7 Investment Books You Should Read (Carona Lockdown)

7 Investment Books You Should Read

 

Every investor should make the effort to read - some books can help improve your investing and could also save you making costly mistakes.

Benjamin Graham is regarded as the father of value investing. Warren Buffett was once a student of his and Graham’s book, "The Intelligent Investor" has been described by Buffett as “by far the best book on investing ever written”.

Although a little dour for a modern audience, it acts as a doorway into a world of logical and intelligent investing and clearly explains how conservative investing differs from gambling.

Even the best investors make mistakes, that’s why it’s vital to build in a margin of safety, ensuring that you buy cheaply so that if a stock does fall you don’t get wiped out. Ben Graham pretty much invented this concept and his book explains how to put it into effect.

Here are six more books that you might consider adding to your bookshelf.

Together they’ll cost around £100, but you could even see it as an investment if they help you improve your style and put your money to work more effectively.

Common Stocks and Uncommon Profits by Philip Fisher (1907 - 2004)

Fisher was another huge influence on Warren Buffett’s investment philosophy; his focus on how to assess the qualitative aspects of an investment are timeless. It’s an engaging but profound read, providing advice on a wide range of investing concerns, from how to gauge the potential of a company, to when to sell a share. Fisher's guidance on how to use the business grapevine to obtain valuable details about the management and strengths of a company, otherwise known as "Scuttlebutt", is particularly novel and useful.

 The Little Book of Value Investing by Christopher H. Browne (1946 -2009)

Former managing director of the US-based Tweedy Browne investment house, this is very accessible and a great introduction to some of the central tenants of value investing. You don’t need to have much financial background, just common sense to get a lot from this book, which succinctly explains the key investment rules in a witty manner. A pocket sized and practical guide to be read and re-read.

 Investing Against the Tide by Anthony Bolton

Written by one of the UK’s most successful stock market investors (former manager of the Fidelity Special Situations fund), reveals some of the secrets of his success as he explains his investing methodology, successes and failures. Not all of it can be easily replicated by the private investor, who naturally lacks the resources and access to company management, but it provides a benchmark and insight into the risks of investing.

 The Zulu Principle by Jim Slater (1929 -2015)

This legendary self-made financier and investor first explained in this book the idea of investing in small caps that are undervalued yet are growing fast with earnings rising. As he famously wrote: "Most leading brokers cannot spare the time and money to research smaller stocks. You are therefore more likely to find a bargain in this relatively under-exploited area of the stock market.” It’s a useful guide and his originality is always stimulating. The beauty of this book is that he explains in simple terms how to apply screens to find cheap yet good companies. The chapters on price earnings growth (PEGs) and technology stocks are particularly useful.

 The Future is Small by Gervais Williams

Fund manager and founder of investment house Miton. A small cap specialist, Williams makes a very persuasive case for why in the years ahead small caps will outperform large companies and why the Alternative Investment Market (Aim) in particular will be a happy hunting ground for investors. He explains complex macroeconomic drivers in a very accessible way. Indeed, the book is highly readable and he even provides sources to back-up his arguments - just in case you wish to delve deeper into the economics that underpin his arguments. Perhaps better used as a motivator rather than as an aid to actual stock selection.

 The Little Book of Behavioural Investing by James Montier

Investment strategist at US asset manager GMO. In this humorous, engaging and highly enjoyable little book, Montier outlines some of the most common behavioural challenges and mental pitfalls that most investors are prone to. More importantly, he provides strategies to help you avoid these in-built weaknesses. For example, he explains the importance of preparing plans while in a cold, rational state, as in the heat of the moment emotions can produce investing mistakes. Helpfully, he also provides examples of how the world’s best investors have beaten the behavioural biases that reduce investment returns.

Armed with the knowledge contained in the above books you’ll be in a strong position to make better investments, which should in good time bring the rewards that only sound investing can.

Happy Investing  

HANDLING CARONAVIRUS

HANDLING CARONAVIRUS

Peter Frankopan

 

His 2015 book The Silk Roads: A New History of the World sold 1.5 million copies worldwide and was named among the 'Books of the Decade' by the Sunday Times, London.

The follow-up book The New Silk Roads: The Future and Present of the World, about a new world forming across the spine of Asia, linking China, Russia, Iran, the Middle East with Central and South Asia published in 2018, is a major international bestseller.

 

 

Pandemics have occurred many times in the past. Doctors in China and India were writing about the importance of isolation more than two thousand years ago. So we can use history in three ways: first, we can take comfort that our ancestors have had to deal with these things before, and in doing so, get some perspective not only on what they lived through but also what we are dealing with today as well. However awful the current situation, it is better than the plague outbreak in Mumbai in 1896, when the city was also being ravaged by cholera, tuberculosis and other diseases.

Second, history can help us have a better idea of which questions we should ask about what has happened in the past when communities and countries have been ravaged by disease: what happens next; how does society change; what might the future bring by way of challenge and opportunity? And third and finally, history is a valuable tutor – if one can listen carefully. How do we learn from the crisis of 2020; how do we prepare better next time; what should we have done and be doing differently? All these three – gaining perspective; preparing for the future; and learning from the past constructively seem to me to be extremely important.

 

 The truth is that it’s still too early to say. We do not yet know how devastating the pandemic will be, where its impact will be deepest and how long it will take to eradicate. So any projections must take into account a great many variables. But even on a basic level, the changes will be enormous. Migration between states may be restricted for many months if not until 2021 and the availability of viable vaccines. For a country like India which has a large diaspora, this means the separation of families for a very long period of time. We can conceive too how imports and exports change dramatically as it becomes harder to move goods between and even within countries, which can result in considerable changes to consumption patterns.

Some of these changes bring unexpected side-effects: in India’s case for example, restrictions on movement and the shut down of large parts of manufacturing is already having an immediate effect on air quality – which will in fact end up saving a lot of lives, especially amongst the very young and the very old. So there are a very large number of changes. And while it is tempting to look at the negative, it is also important to take a rounded view if possible and to see the big picture.

 

It is a very good question. As the pandemic struck, there was a clear trend in many democratic countries towards populism and to hard-line policies. Such aggressive positions seem out of sync now with a world in which we are much more fearful and conscious of the value of life. So it may well be that we emerge into a gentler, more forgiving world as we realise that some things are more valuable than the humdrum of ‘punch and judy’ politics. As an optimist, I’d be happy with that.

As a pragmatist, however, my guess is that pandemic will generate tools to monitor our movements to help bring the disease under control, and that these will be re-modelled, adapted and used by cynical politicians in ways that are self-serving and have very serious long-term implications for us all. And I suspect these are much more serious for those of us living in democracies, where we are used to our freedoms. The surveillance state already exists in some countries; it looks to me like that will now become more common – something which poses many questions and rather fewer answers.

Well, in the first instance, the lack of a co-ordinated international or global plan means that countries are all on their own and making decisions in isolation. This means that domestic markets become very important: if people in India are unable to travel abroad, and visitors are not allowed in, then large-scale markets can clearly do well. What is hard, though, is to anticipate what happens when new domestic champions emerge and are met with competition from outside as the world gets back to normal.

The question of young people is a crucial one: governments all around the world have raided the piggybanks of the next generations to pay for the price of not having been prepared for today: huge borrowings being made to protect jobs, to fund medical care and so on will fall on their shoulders. This seems to me to be very unfair and poorly thought through: crushing the dreams, hopes and realities of the young is very dangerous. And as I can tell you from my role at Oxford University, young people are often more intelligent and resourceful than their seniors. So it may be that the next generation start to demand fairer and better representation, perhaps even in government. I would not only not blame them; I would welcome it: why not have a quota for 25 per cent of MPs in India to be below the age of 35?

 

 

It is a strange one. No one pays much attention to these global institutions until something goes wrong; and then they get blamed for what they have done or not done. Part of the answer must be to calibrate our expectations better. As it happens, the current crisis may provide a valuable moment to focus on how governments work more closely together and how to create either new or reformed forums that enable a better way of handling big problems – not just pandemic, but climate change too. But that only works if politicians actually want to find long-term solutions and are willing to move away from the petty point scoring that wins them votes in the short term. I am not wildly optimistic that the current crop of global leaders see things that way.

 

Coronavirus Financial Crisis & It’s Impact On Indian Economy : Dr. Subbarao, Former RBI Governor

Coronavirus Financial Crisis & It’s Impact On Indian

Economy : Dr. Subbarao, Former RBI Governor

 

 

Recently, the CFA Society published a webinar wherein they invited Hon. Ex- RBI Governor Dr. Duvvuri Subbarao, to share his views on the coronavirus financial crisis. In this webinar, Dr. Subbarao compared the coronavirus financial crisis with the global financial crisis of 2008-09 and highlighted his views on the impact and response to COVID-19 at the India level.

 

Part A:

Comparison between the Coronavirus Financial Crisis and the Global Financial Crisis

• The origin of the global financial crisis was a consequence of excessive risk taking in the financial sector i.e. reckless financial engineering that transmitted into the real sector whereas, the Coronavirus financial crisis originated as a consequence of reticence about the pandemic in the real sector which then transmitted to the financial sector.
• During the global financial crisis, there were financial constraints to work, whereas under the coronavirus financial crisis, the confidence is broken in the real sector thereby, creating constraints to work.
• Under the global financial crisis, the demand collapsed and eventually dragged down supply whereas in the coronavirus financial crisis, supply chains collapsed and subsequently, independently the demand collapsed.
• During the global financial crisis, trust if the solution was to inspire confidence in the financial sector whereas in the coronavirus financial crisis, the trust of the solution must be in the real sector that the pandemic will break, subsequent to which the demand will revive.
• During the global financial crisis, it was very important that financial stability was first restored in the systematically important countries such as US and Europe, which would the transmit to the rest of the world. However, for the coronavirus financial crisis, each country has to deal with the crisis on its own within its borders. However, having said that, no country in the world is safe until every country in the world is.
• During the global financial crisis, there was a lot of uncertainty about the risk in the financial sector whereas, in the coronavirus financial crisis, there is lot of uncertainty in the real sector. The quantum and level of uncertainty is much deeper and there are too many known unknowns.
• During the global financial crisis, solution for real and financial sector were in tandem and reinforced each other whereas, the solutions to the coronavirus financial crisis, may have conflicting results in the real and financial sector. For instance, lockdowns may help contain the pandemic but negatively affects the financial sector.
• During the global financial crisis, the hallmark was the cooperation among the countries and their unity in fighting the crisis. Whereas, today, there is a lot of bitterness amongst countries. In fact, there was some bitterness even prior to the crisis as a result of trade war. However, even though there is probably no global cooperation at the political level, there is significant cooperation between scientific institutions for research in order to find a cure for the pandemic.
• The recovery from the crisis could be V-shaped or U-shaped, as was the case with other crisis in the past 25 years. However, he also highlighted that the recovery could be W-shaped, if the pandemic spreads further.

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Part B:

India level comparison between the Coronavirus Financial Crisis and the Global Financial Crisis

• Dr. Subbarao highlighted that India entered the coronavirus financial crisis with weaker macroeconomic variables as compared to the global financial crisis considering that there was an economic slowdown. The financial sector was stressed. However, before the global financial crisis, the macroeconomic factors were stronger with India growing at 8-9% before the crisis and the financial sector was safe and sound.
• During the global financial crisis, there was enough fiscal room for stimulus whereas, today, during the coronavirus financial crisis, the fiscal deficit is already stretched. 
• The only advantage in the current crisis vis-à-vis the coronavirus financial crisis, is that the external sector is better and robust.

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Part C:

Response and Lessons from the crisis

• There has been a lot of debate lately on whether the economy stimulus package announced by the government is enough or not. Today, all governments are facing the conflict of choosing between lives and livelihood. In any case, whatever the decision is, the governments would have to spend more on medical infrastructure, livelihood support and stimulating the economy. As much as we learn from other countries, every country would have to tailor its own response as per their circumstances and strike their own balance between lives and livelihood. 

• The exit from the crisis has to be carefully planned. 
• Communication is of utmost importance. It is important that the governments are transparent while reporting about the situation and at the same time, convey reassurance and confidence.
• Even as there is restructuring for recovery after the crisis, only the illiquid institutions must be supported and insolvent institutions should be allowed to die so that stronger institutions emerge out of this crisis.

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Subsequently, Dr. Subbarao answered some questions about the presentation on various issues such as de-globalisation, chances of inflation or deflations, sovereign ratings etc. On the subject of de-globalisation, he said that while cross-border events and movement would be checked as was the case post the 9/11 attacks, a complete reversal of the globalisation trend is highly improbable.

He mentioned that it is unlikely that a situation of stagflation or deflation would arise. However, inflation is always a concern. He mentioned that even during 2008-09, there was disinflation for sometime but it wasn’t prolonged. His thoughts on the current crisis were that we might most probably encounter an inflation situation.

On the question of sovereign ratings, he said that sovereign debt countries running huge fiscal deficit, must be very careful since investment houses might pull out their investments and create an exodus of capital.

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Happy Investing

Source: Dr. Subbarao’s presentation and video published by the CFA Society

Portfolio Diversification​​ - Immunize Investment from COVID19​

Portfolio Diversification​​ - Immunize Investment from COVID19​

The Novel Coronavirus (Covid-19) is creating havoc on global economies. The upheaval has had a crippling effect on Indian equity markets as well, with the benchmark Nifty 50 index plunging 37% year-to-date (YTD) till March 23, 2020, almost in-line with global peers. But, while equities have been whiplashed, the other primary asset classes, viz, debt and gold, have stayed aflo​​at, returning 2.35% and 7% over the period.

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Notes:​

​1)         Equity returns are calculated for Nifty 50 index

2)         Debt returns are calculated for CRISIL Dynamic Gilt Index 

3)         Gold returns are calculated from London Bullion Market Association (LBMA) prices converted to Indian rupees 

4)         Data is for December 201​9 to March 23, 2020

Source: CRISIL Research

So, does this mean that investors should offload equities and move their investments to the other asset classes? Sure, stocks have cratered YTD. But, the answer is an emphatic ‘No’. Before rushing for the exit, investors should be aware that ​all asset classes are subject to pulls and pushes. Even debt, which is supposed to be a stable asset class, and gold, which a traditional investment vehicle, are not immune to volatility. Like for instance, in 2009, debt fell 6% while in 2013, gold lost 19%.

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​ Notes: 

1) Calendar year point-to-point returns 

2) Gold returns calculated from LBMA prices converted to Indian rupees 

3) Equity returns calculated for Nifty 50 Index 

4) Debt returns calculated for CRISIL Dyn​amic Gilt Index

Source: CRISIL Research ​

Hence, bouts of short-term volatility is not a clarion call for investors to shun equities. To be sure, equities have the ability to rebound on positive cues, as has been evident over several instances. Also, just as debt can lend balance to a portfolio, equities can provide the booster to returns.

So, do not rush to redeem or stop equity systematic investment plans or other equity investment vehicles. This volatile spell should not make investors allocate more to debt and gold. Because, while debt can act as a cushion against market volatility, it may not always be able to beat inflation. Further, gold has largely done well as a safe haven asset only during choppy times.

Hence, to get the best return, investors would do better by having a diversified portfolio.

Investment Diversification with equity, debt, and gold generated higher risk-adjusted returns​

Historically, whenever the sentiment for equities strengthened, investors pulled out of safer assets, such as debt, and moved into stocks to capture the gains. And when equities pass through a bear phase, risk appetite takes a hit, and demand for safer assets and commodities, such as gold, rises.

Because of this inverse relationship between the asset classes, investing in a diversified portfolio of equity funds, debt funds and gold reduces the risk associated with investing in a single asset.​

CRISIL Research analysed the performance of a diversified portfolio (equity, debt, and gold) as against standard diversification (equity and debt) and standalone asset classes. Our analysis shows that a combination of equity, debt, and gold in a portfolio generated higher risk-adjusted returns (Sharpe ratio) than other combination / standalone classes.

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* Allocation between equity and debt assumed to be 50:50

^ Allocation between equity, debt and gold assumed to be 45:45:10

Notes:

1.     Returns – Average of 10-year CAGR on a daily rolling basis from 1997 to March 23, 2020

2.     Volatility – Standard deviation of 10-year CAGR returns from 1997 to March 23, 2020

3.     Risk adjusted returns denoted by Sharpe ratio computed on returns and volatility generated above

4.     Risk-free rate of 5.51% used for the analysis, which is the one-year average 91-day T-bill rate for the period ended March 18, 2020

5.     Debt, equity and gold represented by CRISIL Dynamic Gilt Index, Nifty 50 and LBMA gold prices, respectively

But, a word of caution. Investors should note that allocation to different asset classes within a diversified portfolio should be in line with the age, risk-taking ability, goals, and investment horizon. Risk profiling through a formal questionnaire-based process could help investors assess themselves on the parameters. For instance, for an investor with aggressive risk appetite and long term goals, equity could be the way, whereas for short term goals, debt investing could be considered.

Mutual funds, an able ally to help Portfolio ​Diversification

This is where mutual funds are able to support the investment strategy.​ Mutual funds offer a variety of investment options in each asset class, enabling investors to build a diversified portfolio. Investors can either choose hybrid funds (mix of debt and equity) or multi-asset allocation funds. Investors can also choose to spread their investment across mutual fund categories.

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To sum up

In these challenging times, when markets are highly volatile, diversification is a prudent tool to lower risk. Mutual funds can help build a diversified portfolio, thereby mitigating risks and optimising returns. That being said, do not fal​l in the trap of over diversification, but stick to allocating as per goals.

Happy Investing

Source: SBI Mutual funds.com