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November 9, 2016

Investment is Not All About Financials: How to Profit from General Trends

Everyone wants to make money in the markets, yet only a few succeed. There are very few investors like Warren Buffett or George Soros who can beat the street consistently. This leads us to the question that what sets them apart. Is it some extraordinary mathematical and financial skills; is it some ability to read the markets perfectly? Well a look into their careers and investment styles and methods will say no to the above questions. Then what is that took them to these heights while the rest of the investment world struggles to make money. This article seeks to bring forward some common things investors can look at and profit from and bring to light the fact that you don’t need to be a great financial analyst to make money in the markets. Just as George Soros who is more of a philosopher.

I would like to state a small example of the point I am trying to get through. In 1963 due to the “salad oil scandal” the American Express’s stocks declined from $60 a share to $35 in early 1964.Wall street at that time was advising, “Sell”. At this point of time Buffett’s question was “Has American Express’s business franchise been affected? And he would certainly not get the answer to this in any annual report. So Buffett started observing the crowd. He saw that people were still charging their American Express cards and it was business as usual and this led him to the conclusion that American Express would survive. It really did. Here it was nothing more then just looking at the masses to conclude what the future of the company might be and these are the general trends one can look into before investing. Every little thing counts. If it’s a retail store then you look at yourself from a customers perspective and ask questions such as “would you like to visit this store again and again?, Does your family like the store?, what is the general feedback about it from the masses? And these questions might help a lot in making a final investment decision. Which can be found nowhere in the financials.

I would like to cite my personal example to make my point more clear. When I was thinking of which sectors to invest in a few years back in India then there were many thoughts in my mind. My investment logic that time stemmed from the belief that the Economy would do well in the next few years and the per capita income would rise. So the immediate question that comes to mind is that “when we have more money where would we like to spend it?” and this question led to me choosing the sectors and companies. Well in my opinion it would ideally be healthcare, beauty products (specially for women), housing, traveling and of course investing. These sectors have really done well and the good companies in these sectors too. So this choice did not involve any financials and it was more of common sense thinking. This is what might set investors apart. When one of my professors in MBA, who was at one time the MD of Soros fund, had asked him how he made his investment decisions the answer of Soros was “Look around the Corner”. This might tell us a lot and it’s the same lines of thinking. Try to foresee what would be the next most important thing or things if the current situation prevails or if it’s expected to change in some way. In investing there is something called the “herd mentality” and if one is able to stay in front then he is the winner.

Of course one needs to look at financials and the management of the company once he identifies some sectors and stocks that might profit from the existing trends. So in my opinion a successful investor is one who can blend both the two to make the best investment decision. I would also like to bring forward some key financial parameters which one can look at while making investment decisions in my next article. The objective is just to make everyone learn these small things and be in a position to make their own investment decisions.

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