Thursday, May 22, 2008

Basics of Investing – Part VII


Fundamental Lessons:
1. There’s no such thing as a free lunch: You won’t get something by doing nothing.

2. The irony of money:
The more you have, the more you’ll get and the less you’ll need;
The less you have, the more you’ll spend and the less you’ll get.

3. A fool and his money are soon parted: Don’t be foolish – THINK BEFORE YOU LEAP!

4. Caveat Investire: Don’t leave your money to the EXPERTS! Take charge of your own investments!

5. Beware of the Black Swans: Impact of Highly Improbable Events.

6. Always Cash Out and Recoup Your Capital.

7. Consider the Fundamentals: Risk, Return and Liquidity.

Basic Lessons:

1. Follow the investment philosophy used by richest person in the world: Warren Buffett. His Investment Philosophy? Value Investing!

2. Ascertain companies qualitatively:
· Characteristics of Top Management;
· Substantive Competitive Advantage; and
· Corporate Social Responsibility

3. Ascertaining companies quantitatively by analyzing the financial statements and using Analytical Review techniques. Keep a look out for my Analytical Review 101 posts.

4. The Legal Aspects: Understand the legal repercussions of investment in shares. The Limited Liability concept and Separation of Ownership and Management.

5. The Financial Aspects: Understand the significance of Annual Reports and Quarterly Reports.

6. Audited Financial Statements: The Income Statement, Balance Sheet, Statement of Changes in Equity, Cash Flow Statements, Auditors’ Report and Notes to the Financial Statements and their significance.

7. Recapitulation: Summary of Investment Lessons learn so far.


We have covered the fundamental and basic lessons of investment in shares. The next step will be evaluation of the companies' quantitatively using the Analytical Review techniques.


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