THE INVESTMENT WORLD
is perhaps the most famous one after entertainment with dedicated news channels, newspapers and what not.
It was the management thinker Stephen Covey who famously said that the only way to take on big tasks is to first start within your circle of competence and then to slowly expand that circle. In investing most of the time we end up doing just the opposite.
Consider this: a civil engineer buys stocks of IT companies without much knowledge of how IT companies work. A IT professional buys the stock of engineering major because some talking head on television said it was ‘a good buy.’
The first thing is to look for investment opportunities within your circle of competence, So, first gain knowledge of the companies you work for, the suppliers, the competitors, the customers, etc.
Many do not invest on their own sectors!
In the last 4-5 years compared to any other industry, FMCG companies have given stellar returns. This would have been obvious to any FMCG employee, any FMCG supplier, any FMCG stockiest. But I’m not sure how many of them actually used this information. Obviously I’m not asking the FMCG employee to bet his house but buy the company’s share because he is the first one to see the growth that you and I would be the last one to see. Normally as they say grass is greener on the other side, hence many do not invest in their own companies but that of others!
The above is the first level of competence. The second level of competence is where we as consumers come across great products that we use daily. Look at some of these products for starters.
• Toothpaste and brush : Colgate, Hindustan
• Water Purifiers: Tata, HLL
• Kitchenware: Hawkins, Prestige
• Appliances: Bajaj Electricals, Whirlpool,
• Breakfast: HLL from cookies to bread,
• Watches and Jewelry: Titan
• Footwear: Bata
• School Books, Note Books, Stationery: Navneet,
Mark it, all of this is just before 9 AM!!
We can go through this the entire day Transportation, Food, Medicines, even Holidays!
The above does not obviously mean that all these are great companies to invest in but they are the starting point for further study, into the company and the environment it operates on.
So ladies and gentlemen, there is wealth out there; for many of us though this may be too much work to research and buy. So buy only in your circle of competence and leave the rest to professionals like Mutual Fund managers who scour the market for good investments every day. Some of them have compounded wealth so well that, if you don’t want to go through this work, it is as easy as fill it, shut it and forget it to invest and reap rewards from long term investing.
Of course you need to comply with your company’s rules on insider trading. We need to distinguish between genuine research and insider trading, calling your friend and telling him that your company’s board has approved a rescue plan long before anyone in the market knows, it is insider trading. That’s what Rajat Gupta is alleged to have done. But doing your homework in analysing a company whether it is where you work or whether you or your friends like its product is not insider trading. It’s smart trading.