habit

I hate running. Always have. This is partly to do with having the lung-capacity of an asthmatic squirrel from being desk-bound for a large part of my day. But to be fair to myself, I’ve don’t mind chasing after a ball on a cricket or soccer field, or the frenetic movement on a badminton or tennis court. But chugging along, stride after stride, legs pumping, on a treadmill or on a track, lungs trying to draw in more air than your heart rate allows, with no specific end except a particular distance or a time limit was less preferred to me than say

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Your real returns from investing in Indian real estate

Recently I met a good friend who was in town on vacation. We’ve known each other for over 15 years, first meeting when we started our jobs fresh out of college, colleagues for about 4 years and flatmates for a couple of years. Since he lives on the other side of the world, we meet on average once in two years. Aside from the telltale signs of grey (mostly me) and a few added kilograms (mostly him), our interactions are the same; relaxed, with a decent amount of poking irreverent fun at each other. After the customary catch-up around life

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How to buy your first stock

Let’s say you recognize the corrosive nature of inflation, doff your hat to the marvel that is compounding and realize why equities are critical to wealth-building. Good going already. You’d now like to build your very own stock portfolio that you hope will grow your wealth manifold over the years. Fantastic! So, how do you find your first stock? Where to look One way is to flip through the pink papers or to CNBC to see what stocks the talking heads are eagerly touting as the next big thing. It is also probably the worst way. Reading the Financial Times to prepare for markets

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Predicting stock market returns

At a glance While predicting market performance is nearly impossible, there are lessons to be learnt from looking at past performance We take the predictive power of three popular valuation metrics; Price-to-Earnings, Price-to-Book and Dividend Yield P/E as a valuation metric performs better than P/B and yield as a lead indicator of annual returns As of early Jan 2015, the Nifty is trading at 21.2x earnings, more expensive than 80% of all trading days in the last 16 years Higher the P/E at the time of purchase, lower the returns achieved for the Nifty Current P/E levels indicate marginally negative

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3 charts that sum up Indian equities in 2014

1. An “exuberant” 2014 Both key benchmark indices up by 30% December so far has seen the only significant correction in 2014 2. A “can’t go wrong” 2014 Every sub-index provided positive returns, some more than others with returns ranging between 10% and 70% Metals, Oil & Gas, IT, FMCG and Power under-performed the broader index Small caps, Consumer Durables, Mid caps, Auto & Capital Goods offered 50%+ returns 3. An “Expectations ahead of Earnings” 2014 Indian markets currently trade just above 21x earnings (For every ₹1 in earnings, you pay ₹21) Unless earnings show significant growth in the next quarter or two, historical data over 15 years suggests you’re more

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Which type of investor are you?

At a glance We’re swayed much more by good stories than by factual evidence – In investing, a compelling story backed by anecdotal evidence is much more likely to get us to act than graphs or numbers – There are hundreds of stories about what works in the stock markets – While some are mere flash-in-the-pan, others are more resilient and bear scrutiny – As investors, we should first identify the kind of stories that appeal to us and then examine them closely to determine their validity before clicking ‘Buy’   Missed opportunity or Distraction I saw this tweet on my

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Markets this quarter and a game of dominoes

At a glance Indian markets have just ended their best quarter in five years – Valuation metrics tell differing stories – Nifty P/E say “expensive” but P/B say “fairly priced” – History suggests the interplay between the two reveal prevailing themes of investor expectations – Current expectations count on a bunch of interconnected things going right – Overly optimistic short-term investors might be rudely shocked – “Watchfully optimistic” should be the theme for calm investors After the frothy action in May, June 2014 saw some semblance of normality return even though the direction of the overall index remained the same, UP.

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Insuring is not Investing

At a glance Most of us own atleast one cash-back life insurance policy bought early in our careers for the 80C tax deduction Insurance is a means of managing risk, meant to compensate your dependents in the event of a catastrophic event while an investment is meant to help grow your savings at an acceptable rate. Confusing insurance with investment is one of the most wide-spread mistakes The most prevalent insurance product, Cash-back policies that offer a lumpsum on maturity are the worst of both insurance and investing since they offer low death benefit to premiums paid and also sub-optimal

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