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Why to follow this Blog?It's been about five days since I have started this blog. Its main goal is to teach investors about Investment valuation. To be honest Investment valuation involves a lot of drudgery. If you are OK with picking up 200 tennis balls from the ground (one ball at a time) and putting in the basket , then you qualify for learning Investment valuation. The other aspect is patience, you needs a lot of it to impliment this knowledge. Well by now you must be thinking why bother so much , when we can just throw money around somewhere and expect to be lucky. In other words , why to follow this blog???. This blog post titled "Getting Rich one dollar at a time" will give you the answer.
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It’s Sep-1998. Dan has just finished his Masters and has majored in Computer Science. The dot com craze is picking up steam. He lands a job in Silicon Valley. He is having a time of his life, working in new technology and earning six figures. In June-1999 his company goes public. He instantly becomes a millionaire and gets a feel as to how easy it is to get rich. In six months his stock is worth $4mn, he in on a roll and becomes more greedy. His high flying broker advises him to get into margin trading where he could borrow money against his company’s shares .By March-2000 he is worth $10mn. This is when his fairytale starts taking a turn. His company misses the next quarter’s targets, the stock drops more than 40% in 1 week. Because of the steep fall he gets a margin call so he has to sell his shares to cover the call, his net worth is still $2mn. Next few quarters are bumpy, by end of Sep-2001 his stock’s worth is $236,120. Even though he is no more a millionaire he still has hopes he would get back. In Mar-2002 Dan gets a rude shock. Not only is his stock worthless, his company lays-off 90% of its work force. Dan is un-employed with all his credit cards maxed out. After few months he lands another job and starts all over again. Its Mar-2006, Dan is now married and somewhat settled in his life. His friend Josh shows how he is flipping homes and making a killing doing it. He convinces Dan that real estate never comes down and thus the strategy is safe. Dan and his wife put a chunk of their savings and buy an expensive house. In one year they make 30% return. In June-2007 Dan and his wife buy their second home and are fully invested in Real estate. They are also expecting their first child. His wife takes a break from her career and decides to focus in raising their child. By Mar-2008 the subprime crisis is heating up, they have to sell their second house and take a hit in their investment. By Oct-2008, it’s De-ja-vu again. Dan loses his job, but this time he is in a bigger hole. He is also behind in his mortgage payment and his bank decides to foreclose his property. This affects his credit score badly. He and his family are forced to adopt a very hard life style. He does get a temporary consulting job, but had to take a 40% steep pay cut with no benefits. It’s Jan-2013. Dan has just turned 40. He sees the first grey hair sliding down his forehead. After two bitter experiences Dan is convinced that there is no shortcut to financial freedom. It’s a long and tough journey. Dan decides to be a Value Investor: In his quest for financial freedom, Dan reads all about people who have been financially successful. He is most impressed by Warren Buffett’s advice on Value investing and buys the books “SECURITY ANALYSIS” and "INTELLIGENT INVESTOR" But within a few weeks he is lost. The books have a very abstract tone. On top of it Dan has no accounting knowledge and has hard time figuring out even the basic concept like the difference between Net income and comprehensive income. But Dan is determined, he sticks to his plan. After trying intermittently for a year, he finally succeeds in understanding the Value investing principles laid down in the books. Are there other folks who are in Dan’s shoes? There are millions of Gen-X Americans who like Dan have been doubled down by dot com bubble and housing collapse. With no safety-net of any pension, they have no option, but to fight their way back. Their only option is to live below their means and invest their savings wisely using Value investing methodology. |
