Its never late to learn some basics
Learning the basics of investing.
Is it common that IT folks don’t understand finance and its load of jargons? I think so.
I've tried to understand financial concepts by reading many, many pages of hard-bound books and whatever I could find on the net.
I even tried ‘shares trading’ so that it will force me to learn those concepts. Did it help? Na, I just lost money; never gained any knowledge. I lost hope of understanding those concepts.
That is when I came across ‘Rule #1’ by Phil Town in the near-by library. Amidst scores of books that make you feel investment concepts is a rocket science, this one is a gift. Phil explains the concepts in an easy to understand, layman’s terms. I haven’t yet finished the book; but I’ve understood whatever I’ve read so far and it all make sense.
Phil says ‘don’t invest; but own a business’. This comes closer to Ricardo Semler’s business theory of influencing employees to think ‘I am not cutting stones; but building a cathedral’. I am a subscriber of such thought process and probably because of that Phil’s philosophy appealed to me. Phil quotes a 10-10 rule - ‘Don’t own a business for 10 minutes if you are not willing to own it for 10 years’.
He then goes on to explain ‘The Big Five’ - the parameters to look for to choose a company to invest; oops sorry to own.The big five are:
- Return on Investment Capital
- Sales Growth Rate
- Earnings per Share Growth Rate
- Equity or Book Value per Share Growth Rate
- Free Cash Flow Growth Rate
He claims that there should be a 10% growth rate for the past 10 years. Wow! that is a strict evaluation. But if I invest my hard-earned money, I should be certain that I’ll reap its benefits.
Once I read the first 6 chapters, I wanted to find out how many Indian companies fall into this bracket. Well, it turns out that none of the sites, not even NSE, provide 10 years data.So I’ve to be content with 5 years of financial data.
NSE provides the date on which a company is listed with them. I’ve filtered those companies which are present in the market for 10 years. In that list, I’ve selected those companies that ‘means’ something to me. I can’t wait to see what companies I can own!