[Desi Masala] Lalu's Management Principles for Equity Investing.

Lalu's Management Principles for Equity Investing. 
Posted in: Business, Monday 06th, April 2009

By: Vankayala Venkateswara Rao.
CFO &Gen Management.

Lalu's Management Principles for Equity Investing.

1) We all purchase the vegetables & fruits of the season. For example, if it is the season of Tomatoes, we buy tomatoes more and not Brinjals. This way we get fresh tomatoes at a cheap price. Similarly, in Equities also, we should buy the Equities of the season. I mean equities plentily available in that season. If Banking Sector stocks are beaten down in a particular season, then we should buy banking stocks in that season. That way we get such banking stocks cheap and can cherry pick blue chips of Banking Sector at a cheap price (like fresh tomatoes for a cheap price in the season).

2) Growth is good and welcome at a young age. A child will be thrilled for growing-up. Growth is not so welcome at a middle age and old age. Middle & Old-aged people are scared of growing up and ageing. Before paying a fancy price for any stock for growth, you should consider this rustic rule. Only if the sector is in a nascent stage of growth and the child (company) is healthy, then only you should pay a high price for any growth stock.

3) Even if the tomatoes are fresh, cheap and plentily available in the season, we buy maximum a week's requirement or fortnight's appetite. If you buy more than your appetite (requirement), they will rot away. Similarly, in the stock market also, even if the shares are available cheap, you should not buy more than your appetite (pocket), by heavily leveraging. Otherwise, you will rot away.

4) While selecting a groom, the parents not only see the boy's earnings, but also his lineage, education, honesty etc., Similarly, while selecting a company for equity investment, we have to not only see its earnings (P/E ratio) but also see its lineage (promoters), its education (corporate governance) and its honesty (fair sharing of riches with all the stakeholders) etc.,

- V.Venkateswara Rao

(The author is former MD of Ahmedabad Stock Exchange Ltd & former Chief Financial Officer of an infrastructure company. The views are personal. He can be contacted at venkateswara_v @ yahoo.com).

 

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