Use the Bloodbath

If there was one question that people would pay a crores of rupees to have the answer to, it would be – How do I get rich? The answer is really obvious – if you have a crore to spare then why waste it on a foolish question.

Invest it and over the years you'll surely get your crores.

But that's not the answer they are looking for. Surely there has got to be something more to it — some deep insights, some invaluable pearls of wisdom, some magic!

Not really. It's often just simple common sense. Here are four points on how you can do it:

1. The value of learning

Go back to your earliest memory. When you wanted to ride a bike on your street, the first thing you had to do was learn how to ride. Or when you wanted to pass your Maths exam, you had to learn your tables. Then why is it that when we want to make money, do we not understand that we have to learn good investing?

Instead we tend to just pick up the phone, speak to our stockbroker, buy a stock and start dreaming of becoming rich. That's exactly what rich investors don't do.

Instead, they 'learn' to 'invest'. They learn all there is to know about the art of investing in stocks. All about the stocks they wish to buy and only then do they take the plunge. Above all, they keep practicing what they have learnt. They keep sharpening their saw. This single factor of learning before hand separates the rich investors from the poor investors,

2. Shop at a discount

Another bit of common sense — What do you do when your neighborhood super market announces a SALE? You flock into the stores and buy up every little item and build up at home piles of grocery, soaps, etc. But when stock markets reduce the prices of shares and announce a 'crash' every investor rushes in to 'sell' and runs away from the market.

Again, conversely, when Super Markets raise their prices, customers shy away and refrain from buying till the next 'sale'; but when Stock Markets announce rising prices, every investor rushes in to 'buy'.

This is not the way rich investors behave. They follow the same principle of buying at the super market. They buy stocks only when the stock markets crash. Ask Warren Buffet!

3. Define asset

If you own it, it's an asset. If you owe it, it's not. The rich never keep their wealth in the form of liquid money in a bank account. They always keep acquiring assets while the poor acquire liabilities, which they mistakenly believe are their assets.

A house bought on a loan is not an asset, it's a liability. The same goes for paying for groceries through credit card. So you need to learn the difference.

In life what is important is not how much money you 'make' but how much of that money you succeed in 'keeping' and 'multiplying' .

The rich know how to keep it because they know how to invest it. Money well invested is money well kept. Good investing is often more rewarding than good earning.

4. Make real money

Real money is made when you 'buy' an asset and not when you sell that asset is yet another gem. Be careful of the price you pay when investing in an asset.

Don't rush into buying any investment at any price. Wait till the prices come down the way. The 'price' of the asset when you buy is likely the main determinant of your profit on that asset when sold. If you buy that asset cheap, your profit on sale is obviously larger.

All these four seem rather straightforward now that you think about it. We known all this instinctively and we only have to apply it to the stock markets — it's really common sense.
The only problem is that common sense isn't really all that common.

Happy Investing

Understanding the Great Panic of 2008

http://www.valueresearchonline.com/story/h2_storyview.asp?str=12276

5 investment tenets

Once you invest your surplus in stocks, make a commitment to stay invested. The market is bound to gyrate and there is no use reacting to its every move.

http://www.thehindubusinessline.com/iw/2008/11/16/stories/2008111650541500.htm

Why stock market crashes are good for you

- From ValueResearch

A 22-year old wrote in asking us whether or not he should even consider investing in equity. Looking at the carnage in the markets across the globe, he wanted to know if he was better off putting his money in a fixed deposit or buying a National Savings Certificate (NSC).

Of course, this young man had two great aspects in his favour. He was serious about investing right from his very first job and he was willing stay in for the long haul -- at least 5 to 6 years.
If he invested in fixed return investments like fixed deposits, he would be assured of a rate of return. And he would be assured of his principal being returned. But, a fixed deposit is not a very tax efficient investment (the returns are taxed). Secondly, since he does not need the money in the short-run, there is no need to go for a fixed return investment. What stock market investors need is time on their side to ride the ups and downs of the market. And, in the long run, the returns from equity do outweigh debt. Stocks are dangerous short-term bets but excellent long-term investments. So by all indications, he should move into equity.

But what scared him was the current market crash. What every stock market investor must realise is that in the equity market, you make money not despite the crashes but because of them. Let's look at the tech boom. The Sensex touched around 5,900 in February 2000 before sinking to 2,600 in September 2001. It touched 6,000 only in January 2004.Now let's assume that the crash never happened and the Sensex reached 5,600 in March 2000 and stayed at that level till October 2004.

If you had started investing Rs 20,000 per month in a Sensex-based index fund in early 1997 and continued all through, your investments would have been worth Rs 55 lakh (without the crash) instead of Rs 66 lakh (with the crash). The reason?The crash enabled the investor to buy cheap and thus eventually raise total returns on their investments.

If you are investing steadily for the long term, then intermittent crashes help you make more money, not less. Because when bubbles correct, they usually overcorrect so that the market is selling well below fair value. So that's the time to go buying, not selling.

And right now, the risk of losing money at 10,000 is certainly much less than when the Sensex was at 20,000.

So as you can see, we advised this young investor to opt for a Systematic Investment Plan (SIP) in a diversified equity mutual fund. In this way, he consistently invests a fixed amount every single month, irrespective of the state of the market. When the market is down, he gets more units for his investment. When it goes up, he gets less. But over the next five years, he would have saved a tidy sum.

Play It With A Straight Bat

http://www.valueresearchonline.com/story/h2_storyview.asp?str=12156