Here is the second half of my ‘personal investing biography’ for my readers. I have ended the first half by saying I was learning the successful investment practices adapted from three legend investors, to create my own investment valuation principles.
After read the books, ‘The Intelligent Investor’, ‘The Warren Buffett Way’ and ‘Common Stocks and Uncommon Profits’, to have better familiarity on the investment practices used and suggested by Benjamin Graham, Warren Buffett and Philip Fisher, I have finalized the must look areas to valuate a company to invest. This practice leads me to have my own style of investing.
As I have personal enmity to brokers, stock analysts and tipsters, I cautioned myself to not hear, follow or even bother their words. Instead, decided to stick own my investment principles entirely, for all of my present and future investing requirements.When I strongly felt I am able to valuate any company, I started a personal savings account to transfer some pre-determined amount each month to accumulate money for buying stocks. I never lost any chance to add any money that coming to me as bonuses from my company or from any other ways. Finally, I have identified and subscribed a best online trading platform for my personal investing. With a practice of keeping backups to all my important accounts and data, I have also opened another online trading account from another vendor as a backup to the first. This trading account later helped me to purchase any shares specifically for my child investments plan.At the end of year 2005, I bought my first set of shares when the price of same totally met my requirements to purchase. Later, I had brought shares of another six fantastic companies to build my core stock portfolio. I am still holding these shares as my ever best investments. As a result of my patience and research, I have not faced any lose, even after the recession lead stock market crashes. A well mix of defensive sectors in my portfolio helped me a lot to protect my portfolio from any major setbacks.With my seven companies, I have made a profit of 6 times than the money I lost at the time I started investing as a beginner. I also like to point out the only mistake happened from my side was the decision to sell some shares of a classic company, to get my previous lose back. Yes, I got my previous lose back with its interests. It took 12 years for me to recollect my lost money. But, in the same time, I was doing big mistakes of selling a germ for little price. As the cost for this mistake, I have never got another opportunity to buy these stocks again in the price I paid to buy it earlier.Now, I am a very happy investor by not investing regularly but, taking extra care to not miss any possible investing opportunities. Still am following the practice of transferring some amount to my trading account in each and every month. With my further researches, I have already identified next some companies to invest when it reaching to my pre-determined price band to buy.
It is the time to have a small discussion on my personal investment valuation method. I am not saying this methods developed by me. But, I am able to say, these are the most succeeded methods I have found practiced and followed by legend investors. Here are the five methods I am following to valuate an investment:
1. A company with one or more products or service, that have unbeaten monopolistic position in the market were customers required to buy it again and again. Such eminent position and improving quality eliminate any room for competitors to enter with similar product or service.
2. A company should lead by well efficient management team, capable to introduce innovative ideas time to time, to maintain its leadership position intact in the market, by considering the economy and market cycles, time to time and in advance.
3. A company should have zero debt or very few, manageable debts. The term ‘manageable debt’ correlating to a company’s total debt, combining both long term and short term debts, should not exceed its yearly net profit. A debt position up to one half of its yearly net profit can be considered if the company meets all other conditions perfectly.
4. A company should have a history of registering consistent per share earning growth year to year for last 10 without any drop in earning at any year.
5. Finally, when buying, the stock price should project a rate of return of 7% or more.
Above are the five golden rules I am following to valuate an investment. I never interested any compromise with any these rules. Any situation that forcing me to compromise, will lead me to not invest on it at present and keep aside till it meets my requirements.A person with average math skills, I am not in a position to valuate financial statements of any company to identify common ratios and the possibilities exposing by them. Being frank, I don’t believe or not interested to do any numerical calculations to reach to any assumptions based on the result from it. Even though, as an investor, knowing some calculations are the integral part of valuation and should have enough knowledge on that. To identify the price, an investor should know the rate of return from the buying price. If he pays higher price, the rate of return will come to low.Like this, I have always interested to know the cost to sales part of any company to understand the ability of a company to survive at the time of economic changes like inflation. Making a quality product from minimum cost, automatically convert the company to a cash rich one. As the result, there will not be any debt and enough investor appreciations possible.
As a follower of value investor Benjamin Graham and his Margin of Safety principle, I learned the skills to calculate and compare a stock price with the related returns of a most secured government bond. Calculating the Rate of Return and relative returns helped me to identify the right buying price. If you interested to know these calculations, visit my blog time to time. I will soon post articles on these calculations for readers to understand what Graham intended to teach his students and investors from his Margin of Safety formula.
This is my personal experience and short biography on investing. I intend to share two major points; 1. Do not allow a bad result from any mistakes in our life, to override us and drop the interest to a particular subject. Instead, take it as an experience to learn new lessons. 2. Each investor should develop his or her own investing strategies than just following others. Life experiences and practices followed by legend investors greatly help for this. Read and read more to get the best from it to keep as your personal.
If you are new here, you might have missed the first part of this biography.
I am happy to hear from each of you. A discussion on any points, most welcome. In case you have any doubt or a question, don’t hesitate to comment here to let me know.