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Investing rules from Jim Rogers

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Read a very good article on Jim Rogers in capitalideasonline.com . He was a partner with gorge soros , i think, and has published quite a few good books like investment biker etc .
The link is given below
http://www.capitalideasonline.com/articles/index.php?id=1554

some excerpts

Rule 1: Do your own work. Don’t be afraid of being a loner.

“I learned early in my career that if you read the annual reports, you’ve done more than 90% of the people on Wall Street. If you read the notes to the annual report, you’ve done more than 95% of the people on Wall Street, and if you actually sit down and do a spread sheet, you’ve done more than 98% of the people on Wall Street.” (emphasis mine)

Rule 2: Good investors need a historical perspective­.

Rule 3: Think conceptually about the world.

Rule 4: Don’t buy stocks at high multiples.

“I don’t buy them because, by the time they reach a high multiple, it’s probably about time for it to come to an end. Wall Street and politicians are the last to catch on to any­thing,” said Jimmy. He doesn’t sell a stock just because it happens to have a high multiple. He either waits for a fundamental change or for an indication that something is about to go wrong.

Rule 5: Be selective in your investing and look for one good idea.

“The most important trick for getting rich on Wall Street is not to lose money. There are many guys,” he said, “who do well for two years and then get creamed. Wait until you have a winner and are sure. In the meantime, keep your money in treasury bills. Professional money managers feel that they have to do something all the time and are the worst at following this advice.

“Even if you only have one play every ten years, you’re going to do a lot better than most people.”

Rule 6: Every investment should be considered a commodity that will be affected by supply and demand changes. It’s just a question of when.

Everything has its own supply and demand cycle, which may be a twenty-, thirty-, or fifty-year cycle, and every­thing is basically a commodity in the end. American Stan­dard was a great growth stock when people went from outdoor to indoor plumbing, but it isn’t considered one today. Avon, a cosmetics firm, boomed after the war when the country became more affluent. By the late Sixties, Avon had a multiple of 50, and the market was saturated with many competing cosmetics brands.

Rule 7: Every investor should lose some money, because it teaches you about yourself

Buffett’s speech to students at univ of Florida

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A free link to the video was posted at www.fool.com by a board member. i have put the link below

http://tinyurl.com/c85or
several very interesting comments by buffett

1. why smart people do dumb things – buffett discussed about the LTCM episode. how a bunch of very smart people with very high IQ and knowledge, managed to blow up everything they had. i like the statement – ‘why risk what you have and need for what you dont have and dont need’ ? i think this statement is very important to an investor. just think about it …if i am well off , why do i need to risk my networth for a few extra percentage points and if i am poor , i cannot afford to do it. i guess it makes sense to invest conservatively (in companies with strong competitive advantage )

2. buffett discusses at length the economics of coke / see’s and p&g. this was in response to a question on what is it he looks in a business. buffett discusses in detail about the what qualitative factors one should look for in a business. One new point which struck me and kept me thinking is buffetts reference to the pricing power of a company. companies with strong pricing power like coke tend to have a very formidable competitive advantage. in comparison commodity companies have poor or no pricing power (except during supply shortage )

3. buffett also discussed about reit investment and how although the discount to book looks enticing , but is justified due to inability of such companies to move / sell the big amount of real estate on their books

4. buffett talks of various other topics (which he has repeated in several other forums) , like developing good habits (example of taking a 10 % option on your classmate ), not prediciting the market etc

5.buffett also talk of the ‘important and knowable’ v/s ‘important and unknowable’ , when some one asked his opinion on interest rates. he pointed out that is better to focus on the first and get into good companies than worry about the second and let go of opportunities.

a very good speech and worth the 1.5 hours (in addition it is free)

Evaluating the cement industry – porter’s model

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I have been trying to assess the cement industry on the five factor model and have been able to come to the following evaluation

Entry barrier – Entry barriers are not too high in the industry. The technology is easily available. The only constraint is capital which a big player will have access to. The key barriers would be
– economies of scale which would favor the bigger players like Birla group or Gujarat ambuja
– Brands are not so critical. price plays a big factor
– Cost advantage is critical. Companies which can have a sustainable low cost position will have a competitive advantage. The major players in India do seem to have a similar cost position. Gujarat ambuja has been able to sustain a low cost position and has been able to reward shareholders.

Supplier power – Has very low impact. Mainly limited to coal / power wherein the government pricing would have an impact. But this would be common to all companies

Buyer power – Very low to no impact

substitute product – Almost no substitute product

Rivalry – High rivalry in the industry as the industry is still fragmented. Top 6 players have 60 % capacity as there has been consolidation recently. however local players can have an impact on pricing as cement as the industry depends on local supply. Cement being bulky is generally not transported from long distance

In summary due to low brand strength, high fragmentation, low cost advantages (except in case of some players ), the competitive intensity is high. Pricing is poor and depends on demand scenario. If demand drops , the profitability suffers as the players cut price to run plants at full capacity (due to high fixed costs).

Not an ideal industry for long term investment ( except if one can find a player with a sustainable low cost position )

A good website – equitymaster.com

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i regularly visit this website (equitymaster.com). One of the few indian websites which focuses on the fundamental analysis of companies and provides a good analysis of their quarterly/ annual results.

In addition, there are sometimes articles (views on news ) which give sensible advise to an investor in terms of various personal finance options .

The knowledge centre is good as it has some good articles on the economics of a number of industries such as cement / FMCG etc. There are some good articles on various investing principles too.

Only disadvantage is that a lot of the content is paid (especially the stock recommendation ). But if you believe in doing your own research and forming your own conclusions, then it is a non issue

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