Jul 312009

009-28-How to Invest - TitleRef: 009-028 of   01-Aug-2009

I am responding to popular demand from our web readers to write on basics of investing. Most of the time, the investment is equated with the investment in stocks or shares. This is not true. It is just one of the parts of the investment process. The investment takes many forms. This is my humble attempt to share my knowledge of investing into anything, I mean, anything.

Every living soul is an investor. A bird when it makes its nest on top or interior of the tree ahead of monsoon or extreme weather is also an investor. It invests into its own property as much as a human does. However, there is no money element involved for the birds. There is no central bank or FED or stock market for this creature.

A human being is a born investor. The Hindu philosophy says that a living soul is born as “human” after passing through 8.4 millions of various lives in the form of insects, water borne fishes and mammals, land borne animals, sky borne creatures like birds or any form of living organisms.

Even GOD is an investor. He invested in millions of lives and souls, and got finally rewarded by his most precious creation – the Human. The human then invented “money” and proceeded to create the most enviable plethora of investment products which are ultimately convertible into most basic form “money”. A tangible investment that can not be converted into money ultimately is not an investment

It is the right of any human to get rich in terms of money. Even billionaires like Bill Gates or Warren Buffets came into this word naked like you and me. What separated them from others was their upbringing, education, ambition, hopes, observance, perseverance, military discipline, extra ordinary efforts and of course, little or lot of luck. But it was not the luck alone; the efforts were first followed by lady luck. Those who daydream of becoming millionaire or billionaire without putting in efforts will ultimately die and may not be reborn as human again. God is a severe punisher. Those who do not do their entrusted job are fired from becoming human again.

And the luck is not just wishful thinking of God or his grants. The luck is also a reward of investment of the past life, Hindu philosophy says. What they call “Karma”. Nothing goes to waste in the rule of God.

The westerners believe in almost every cycle – Stock market, metals like steel, copper, aluminum; oil, gold , silver, platinum, and soft commodities like wheat, corn, pigs, timber, sugar etc. and back up the charts for over 100 years. But when the life cycle is discussed, they twist their nose labeling the believers as “superstitious”. If those 100 year old cycles could exist, why not believe in “life cycle” which runs for thousands of years?

Basics of Investing – Preparing yourself

The very first rule of making investment is to prepare yourself. Unless, one has prepared himself for the ardent task ahead, he will not succeed as much as he should have. Everyone wants to get rich – nothing wrong with that. One should always nurture that ambition. If he can do it, why can not I? If he can make 1 million, why can not I make even 100,000 to start with?

BondSr_MainPictOne has to always think that the very fact that the idea of getting rich entered his mind is a gift of god. Treat as primary indication from nature supreme that IT wants to see you get richer and richer as your age and experience progresses.

You have to be fairly balanced before you invest. It is a mental game. It needs lot of concentration and focus. Just as you get up every day, what do you do? Brush your teeth, finish morning chores, take warm and cold bath, and freshen up yourself before getting down for a cup of coffee or tea. While you are at home, pay attention to your family members first – wife, children and parents. It is also an investment of time which has indirect and more authentic rewards – mental peace – so essential for concentration on investment products.

1. GET UP early at 5:00 AM, sit before a lighted candle for 7 minutes without blinking your eyes. Also do some deep breathing for about 8 minutes. You will intake lot of oxygen – a real source of energy – that will keep you afresh. Take a full warm glass of water with little bit of lemon juice, honey and tea masala powder. It will refresh your mouth, mind and belly. Have a nice cold water or warm water shower. After warm water, always have last dose of cold water shower. It makes your blood flows faster right up to your skin. Your face could glow in matter of days. Money also wants to come to a neat and clean place. So be neat, clean and very pleasing. Your first stage of preparation is over.

Now, read the Newspaper first. First head lines of normal events and then only go to business or money section. The reason is the political and social events do have significant influence on the capital market. Unless you have read first 3 pages and little bit of editorial (because the editors always chose the hottest topic). Do not read too much details – just glance at the head lines is enough.

2. GET A CUP OF TEA AND COFFEE now, and then read the business pages, if your newspaper has special section devoted to it. Then, if you have computers at home (not everyone has) then sit for about 30 minutes browsing important authentic website such as Bloomberg. Just read the headlines and sketchy details. You must know the substance, not the whole story. Make a habit to ask continuously yourself – what effect will have, where, and how much. After a period of 6 months, you will have developed ability to spot the important news and its potential effects in a flash.

3. TAKE COFFEE OR TEA AT HOME, not in the restaurant. You have to develop the attitude of making money first and then expending. Do not start your day with the expense. Start your day with some income, howsoever little. When you go to a shop owner in the morning, what does he do or demand. He usually insists on cash payment not credit. (Credit card is still a cash payment). He wants to start his day with income, the real cash, which is treated as good omen.

4. SPEND SOME OF YOUR MORNING TIME with your family. If you want to spend in the morning, spend some time with your family and also spend your famous smiles on your kids, wife and parents. Always be prepared to complement them with smile, never to criticize them. Just as you want your day to begin nicely, they also feel the same way. A good and happy beginning is always beneficial to wealth and also health.

5. HAVE A MORNING BREAKFAST Depending on the nature and extent of wealth; you can afford to go to a restaurant for the morning meal before you start your day at office. This expense is allowable because one can not work efficiently with empty stomach. You will be less focused, if you remain hungry in the morning. Always eat little, even a piece of bread and butter will do, but do not let your belly remain empty. Just as you want to drop coins into your bank balance every day, remember to make little deposit in your belly as well.

You are now fully prepared to start your day on. Now, remember another important rule.

6. NEVER EVER IGNORE YOUR REGULAR BUSINESS in favor of private investments of any kind. You agreed to invest only because you had some capital. And that capital was built from your regular business which is really bread and butter of your existence. Those who ignore their principal mainstay business will suffer much lately. If they do not pay attention to their daily business, they lose clients. And finally when they lose heavily in investment, they have nothing to fall back on, because the main business has suffered from continuous neglect. Your regular core business is vital for your existence. It is the oxygen that drives you further. DO NOT neglect your lifeline business at any time, howsoever enticing opportunities may appear in the capital or investment market.

7. ALWAYS LOVE NEVER HATE YOURSELF. You came in to this world alone, and you will also depart alone. The God sent you on this planet with beautiful body, moody mind, intellectual brain and above all, Soul. No one should love you more than yourself. Never blame or hate yourself even if you made a mistake, howsoever serious. The fate is like an ocean. What you throw in the ocean comes back on the shore sooner or later. The ocean or fate never keeps benefits for itself. It is never needed by them. It is magnanimous. The mistake is a great teacher. Any loss suffered in making mistakes is sort of tuition fees paid to gain experience. There is nothing free in this world. Once you begin to understand this soulful science, you will never lose your composure. You are therefore your own best friend and also, worst enemy. Take your pick.

8. BE ALWAYS LARGE HEARTED, NEVER BE CHEESY. You have to be large hearted while investing, Always learn to leave something on table. If you try to wait to make last dollar or rupee, you always tend to lose. The money always needs larger place in your heart. Those who have very small heart, the money never lives within and seek to depart as soon as possible. Suppose, you sold the stock at 60 which was bought at 20. Be content that you made 200%. It does not matter if the stock goes to 70. You made your money. Never think of “you could have or you would have” made more money than what you have already made. The profit is yours if it is in your pocket. Otherwise, it is just a piece of toilet paper, not stock. Supposing you missed the higher target of 60 and the stock comes down to 55, just sell it. You made less money, but you did make really good money – about 10% less, so what? You made 175% any way which is far greater than what you make in bank deposits… This applied not only to stock or bond, almost everything including property. I merely gave example for illustration purpose.

9. NEVER CHASE INVESTMENT LEST YOU LOSE OPPORTUNITY. The markets are like daily routine – Day and Night. The opportunities come almost every day. If you are agile, you will pick them up. Nothing slips away like a greased coin. If you miss item A, try to focus on item B. It is not necessary that you have to make money in A itself.

10. ALWAYS REMAIN AGILE LIKE A PILOT flying a plane. The money is as slippery as sand. The moment they see whole or space, it slips away. You have to be as agile as pilot. If you have to go on holiday, cut down on investment in liquid assets and park your money in banks. if you can not control, do not hold the volatile stocks, especially. I give you my own example. Prior to Sr. Bush invading Iraq, I was sitting on almost 100% profit on warrants and the amount involved was HK$ 300,000 equal to US$ 40,000 or Rs 17 Lakhs. The warrants were to expire in 4 months, and I was to return Hong Kong in less than 2 weeks. I was working almost 16 hours a day, so decided to take holiday in Ooty and stay in a hotel which does not have TV or Computers (they were less prominent at that time). Sr. Bush invaded Iraq. The markets crashed and I did not know for almost 10 days until I reached Mumbai, my home town. When I returned Hong Kong, I found my gains washed out to almost 100%, though the capital was intact. I was stupid enough not to sell, and finally even the remaining capital became Zero. Then I realized that the profit is yours if you take it.

11. ALWAYS BE IN COMMAND OF YOUR IVESTMENT OR LENDING. One should never invest into anything over which he has no complete control or he is not in total command. The money is as faithful as dog, but you have to always keep it in leash. If you can not control or command, the money simply slips away or runs away, and you have to run after it. DO NOT LEND to someone if you can not control his repayment. Also, never lend any of your friend if you have not met him or seen him for over 3 years. His position may have changed. Do not remember old happy days. It does not take much time to turn sour.

12. DAY IS OVER and you are back home. Forget whatever happened. Never brood over mistakes while returning home. After meeting your family, children and parents, take a rest in small corner and think what you did you should not have done, and what you did not do, what you could have done. The toilet seat is the best place to think over the past few hours events. You are all alone without any disturbance. And after just 10 minutes, flush out those ugly thoughts by pressing the flush button. Presume that bad thoughts have been flushed away and what remains is the hope and good thoughts.

13. TRY TO GO TO BED BY 11:00 PM latest. You have to get up at 5:00 in the morning. So take about 6 hours of healthy sleep. Before you go to bed, take deep breathing exercise for about 10 minutes and concentration for another 10 minutes. (before a lighted candle). After the concentration exercise, even three  hours of sleep is adequate. You get the best deep sleep.

Now that your body and mind are in good shape for about 2 weeks, you will be in a position to make rational investment, of whatever kind. In any investment, the point of entry and exit are more important than holding for short term or long term. Whenever some one tells me that he has portfolio of 2 millions, I know that he is losing in 80% of his holding what he calls “long term holding”. When something works short term, he calls himself a “smart investor” and when it does not work, he calls himself a “long term investor” like Warren Buffet. It is like keeping the cheeks red by slapping himself.

The next article will focus on specifics. We will start with the most primitive form of investment which everyone does without even knowing. You do not have to be rocket scientist to learn that basic art of investment. Until then, Good Bye and see you again on 11th.

Anil Selarka
Hong Kong, 1st August,2009

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