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October 5, 2012

If you are feeling in the dark about your financial situation or future, who better to listen to than the third richest man in the world? So we are here with 10 financial lessons that we can learn from Investment guru Warren Buffett.

warren buffett life

Warren Buffet’s Top 10 Secrets of Getting Rich

Spend wisely

When your income is limited than your needs also become limited & you will definitely think about your spending and see to it that you spend your money wisely.

But when your income is unlimited than your needs also become unlimited & you will definitely spend your money in a haphazard manner.

Amazingly although Warren Buffett is the richest man in the world he spends money wisely as he believes in simple living high thinking.

“He still lives in the same small house in mid-town Omaha that he bought after he got married 55 years ago. He drives his own car everywhere and does not have a driver or any personal security people around him.”

So spend money wisely and always think about how you can accomplish things economically. As your earnings may not be in your hands spending money is in your hands only.

No one cares about your money as much as you do

Many people today relay on financial advisors or so-called trading experts. As nothing is available for free in this world this financial expert always sees their interest while giving you advice to you.

Buffett makes all his investment decisions on his own for his own interest & not the commission-based interest of financial advisors or stock brokers.

Do your homework before investing

This is the most important point in managing your finances. Investment without planning or understanding will always lead to disaster.

Warren Buffett says: “Never invest in a business you cannot understand”

Buffett spends 18 hours a day working on investment capital, saying investors should think of themselves as partial owners. Many of us hardly spend 1 hour per day on our financial matters.

Overcome your fear of risk

Fear of risk or fear of losing capital always creates negative emotions among us and we end up making wrong financial decisions. One has to acquire knowledge to overcome the fear of risk.

Warren Buffett says: “Risk comes from not knowing what you are doing”.

So if you are not aware of what you are doing where you are investing than your investment is always at stake.

Focus on the long-term

Start saving/investing at an early age & continuing your investment will always help in the long run. Buffett believes in the same theory that putting off saving/investing means you will need to save more in less time for the same outcome.

Buffett equates life to snow balls; think of investment in the same way: “The important thing is finding wet snow and really long hill.

Invest in Quality Business

If you are purchasing stock of any company you should always go for quality business stocks. That is the reason you should do enough homework before investing in stock.

Buffett says “An investor needs to buy the stock as if he is buying the whole company down the road”.

Hunt for Exceptional bargains for solid companies

One has to hunt for solid companies in terms of fundamentals, performance, business process, assets, long terms goals, and more.

One should invest in these solid companies at a reasonable price. Buffett recommends purchasing stock during a crash, when even great company stocks are available at low prices.

Make decision to invest based on how well money is being used and managed by the company

The investment decision of most investors is inspired by emotion today. You should always make investment decisions based on facts about how your money is actually will be used by the company.

A company managed by people having profitable mindsets and good business insight always helps.

Be patient – Wait until everything is in your favor or interest

Many people become inpatient and sell stock on market crash. Buffett recommends to be patient & to wait until everything is in your favor.

When conditions like a market crash arise you should opt of a buy decision and not sell, in bad times hold on, quality stocks always recover and you won’t have to regret selling prematurely.

Warren Buffett says “I think the worst mistake you can make in stocks is to buy or sell based on current headlines”.

Sell losing stocks when market is up; Buy winning stocks during a crash

Buy low sell high is always expected behavior of investors. But most of the investors act in a reverse manner due to emotions. Selling flop stock at its worst always adds loss to your portfolio, similarly purchasing great stock at peak price adversely impacts your profit.

Warren Buffett says “The beauty of stocks is they do sell at silly prices sometimes.. That’s how Charlie (Munger) and I got rich”.

Hope these secrets of getting rich by Warren Buffett will help you in managing your finances in a better manner.

Financial Planning Your Basic Need

Financial Planning

Shitanshu Kapadia

September 23, 2012

Although financial planning is basic need today many people yet do not understand anything about financial planning. When we ask for monthly income of people visiting us 100% people answer it promptly but if we ask them how much percent they invest on yearly basis, 90 people out of 100 is unable to answer it.

If we make balance sheet of our life considering average life span of 70 years we start our education life from 3 years and we continue it till 24 year. Once our education life is over we enter in professional life where we start earning money. From 24 years to our retirement age 60 years we try earning maximum money either by doing job or by business. So on and average person spends 35 years of his/her life in earning money.

Half of our life span is dedicated for earning money. We work very hard to earn money but we hardly plan anything for this hard earned money. Most of people spend and invest money randomly without any planning.

Earning more money is not in everyone’s hand but planning of this earned money is in our hand. How much to percentage we should spend and how much percentage we should invest in which asset class we should decide it wisely.

So utilization of this income (financial resource) for investment using correct financial technique is called as Financial Planning. Financial planning is basic need today.

Yet 70 out 100 persons still spend money without any planning or follow other people blindly when it comes to investments. When they need more money they end up taking personal loans and later stage they find them inside deep debt.

Not only that 75 out of 100 people spend more money than their earning. They are simply not aware that how much money they need for spending every month.

So ultimately you should understand that if earning is not in your hand other two Spending and Planning is in your hand only. If you don’t control E(earning) S(spending) & P(planning) in your life than at the end your position will be like “Khaya Piya Kuch Nahi Glass Toda Bara Anna”.

So if you have not planned anything yet, start planning now before it’s too late.

Before Buying a Property for Investment

Real Estate

Shitanshu Kapadia

September 18, 2012

When big boom was going on in the real estate market my friend purchased the property for a price that was 30% less than the prevailing market rate. His prime purpose in buying this property was to invest in the real estate market to get a good return. The only mistake he made while purchasing the property was that he overlooked the slum area present beside this property, as no buyer was available, he could get this property 30% lower than the market rate. After 5 years still, this property has not appreciated much.

Remember when you are buying property for investment you are making the most expensive decision of your life. So before buying property for investment, you need to consider various factors that affect the price appreciation of your property.

Buying a property or Home for investment

Location of property:-

The location of the property is the most important aspect in deciding the future price appreciation of the property. You should avoid mistakes like my friend has done. Property near a workplace hub or property surrounded by schools, colleges, market areas, or hospitals in its immediate vicinity appreciates much faster than others. Most people prefer to stay at a location where they can get all these facilities nearby.

Apart from the above placement of property also matters. Property facing a park, swimming pool, or property placed at the corner with a more open side may fetch more value than others.

A simple example is the property at Marine Drive, Mumbai “Queen’s Necklace”. As Queen’s necklace is a beautiful place to live hence price appreciation is seen at a much higher rate than in other places.

Infrastructure nearby property:-

Any infrastructure project like fly over, a bridge that is scheduled to come up in the area increases the value of the property, as this will become a unique selling proposition for property owners.

In some cases, it is found that property prices went up by 50% just be the announcement of new infrastructure projects.

A simple example is property price appreciation at Surat in the various areas due to the announcement of the Metro Rail project.

Connectivity:-

One should avoid locations which are far away or places where public transport is a problem. Place close to the railway station, airport of other good transport system is preferable. Price appreciation will be higher and faster at these places.

A simple example is the “Noida Extension” project for Metro Connectivity to Noida Extension is announced this place will see price appreciation once this connectivity is established.

Locality:-

Some area commands a premium in price just due to the locality of people. Locality where upper middle class people or upper class people are living may appreciate in value faster compared to other. These areas are called posh areas.

Like “Nariman Point” is one of the posh areas of Mumbai and the business hub of Mumbai. You will see the price of the property will appreciate faster here.

Extra Amenities & Quality of the Building: –

Many people prefer extra amenities in the project like a garden, swimming pool, gym, security system, intercom, recreational areas, parking place & auditorium these extra facilities may fetch higher returns.

Many people while buying property in resale look for quality of building structure. Occasional painting, renovation or revamping in the building can help you to bring a better price.

The size of property also matters you should not purchase too small or too big a house. Generally, 2 BHK flats are more in demand compared to others. Apart from this many people consider factors such as Vastu while purchasing a home so if possible one should look from that perspective while investing.

Places to avoid while doing property Investment: –

If your prime purpose in buying property is for investment you must avoid the following:-

Property near Slum Area: – This is very common sense that one should not make investment near a slum area. Still many people make mistakes like my friend has done and later stage they don’t have any option. Either they have to wait till the property price appreciates or make losses.

This area may have a high crime rate where people do not like to live. Apart from that these places may be unhygienic due to garbage dumps or sewage area. You should avoid places like this for investment.

Property nearby Religious places:- Buying property near a temple or mosque is not advisable. The reason is that regular prayers during odd hours on loudspeakers may disturb people. If it is a popular religious place then it may cause problems related to parking or traffic.

Apart from this, you should avoid areas where prices are already raised extensively. It may be possible that the price has reached to peak when you purchase and you have to wait for a longer period to witness price appreciation.

In short, you must take extreme care before buying property for investment.

Tips for getting higher returns from share trading

Stock Market

Shitanshu Kapadia

August 23, 2012

Tips for getting higher returns from share trading

How many times have you bought a stock on someone’s advice to make a quick buck and waited for months, may be years, to just recover your cost? Share trading, experts warn, is a risky game. However, it’s possible to play it smartly and make a quick buck as well, they say.

“The main attraction of trading is that people feel they can make quick money. But there are no free lunches. Trading requires a lot of discipline.”

While traders do make as well as lose money, whether this activity suits you depends on your financial position.

TYPES OF TRADES

You can trade in shares and commodities. However, in India, retail investors mainly trade in stock futures and options due to sheer volumes. Trading means buying and selling a stock the same day or holding it for just 2-3 days. The former is called intra-day trade. The latter is called swing trade. Positional trade generally involves taking a longer position and holding a stock for 2-3 weeks.

MAKING MONEY

Profits depend on risk appetite & risk management, how much money you invest and how many of your trades turn out to be profitable. You can make 3-4% in a day or even lose money

It also depends on how much capital is available with you, how many opportunities you can explore and your knowledge of technical analysis.

SKILL SETS

While any recipient of the so-called ‘hot tip’ can trade, making money consistently is possible only when you have sufficient knowledge of the markets and skills for technical analysis, which is the science of forecasting prices based on historical data.

The software for technical analysis is available on the internet for free, but with limited features. Professional software capable of highly detailed analysis comes at a price. One should either have knowledge of technical analysis and the market or should have good technical consultant to help him.

Stock exchanges, such as the Bombay Stock Exchange and the National Stock Exchange, offer courses in technical analysis. Another institution which offers such courses is Online Trading Academy. “People should trade only if they can take risk, control emotions, set targets and book profit/loss at the target point.

TRADING TIPS

While one can get many trading tips, their execution is important. It’s a battle of emotions. Trading is simple, but not easy. You have to be disciplined.

The importance of discipline in share trading cannot be obver stressed. That is because in most cases, when people are making money, greed makes them wait for more, and so they don’t book profits. When prices fall, fear makes them sell fast. These situations can be avoided if they know when to book profit/loss.

If losses are not a restraint and the market’s roller-coaster movements give you a high, here are a few habits and skills that can help you stay on the right track. These are useful for day traders as well as positional traders.

Skillset required for trading is as follows:-

Discipline:

The key to success is a stop-loss order. Stop loss helps a trader sell a stock when it slides to a certain price. Suppose you buy shares of company A at Rs 50 and set a stop loss at Rs 45. When the price falls to Rs 45, the shares will be sold automatically. This means you have limited your loss to Rs 5. While entering a trade, you should be clear about how much loss you are willing to accept.

Skill:

Trading is a skill, “You have to learn what not to do along with what you should do. You should also know how to spot amateurs and trap them and how to take positions. Also, you should be quick to get in and very quick to get out” .A lot of amateurs in the market buy at a wrong point. A skilled trader identifies such people and takes an opposite position to trap them.

Planning: One should identify a few stocks and focus on them.

Minimum capital:

Only those with a capital of at least Rs 1 lakh can trade for a meaningful gain. However, this capital should not be borrowed and should not be part of your core savings. People can also trade with less, but volumes are important. So, a certain minimum capital is a must.

Price movement:

What should you do with a share which has high volumes but not much price movement? You should prefer shares with a minimum price movement of Rs 10. This means the average difference between a stock’s intra-day high and intra-day low should be at least Rs 10.

Volatility:

Any stock with a positive beta of 1 or above is good. A beta of 1 means the stock will move in line with the market. If the market falls 2%, the stock will also fall 2%. “One can look at a maximum beta of 2 or 2.5, not more than that”. One can find a stock’s beta in the trading software.

Supply-Demand:

One has to know the supply and demand of individual stocks. If the number of shares up for sale is more, one should not buy the stock, and vice versa. To know if the sell quantity is more or the buy quantity is more, one cannot rely on the bid and ask numbers available on the screen. Only a technical analysis can help identify the supply and demand in individual stocks.

News Flow: Never trade on news which is out in the market. It takes a few minutes for a stock price to adjust to any news.

Average out:

When the price of a stock starts falling, people buy more to average out. In trading, it’s a strict ‘No’. “As a professional trader, I would never average out. It’s a losing trade. The trade is going bad. I would rather wait for the right time to enter again.”
Do you think you can immediately start trading with all these tips? The answer is “NO”. One needs to develop a few skills, including the ability to understand technical analysis. “Trading is a simple process, but not easy.,”

At last I would like to say that:-

“Markets are the places where two types of people meet up in the morning: those with experience and those with money. Towards the end of the day, they exchange their assets and go home.”

In future articles we will discuss in detail how one can trade using some charts and technical analysis.

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