Of value investing, it is said, either you get it the first time you are introduced to it, or you never get it. I got hooked to value investing the first time I read an article on it.
Value investors in India would have heard of Parag Parikh, founder-chairman of Parag Parikh Financial Advisory Services Ltd (PPFAS) and a value investor to the core. Parag Parikh has written a book Value Investing and Behavioral Finance: Insights into Indian Stock Market Realities (2009) which demystifies investing especially keeping Indian markets in mind.
The essence of value investing is to buy shares in good companies when the share prices are depressed (available at substantially less than intrinsic value) and then hold them for a long time, creating wealth in the long run. The keywords in value investing are “patience” and “compounding”.
But this is an “emotionally difficult path”, Parikh says, since we can easily get distracted by the volatility in the markets. As Parikh puts it, “The most successful investment money managers like Warren Buffett, Charlie Munger, Peter Lynch – to name a few – owe their success not only to their intellectual ability but also to their discipline and emotional control.”
Parikh’s book was completed in May 2008 and mainly covers the period prior to the 2008 crash. Hence it may be that some of his data are no longer current. Even so, I personally found his book useful on many fronts. In particular, I learnt more about commodity investing, public sector units, sector investing and index investing.
Take commodity investing for instance. Value investors focus mainly on specialty stocks to the exclusion of commodity stocks. In specialty sector, value investors look for companies with good management, healthy balance sheets, low debt and manageable interest burden. I was surprised to learn: “Things do not work that way for a commodity stock. In fact, the opposite might hold true.”
This is because of the behavioral biases of the stock market participants. Due to biases such as “representativeness” and “herd mentality” (concepts further explained in the book) “a well-managed low-cost commodity company may not necessarily generate higher returns for the investor”. This statement is backed by extensive data from Indian scenario.
Time and again, Parikh denounces the tendency of investors to indulge in short term speculation hoping to strike it rich fast. Parikh says, “A conservative person often happily puts his money in a bank earning him 9% annual interest, but speculates in the market expecting to earn 100% return in two months.” This is true the world over.
It is my earnest hope that I will be able to demonstrate discipline and emotional control in the market. With this hope, I am investing small amounts (through SIP mode) in Parikh’s recently launched PPFAS Value Fund. The belief is that he will live up to his assertions in this book and thereby create real wealth in the long term.
Value investors in India would have heard of Parag Parikh, founder-chairman of Parag Parikh Financial Advisory Services Ltd (PPFAS) and a value investor to the core. Parag Parikh has written a book Value Investing and Behavioral Finance: Insights into Indian Stock Market Realities (2009) which demystifies investing especially keeping Indian markets in mind.
The essence of value investing is to buy shares in good companies when the share prices are depressed (available at substantially less than intrinsic value) and then hold them for a long time, creating wealth in the long run. The keywords in value investing are “patience” and “compounding”.
But this is an “emotionally difficult path”, Parikh says, since we can easily get distracted by the volatility in the markets. As Parikh puts it, “The most successful investment money managers like Warren Buffett, Charlie Munger, Peter Lynch – to name a few – owe their success not only to their intellectual ability but also to their discipline and emotional control.”
Parikh’s book was completed in May 2008 and mainly covers the period prior to the 2008 crash. Hence it may be that some of his data are no longer current. Even so, I personally found his book useful on many fronts. In particular, I learnt more about commodity investing, public sector units, sector investing and index investing.
Take commodity investing for instance. Value investors focus mainly on specialty stocks to the exclusion of commodity stocks. In specialty sector, value investors look for companies with good management, healthy balance sheets, low debt and manageable interest burden. I was surprised to learn: “Things do not work that way for a commodity stock. In fact, the opposite might hold true.”
This is because of the behavioral biases of the stock market participants. Due to biases such as “representativeness” and “herd mentality” (concepts further explained in the book) “a well-managed low-cost commodity company may not necessarily generate higher returns for the investor”. This statement is backed by extensive data from Indian scenario.
Time and again, Parikh denounces the tendency of investors to indulge in short term speculation hoping to strike it rich fast. Parikh says, “A conservative person often happily puts his money in a bank earning him 9% annual interest, but speculates in the market expecting to earn 100% return in two months.” This is true the world over.
It is my earnest hope that I will be able to demonstrate discipline and emotional control in the market. With this hope, I am investing small amounts (through SIP mode) in Parikh’s recently launched PPFAS Value Fund. The belief is that he will live up to his assertions in this book and thereby create real wealth in the long term.
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