Sunday, 20 December 2015
Volatility: The dearest friend of Mr. Value
By Vikas Gupta
True value investor treats volatility as a stepping stone and not as an obstacle in his investment activity. For him volatility in stock markets opens door to opportunities.
True value investor treats volatility as a stepping stone and not as an obstacle in his investment activity. For him volatility in stock markets opens door to opportunities.
In Ben Graham’s par able of Mr. Market, he describes a very volatile fellow who is sometimes exuberant and is willing to buy stocks at any price and who is sometimes depressed and is willing to sell at any price. In contrast to this highly volatile fellow, Mr. Market, who buys high and sells low we can imagine a cool, calm and collected fellow Mr. Value. Mr. Value is willing to help Mr. Market when he needs it the most, especially at the extremes. When Mr. Market is desperate to sell at any price, typically very low, Mr. Value is happy to help him by buying them off him and when Mr. Market is desperate to buy at any price, typically very high, Mr. Value is happy to help him by selling them to him.
This way there is a very good partnership and complementary friendship between Mr. Market and Mr. Value. Majority of the traders, i.e. market participants who aim to make money from short-term trading positions in the market, can be classified as Mr. Market.
This way there is a very good partnership and complementary friendship between Mr. Market and Mr. Value. Majority of the traders, i.e. market participants who aim to make money from short-term trading positions in the market, can be classified as Mr. Market.
The investors, i.e. market participants who expect to make money from long-term investments in the markets, can be classified as Mr. Value. Traders want stocks that will move quickly in their anticipated direction and investors want stocks that are available significantly below their intrinsic value.
In a clear bull market trend the traders tend to make quick money by using techniques such as, technical analysis, trend analysis, momentum etc. combined with leverage, i.e. buying on margin, using futures and options etc. All of these seem to work as long as a stable trend continues. When volatility strikes, i.e. the trend is not clear and markets keep going up and down with high unpredictability, the leveraged portfolios start making huge losses. This induces panic in the traders, it seems to them that the world is coming to an end, and they want to close out their positions; at any price.
This is when Mr. Value is at the happiest. Volatility is the friend of Mr. Value. Under such conditions a large number of companies are mis-priced and available below their intrinsic value. He can pick and choose the best companies based on various fundamental criteria and buy them at a discount to intrinsic value.
In a clear bull market trend the traders tend to make quick money by using techniques such as, technical analysis, trend analysis, momentum etc. combined with leverage, i.e. buying on margin, using futures and options etc. All of these seem to work as long as a stable trend continues. When volatility strikes, i.e. the trend is not clear and markets keep going up and down with high unpredictability, the leveraged portfolios start making huge losses. This induces panic in the traders, it seems to them that the world is coming to an end, and they want to close out their positions; at any price.
This is when Mr. Value is at the happiest. Volatility is the friend of Mr. Value. Under such conditions a large number of companies are mis-priced and available below their intrinsic value. He can pick and choose the best companies based on various fundamental criteria and buy them at a discount to intrinsic value.
So what does Mr. Value look for?
He reminds himself that the value of the business lies in its fundamentals. He starts looking at companies with large sales and earnings. These are companies which hold an important position in the economy due to their sheer size. They are likely to be there even in difficult economic situations.
Next he looks for companies with strong balance sheets. Strong balance sheets give the stability to survive difficult financial conditions. The fact that a company has low debt makes it less vulnerable to bankruptcy. Also if it has spare cash and debt capacity it allows it to take advantage of gaining further importance in the economy by gaining market share and possibly engaging in merger and acquisitions activity on favourable terms. It allows the company flexibility to add value on both the asset side and the liability side in favour of the shareholders.
Next Mr. Value looks at companies that have shown strong management capability in terms of proper capital allocation. Companies that have strong capital allocation capabilities are able to enjoy the famous “economic moat” of Warren Buffett.
Under times of volatility companies with above characteristics have a higher likelihood of being available at fair prices or below fair prices. However, Mr. Value is extremely cautious and evaluates these companies conservatively before deciding that they are cheap.
If they are cheap in a realistic-conservative model then he does not hesitate to make large purchases and build a long-term position in a diversified portfolio of such companies selected on the basis of their strong fundamental economic and financial position and availability at a discount to intrinsic value.
What Mr. Value does not do is start speculating on the chances of a further fall in the markets and specific stocks. He does not worry about the possibility that he makes a purchase and the market could fall further by 10 or 20% or more as long as the price he is paying is significantly below his conservative estimate of intrinsic value. He does not use margin or use leveraged short-term derivatives instruments to take his positions. He does not continue watching the market price of his stocks daily after purchasing and fret about the fact that he could have bought it at a lower price. If he has more money to allocate then he might add more to his position considering his overall asset allocation and near and long-term financial requirements.
He might decide apriori to stagger his purchases over next few days or weeks or months and then he sticks to that plan whether markets show an upward or downward trend. Of course, if the stock prices have gone above their intrinsic values then he needs to search for new stocks which are at a discount or come up with a new plan.
That, in sum, is how Mr. Value falls in love and tangoes with volatility and demonstrates his friendship to Mr. Market by helping him.
He reminds himself that the value of the business lies in its fundamentals. He starts looking at companies with large sales and earnings. These are companies which hold an important position in the economy due to their sheer size. They are likely to be there even in difficult economic situations.
Next he looks for companies with strong balance sheets. Strong balance sheets give the stability to survive difficult financial conditions. The fact that a company has low debt makes it less vulnerable to bankruptcy. Also if it has spare cash and debt capacity it allows it to take advantage of gaining further importance in the economy by gaining market share and possibly engaging in merger and acquisitions activity on favourable terms. It allows the company flexibility to add value on both the asset side and the liability side in favour of the shareholders.
Next Mr. Value looks at companies that have shown strong management capability in terms of proper capital allocation. Companies that have strong capital allocation capabilities are able to enjoy the famous “economic moat” of Warren Buffett.
Under times of volatility companies with above characteristics have a higher likelihood of being available at fair prices or below fair prices. However, Mr. Value is extremely cautious and evaluates these companies conservatively before deciding that they are cheap.
If they are cheap in a realistic-conservative model then he does not hesitate to make large purchases and build a long-term position in a diversified portfolio of such companies selected on the basis of their strong fundamental economic and financial position and availability at a discount to intrinsic value.
What Mr. Value does not do is start speculating on the chances of a further fall in the markets and specific stocks. He does not worry about the possibility that he makes a purchase and the market could fall further by 10 or 20% or more as long as the price he is paying is significantly below his conservative estimate of intrinsic value. He does not use margin or use leveraged short-term derivatives instruments to take his positions. He does not continue watching the market price of his stocks daily after purchasing and fret about the fact that he could have bought it at a lower price. If he has more money to allocate then he might add more to his position considering his overall asset allocation and near and long-term financial requirements.
He might decide apriori to stagger his purchases over next few days or weeks or months and then he sticks to that plan whether markets show an upward or downward trend. Of course, if the stock prices have gone above their intrinsic values then he needs to search for new stocks which are at a discount or come up with a new plan.
That, in sum, is how Mr. Value falls in love and tangoes with volatility and demonstrates his friendship to Mr. Market by helping him.
Source: www.moneycontrol.com
Quote for the day
"Men are not prisoners of fate, but only prisoners of their own minds." - Franklin D. Roosevelt
Saturday, 19 December 2015
Brendon Burchard’s 10 Keys for Success
Brendon Burchard is one of the most-watched personal development trainers and motivational speaker of our time and best selling author of "The Motivation Manifesto", "The Charge", "The Millionaire Messenger", and "Life’s Golden Ticket".
Here are Brendon Burchard's 10 rules for success in the words of Brendon Burchard:
1. Don't Listen to The Little Man
No matter where you are or where you started from, don't let your small beginnings make you small minded. It's easy to say “that's impossible”. We hear a lot of people telling us we can't do this and can't do that. Don't let their words hold you back from believing you can. No matter where you are, believe in yourself. Keep adding, keep working, keep going.
Some days may be hard and may be a struggle but it's through that struggle, through that dream, effort and desire that you will eventually get there.
2. You Need to Take Action Every Day
You have to actually show up every day and inch yourself forward towards these dreams. You have to take an action that moves you forward. Not just research or thinking because without the initiative, the action is dead. It has to be daily, otherwise it will never be actualized.
Keep the momentum going every single day.
3. You Must Define Your Mission
You need to have a mission for what you're doing today. You need to have an intention for the next task.
People tend to show up without any intention of what they need to do, and end up doing too many things which gets them no where.
Ask yourself: What is the mission?
Work out what your desire in life is, figure out the steps, create a plan to get there and minimize everything else. Get clear on the mission!
Don’t take on too many projects, make your mission the ultimate focus, it's easy to take your eye off of the ball if you don't know what the ball is.
Respond to your own desires and not others. Focus goes out the window when we don't have progress. The more focus, the more progress.
4. Facing Your Doubts
Doubt is one of the greatest enemies to success. It's so easy to overcome, but most people won't practice the discipline of overcoming it. Negative recurring emotions hold us back from being mature and realizing we need to fix the problem.
If you've been plagued with doubt your whole life, then face it. Where there is doubt, there is faith.
With more faith comes more competence, more competence results in more confidence.
5. Setting The Boundaries
Be more explicit in communicating your boundaries and time. If you have 45 minutes in a meeting, don't let it go a second over, let people know “Don't go over on the set time!”
Bleed time takes away from your balance by going over time on things you don't need to go over on. “I'll just have one drink” turns into 16, “Just one hour of lunch” turns into 4 hours, “Just one episode” turns into the entire series in one sitting.
Don't let time be wasted because you didn't stick to your mark. So set your boundary, communicate it clearly with people, and don't go over.
If you stick to the intention, you'll have better balance.
6. Study Your Craft
If you want to get ahead, you need to study your craft deeply. But do it for your passion, look at the great artists in history who studied and mastered their abilities. What is your area?
Study, pay attention, learn from the best, model the most intelligent, successful people you can. Then develop confidence by doing it over and over again. Don't do it once in a while.
7. Get Constructive Feedback
You need to get into a community that can give you feedback. Whether it be a coach, friends or family members. Practice with a group before the meeting so you are able to receive feedback to grow in confidence and competency.
It's the willingness to get feedback that will keep your dream alive. If it's just in your mind and you're just doing it by yourself, but you never get a positive community giving you constructive feedback, it will never be in the social realm where you gain that social awareness so that you can contribute and create at another level.
8. Think BIGGER
What is it that you're really after? Are you after enough for yourself? Are you limiting yourself based on your current competencies? Never limit your ambitions based on current competencies, never limit yourself today based on your current inadequacies because those could be irrelevant tomorrow.
The main thing is to have aim in life, to have your own aim, and your own ambitions. Don't let others tell you your aims and ambitions.
The highest forms of ambition usually come down to creative expression, your contribution, and your connection with others.
What is it that you want for yourself? is it big enough? Remember, whatever you come up with, 10x it. Challenge your brain to break the bounds.
9. Be Generous
What makes someone extraordinary? The ability to be generous, not only with gifts, but with your time, attention, mentor ship, care, love, patience, forgiveness, spirit, energy.
People vibrate with generosity, they feel it and sense it. They tend to be surprised by that. Give as much of your heart, your spirit, your life and your voice to this world because we only get one shot at this life.
10. Become Your Best Self
Take your current limitation and put it on your agenda as a job to do, as a thing to figure out and make it happen. Don't wait for circumstances to change otherwise you will never change. If you want to change, something new has to change.
Here are Brendon Burchard's 10 rules for success in the words of Brendon Burchard:
1. Don't Listen to The Little Man
No matter where you are or where you started from, don't let your small beginnings make you small minded. It's easy to say “that's impossible”. We hear a lot of people telling us we can't do this and can't do that. Don't let their words hold you back from believing you can. No matter where you are, believe in yourself. Keep adding, keep working, keep going.
Some days may be hard and may be a struggle but it's through that struggle, through that dream, effort and desire that you will eventually get there.
2. You Need to Take Action Every Day
You have to actually show up every day and inch yourself forward towards these dreams. You have to take an action that moves you forward. Not just research or thinking because without the initiative, the action is dead. It has to be daily, otherwise it will never be actualized.
Keep the momentum going every single day.
3. You Must Define Your Mission
You need to have a mission for what you're doing today. You need to have an intention for the next task.
People tend to show up without any intention of what they need to do, and end up doing too many things which gets them no where.
Ask yourself: What is the mission?
Work out what your desire in life is, figure out the steps, create a plan to get there and minimize everything else. Get clear on the mission!
Don’t take on too many projects, make your mission the ultimate focus, it's easy to take your eye off of the ball if you don't know what the ball is.
Respond to your own desires and not others. Focus goes out the window when we don't have progress. The more focus, the more progress.
4. Facing Your Doubts
Doubt is one of the greatest enemies to success. It's so easy to overcome, but most people won't practice the discipline of overcoming it. Negative recurring emotions hold us back from being mature and realizing we need to fix the problem.
If you've been plagued with doubt your whole life, then face it. Where there is doubt, there is faith.
With more faith comes more competence, more competence results in more confidence.
5. Setting The Boundaries
Be more explicit in communicating your boundaries and time. If you have 45 minutes in a meeting, don't let it go a second over, let people know “Don't go over on the set time!”
Bleed time takes away from your balance by going over time on things you don't need to go over on. “I'll just have one drink” turns into 16, “Just one hour of lunch” turns into 4 hours, “Just one episode” turns into the entire series in one sitting.
Don't let time be wasted because you didn't stick to your mark. So set your boundary, communicate it clearly with people, and don't go over.
If you stick to the intention, you'll have better balance.
6. Study Your Craft
If you want to get ahead, you need to study your craft deeply. But do it for your passion, look at the great artists in history who studied and mastered their abilities. What is your area?
Study, pay attention, learn from the best, model the most intelligent, successful people you can. Then develop confidence by doing it over and over again. Don't do it once in a while.
7. Get Constructive Feedback
You need to get into a community that can give you feedback. Whether it be a coach, friends or family members. Practice with a group before the meeting so you are able to receive feedback to grow in confidence and competency.
It's the willingness to get feedback that will keep your dream alive. If it's just in your mind and you're just doing it by yourself, but you never get a positive community giving you constructive feedback, it will never be in the social realm where you gain that social awareness so that you can contribute and create at another level.
8. Think BIGGER
What is it that you're really after? Are you after enough for yourself? Are you limiting yourself based on your current competencies? Never limit your ambitions based on current competencies, never limit yourself today based on your current inadequacies because those could be irrelevant tomorrow.
The main thing is to have aim in life, to have your own aim, and your own ambitions. Don't let others tell you your aims and ambitions.
The highest forms of ambition usually come down to creative expression, your contribution, and your connection with others.
What is it that you want for yourself? is it big enough? Remember, whatever you come up with, 10x it. Challenge your brain to break the bounds.
9. Be Generous
What makes someone extraordinary? The ability to be generous, not only with gifts, but with your time, attention, mentor ship, care, love, patience, forgiveness, spirit, energy.
People vibrate with generosity, they feel it and sense it. They tend to be surprised by that. Give as much of your heart, your spirit, your life and your voice to this world because we only get one shot at this life.
10. Become Your Best Self
Take your current limitation and put it on your agenda as a job to do, as a thing to figure out and make it happen. Don't wait for circumstances to change otherwise you will never change. If you want to change, something new has to change.
http://addicted2success.com/
Friday, 18 December 2015
Quote for the day
"Modern man thinks he loses something - time - when he does not do things quickly. Yet he does not know what to do with the time he gains - except kill it." - Erich Fromm
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