Raymond Moses’s Style of Stock Investing

Last Updated on January 14, 2013

I currently invest using the principles of Value Investing. It took me a long time to get here as I bought my first stock 25 years ago!  I was 23. What was I doing, living in Bombay and not being aware of Dallal Street? Well like a good intelligent middle class boy, ensuring I got into a good college, which I did. I got into IIT Kanpur.

I heard about stocks from my fellow trainee, in HLL. He got the name and address of the broker and off we went to buy our first stock. What I remember was I had no clue what to buy. So we asked the broker, who gave us some names and we picked 50 shares of GNFC at Rs 50. The only explanation I have for picking this share is that both of us were Chemical Engineers. Anyway I spent Rs2500 that day which was a little more that my month’s salary! I did not venture into stocks again for a long time. It’s not that I lost money on it, but the fact that I was a novice, acting out of ignorance and the broker knew it, made me feel small.

I did nothing much about fixing the knowledge gap. My next encounter with stocks was five years later when I was working with Castrol in Mumbai. I had to decide whether I wanted my share of the employees’ quota of Castrol shares. I had no savings at that point in time and had borrowed some money from family to get those shares. I liked Castrol as a brand, the veterans told us the story of the first time the company had diluted and how some idiots did not invest. I did not want to be counted as one, so I dutifully subscribed.

The next few years through the big Bull Run, one could escape doing something in stocks and mutual funds. I would buy ELSS to save tax every year then. A few weak moments, giving in to someone who spoke passionately to me about investing in stocks got me fired up to invest in a few stock. My brothers invested in IPOs but I did not..luckily.

The reasons I stayed away from stocks was the lack of transparency in dealing with brokers, that large players especially FII dictated which way the market went, lack of real understanding of how to invest and my complete unwillingness to manage documents, change of addresses, etc and very importantly fear of making wrong decisions. And investing in stocks is all about taking decisions

I left my job and got into consulting and training in 1997. Till 2006, I invested my saving into my own company, my own house and office. I had some insurance, but not enough. My partner and friend, an IIM A grad got convinced by a savvy MNC Bank Wealth Manager to invest in ULIP and mutual funds. He suggested that I meet him too. I did and despite my caution ended buying an ULIP and some mutual funds. Their logic: Investing in stocks is very complex, a full time job and best left to experts. My logic:  I have spare money but no spare time. A big bank will manage my money better than what I am currently doing, so go with them

The Sensex was at around 11000 in early 2006. Discussion with the wealth manager at different times led me to the following conclusions

1. They only recommend further buying of mutual funds
2. When the market is down, they advice caution. It strange I invested when the sensex was 11000, but was advised caution when it was 9000
3. When the market started climbing, I was given advice to invest further
4. I was never advised to sell, not even at close to 21000 in Jan 2008, not soon thereafter
5. They always say what they have been told to say by the bank’s higher  authority, so I had a parrot as an adviser
6. The parrot sometimes lies to get your account. The huge charge of getting the ULIP was hidden from me. I was led to believe that the plan took money towards insurance in the first two installments and hence I would get less units then.

Even before I learnt of the huge fees I had paid towards getting stuck in a ULIP (for it has many constraints on when you invest and when you can’t), hearing their advice, made me wonder how I was willingness to let my money be managed by someone else whose earning depended only on my buying and never on my selling. That when I asked myself ‘Just how long will it take to figure out how to invest in stocks?” My answer was 1) it can’t be more complicated than engineering and 2)As consultants we get into the depths of a new business routinely, so it will be easier than I am made to believe.

So I decided to get to the bottom of how to invest in stocks. The first book I read got me hooked, it was all about Value investing. I read up many books, about how Warren Buffet invests, and how to value a stock. As a consultant, I know that having the right framework is critical to consistently take the right decision. I loved what Benjamin Graham and Warren Buffet have to say about investing in stocks and I got around to investing using their framework. Many years ago I was and still am absolutely amazed how the extremely simple system of Cartesian  X, Y and Z frames of reference  can help us locate any object in space. To me Value investing is an equally simple and powerful framework to invest in stocks.

Using this framework, I look to answer three questions for every stock

1. Is this company worth investing in?
2. Below what price is the stock worth buying
3. Above what price should I consider selling it

Now, once I am convinced about my answers I act confidently. I need no more proof that this works because I lived through the high of 21000 and the low of 8000 and drama played out exactly the gurus had described. I know I will be ready when this happens the next time and it will!