The Idea of Early Retirement is Flawed

Most of us in our late 20s or early 30s have this universal feeling, “I will work until I attain the age of 40, save enough money by that time and then retire rich.”

Seems like a reasonably simple plan especially for those who start on this plan early in their careers, right?

I disagree.

I think this “work till 40, save aggressively and retire early” is a flawed proposition. Please allow me to explain.

When we start earning more, we also get used to a better style of living. Not only that, by having a lavish lifestyle, we continue to be at the same happiness level. Our mind gets so adapted to the new comforts and luxuries that we cannot live without them. Behavioural economists often refer to this effect as the hedonic treadmill. Riding the income ladder makes us vulnerable to the inflated lifestyle which prevents us from breaking free.

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Why We Are Not Buying the Popular Stocks?

A few days back I was chatting with my friend Anshul and he asked me something interesting.

“Ankit, many stocks have corrected in past 6-8 months. Some reports say that average fall across 3,000 traded stocks is more than 50% from their 2018 Highs. Which has resulted in quite a few popular names which used to be market darlings being available at relatively cheaper valuations. For example, Eicher Motors is down by 40% from its all time high. Rain Industries — the most talked about 10-bagger of 2018 — has fallen by 75% in last one year.” Anshul said.

“Right, Anshul.” I nodded.

However, the Nifty hasn’t corrected that much, added Anshul, “It’s is barely down 10% from its lifetime high. Which means several of the blue chip companies are still doing well in terms of returns to the shareholders in past few years. And most of these large caps have been around for a long time and they have proven and profitable business models. For example, companies like HDFC Bank, Asian Paints, TCS, etc.”

“Yes. So what’s your point?” I asked him.

“For many of these names, there’s little doubt about the quality of the business or future potential, then what stops you from buying them at this stage?” Anshul asked.

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Quarterly Updates on Four More Stocks

This is the fourth post in our quarterly update series. In each post, we pick four stock from our watchlist and share the latest updates on these businesses.

You can see the earlier updates here, here, and here.

Below we have four more companies that we’re tracking closely. We have made notes from their quarterly updates and the analyst conference calls.

The Cabinet Committee of Economic Affairs (CCEA) has approved a Rs 10,000 crore package for the second phase of Faster Adoption & Manufacturing of Electric (and hybrid) vehicles (FAME) scheme on February 28. “Starting from 1st April 2019, the second package will continue for three years till 31st March, 2022,” Union Finance Minister Arun Jaitley said.

FAME scheme was started in 2015 to incentivize the manufacture of electric vehicles. Incentives up to Rs 22,000 were available for two-wheelers, Rs 61,000 for three-wheelers and Rs 1,87,000 for four-wheelers were provided. The scheme was initially implemented for one year, which was later given three extensions. This is a positive news for two companies in our watchlist.

If you don’t want to miss on these updates, please subscribe to our mailing list.

Please click on the read more button for more details on each stock.

Thomas Cook India

Thomas Cook is one of India’s oldest companies which was established in 1881. It is an integrated travel and travel related financial services company. They provide a wide range of services from packaged tours and forex services to visa support and travel insurance.

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Latest Report on Our Watchlist Stocks

So far we’ve published updates on eight companies from our watch list. You can read about it here and here.

Below we have four more companies that we’re tracking closely. We have made notes from their quarterly updates and the analyst conference calls.

If you don’t want to miss on these updates, please subscribe to our mailing list.

Please click on the read more button for more details on each stock.

VIP Industries

VIP Industries Ltd is an Indian luggage maker which is the world’s second largest and Asia’s largest luggage maker. The company has more than 8,000 retail outlets across India and a network of retailers in 50 countries. VIP’s products are imported in numerous other countries. It acquired United Kingdom luggage brand Carlton in 2004. It also owns the Aristocrat and Skybags brands which are very popular in India.

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Updates on Four More Stocks

Ted Williams, one of the greatest baseball hitters in the history, also known as the “Splendid Splinter,” had a unique strategy. Like all worldclass performers, Williams studied the game intensively and devised a remarkable plan.

He broke down his strike zone into 77 baseball-sized “cells” and then meticulously charted his hit results across those cells. With this analysis he learned that his batting average was much better when he only went after pitches in his “sweet spot.”

So he would swing at only those balls that landed in his “sweet spot.” Of course, even with that knowledge, he couldn’t wait all day for the perfect pitch; if he let three strikes go by without swinging, he’d be called out.

Warren Buffett drew a very interesting analogy between Williams’ way of playing and how investing should be done.

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What’s Brewing in Our Watchlist

There are thousands of companies listed on the Indian stock market. I am sure it’s safe to say that each of those listed stocks has, at some point, hit price levels at which it would have proved to be two, three or ten bagger from its all time low.

Does it mean that all those stocks are missed opportunities because we never studied them?

Not really. As value investors and practitioners of rationality, we constantly remind ourselves that it’s foolhardy to chase ideas based only on their price movements.

We believe that the way to create long term wealth in the stock market is to keep our focus inside our circle of competence — an idea made popular by Warren Buffett. In his 1996 letter to shareholders, Buffett wrote —

What an investor needs is the ability to correctly evaluate selected businesses. Note that word “selected”: You don’t have to be an expert on every company, or even many. You only have to be able to evaluate companies within your circle of competence. The size of that circle is not very important; knowing its boundaries, however, is vital.

At this stage there are about 40-50 listed companies that lie in our circle of competence. We have spent hours upon hours digging into the details of their financials, deciphering annual reports, and studying industry dynamics. This gives us reasonably sound understanding of these businesses and the industries they operate in.

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The Perpetuating Forces of The Capitalist Creed

How do you measure the size of an economy?

GDP, right?

By that measure, US is the biggest economy in the world today with GDP in excess of $20 trillion. That’s the total value of the goods and services the country produced in FY17. The churn out of that kind of produce was achieved on the foundation of $12 trillion of national debt.

It’s not surprising to anyone that largest economic powerhouse runs and grows on the engine fuelled by debt.

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The Rise of Investing Centaurs

Napoleon Bonaparte, the Emperor of France, is considered one of the greatest commanders in history, and his wars and campaigns are studied at military schools worldwide. But in 1809, he was defeated. Not in a war but in a game of chess. Bonaparte was a military leader, not a chess grandmaster so his defeat in chess shouldn’t have come as a surprise except that he lost against Mechanical Turk — an Automaton Chess Player.

Mechanical Turk was the brainchild of Wolfgang von Kempelen. The Turk won most of the games played during its demonstrations around Europe and the Americas for nearly 84 years, playing and defeating many challengers including statesmen Benjamin Franklin. Read More