25 Jun 2011

Biggest growth story of the 21st century - Indian economy

Warren Buffet once said that he owes his remarkable sucess to a luck factor as he was born at the right place(USA) at the right time. The stupendous growth of US economy after world war II for the next 60 years was the biggest growth story of 20th century. Warren and lot of other legendary investors like Benjamin Graham, Philip Fisher, John Templeton were born at the right time in US and rode the US economy growth to create their wealth in billions of dollars.

We , Indians are staring at the same kind of opportunity to create huge wealth by riding the biggest growth story of the 21st century-Indian economy.

Do you know that India is predicted to become the largest economy by 2050? Source: Citibank report and US Govt. report(Robert Blake , Astt secretary of state, US)

Do you know that India is well on its way to surpass US economy by 2042? Source: Goldman Sachs BRIC report. My projections are forcasting that we will surpass by 2035(next 25 years)

Do you know that India would be a $5 Trillion economy by 2020- probably the 3rd largest after overtaking Japan? This is 4 times the current size($1.4 Trillion) in one decade(10 years) Source: Standard Chartered report

Do you know that India would be $20 Trillion economy by 2030? This is about 14 times more than current size in 20 years. This will be about 1.5 times the current size of US economy. Source : Standard Chartered report

Do you know that in 2010 , Indian economy surpassed China to become the fastest growing economy in the world ? Yes, the nominal growth of the Indian economy(in actual Dollar terms) was at 20% , highest in the world. However the real GDP growth was at about 9%(after subtracting inflation rate at 11% from the nominal GDP growth). China's real GDP growth(after subtracting inflation) was at about 10%  as their inflation was much lower at 5-6%

So , keep your seat belts tight while riding this Indian Tiger(economy). If you  wisely ride this stupendous growth opportunity for the next 40 years by investing in the right stocks/businesses and assets , you could create huge wealth for yourself and your coming generations? However, if you casually and unwisely ride by taking undue risks and by being too greedy and impatient ,you are doomed to miss this once in a lifetime opportunity. Remember,Warren didnt make his billions in 10 years. He made it through patience and discipline in >50 years of investing. Often, Time in the market is more important than timing the market.

Principles of Value Investing as taught and applied by great investment gurus like Benjamin Graham, Warren Buffet and Philip Fisher could help you to ride this tiger firmly and wisely without taking any undue risks on the invested capital and still create millions and perhaps billions.

One of the objectives of this blog is to create awareness about this huge opportunity when one can make tons of wealth through value investing in Indian markets for the next 40 years.

All the best for safe and productive riding.

Cheers
Amardeep Mallik
email: amallik@mailcity.com

How efficient is the Efficient market theory?

Efficient market theory is one of the key theories of modern finance. It challenges the concept of value investing.Widely taught in all Ivy league universities, it says that its impossible to beat markets consistently as markets  are super efficient in capturing all the relevant and latest information and events Therefore no living mortal can achieve better returns than market consistently.

Many of the big investment gurus have scoffed at the efficiency of the market .

Warren buffet once said that "if markets were so efficient as the accadmecians would like us to believe , then I would have been a bum sitting with a tin cup"

Graham once said that "market was a  voting machine in short term and weighing machine in long term". That means markets are unpredictable in short term but eventually prices the value of the assets right in the long term.

He likened market to "manic depressive" guy who had frequent bouts of extreme mood swings  and was  either very ecstatic or depressed on a given day. He called the guy "Mr Market". He taught his numerous disciples that if you get carried away by Mr.Market's wild mood swings , you are doomed as an investor. However , if you learn to exploit his mood swings in a wise manner , you would be a winner. 

What is "Value Investing"

Value Investing : This is a investment philosophy , conceptualized by Benjamin Graham in 1949 in his book "Intelligent investor" . Benjamin Graham is known as the greatest investment guru of 20th century - mentor to legendary Warren Buffet. Its an investing style which demands investing in assets/stocks available at a price which offers substantial discount or "margin of safety"with respect to intrinsic value.

Margin of safety: This concept has been considered as key cornerstone of value investing by big investors like Graham and Buffet. Margin of safety is the difference between market price and intrinsic value of the asset. The return on investment is directly linked to the margin of safety you deploy.

Intrinsic Value: The actual or true value of a security or asset ,which  may not be equal to its market price or book value.  It is ordinarily calculated by summing the future income/cash flows generated by the asset, and discounting it to the present value.

" Price is what you pay and value is what you get" -  Warren Buffet

Value Investing Rule No.1 : Never loose your capital . Always preserve it.
                        Rule No.2 : Never forget Rule No.1
                        - Warren Buffet