WELCOME TO LATEST WEALTH.

SUCCESS PATH

STEPS FOR RICH

Step 1: Adopt the Million-Dollar Mindset

FINANCIAL PLANNING

The benefits of having a sound financial plan

• It can help you avoid mistakes/ sidetracks

GOAL

1. Reducing Expenses

2. Reducing Liabilities

3. Increasing Assets

4. Increasing Income

5. Invest active income to create

6. passive income

POWER OF COMPOUNDING

“compound interest is the eigth wonder of the world. he who understands it, earns it.. he who doesn’t … pays it:
- ALBERT EINSTEIN

Compound Interest Formula (Including Principal)

A = P (1 + r/n)nt

A = Amount
P = Principal
NT = Time (Years)
R/N = Interest Rate (Decimal). Number of times interest is compounded per year

POWER OF COMPOUNDING

In the initial years growth is slow, but on later years growth rate is very fast
Investment of Rs. 1000/- for 100 Yrs @ 10% p a will turn into
Simple Interest annually - 11,000
Compound Interest
Annually 1,37,80,612
Half Yearly 1,72,92,580
Quarterly 1,94,78,080
Monthly 2,11,32,414

Investment of Rs. 1000/- invested for 100 Yrs

10% 1,37,80,612
11% 3,40,64,175
12% 8,35,22,265
13% 20,31,62,874
14% 49,03,26,238
15% 1,17,43,13,450

STOCK MARKET BASICS

The prerequisite list to do online stock trading..

2. Need to have bank account. If you don't have one then I would recommend you to open in one of the big
banks like Axis Bank, HDFC bank or ICICI Bank. With this bank you will have facility of doing online transfer to and
from your trading account. This takes a weeks time.
Understand from bank about minimum balance you should have to avoid any fine.

3. Open DematAccount.You can either get this from your bank directly. Prefer this option if you want to invest
once in a while. They generally charge more commission but is easy for beginners.OR

If you wish to take regularly then you may want to take service of professional brokers. You will get following
advantage
a. Good Service
b. Low Brokerage
c. Professional trading platform
d. Buy & sell Tips
e. Research reports
f. And many more depending on the broker.
Some examples of the brokers are like ICICI DIRECT, MOTILAL OSWAL, ZERODHA ,Kotak securities, Indiabulls,
Sharekhan etc.
Fully understand brokerage, demat charges, account maintenance charges, trading platform charges, amc charges
and any other charges that you may incur.This takes weeks time.

For NRI'S I would recommend to go with ICICI as they can provide you with integrated solution for steps 1-3.

4. Transfer money from your bank account to trading account.

This can be done either by cheque (2-5 working days time) or by internet transfer (same day).

5. Once you have got all the three, then you can start investment/trade. If you are online user then you can trade
yourself or else you may call your broker to place a trade on your behalf.

6. Then comes most difficult task is stock selection and their entry and exit point. You can either do research on
your own with technical or fundamental analysis or can take advise of your broker. But remember most important
thing. Nobody care about your money more than you do so research more before placing a trade.

7. Best way to start investing is to start with mock/Paper trading. Do it for at least a month before you start actual
trading. Increase duration of paper trading till you get full confidence.

Total time is a about a month. Remember you should have a permanent address to do the same.

Some examples of permanent address are:

a. Electricity bill
b. BSNL/MTNL land line bill
c. Driving license
d. Passport
e. Voters Identity card

4 E’S REQUIRED
• Education
• Excess Cash
• Experience
• Emotional Balance
GOLDEN RULES

1. Be reasonable – Markets are volatile; it is the nature of the beast. However if you have the patience to
stay put, markets can reward you fairly well. When I say
“reward you fairly well” I have a CAGR of about 15-18% in mind. I personally think this is a fairly decent and
realistic expectation. Please don’t be swayed by abnormal returns like 50- 100% in the short term, even if it
is achievable it may not be sustainable

2. Long term approach – I have discussed this topic in chapter 2 as to why investors need to have a long
term approach. Remember, money compounds faster the longer you stay invested

3. Look for investible grade attributes – Look for stocks that display investible grade attributes and stay
invested in them as long as these attributes last. Book profits when you think the company no longer has
these attributes
 4. Respect Qualitative Research – Character is more important than numbers. Always look at investing
in companies whose promoters exhibit good character

Management’s background – Who are they, their background, experience, education, do they have the merit to
run the business, any criminal cases against the promoters etc

5. Cut the noise, apply the checklist – No matter how much the analyst on

TV/newspaper brags about a certain company don’t fall prey to it. You have a checklist, just apply
the same to see if it makes any sense

6. Respect the margin of safety – As this literally works like a safety net against bad luck

7. IPO’s – Avoid buying into IPOs. IPOs are usually overpriced. However if you were compelled to buy into
an IPO then analyze the IPO in the same 3 stage equity research methodology

8. Continued Learning – Understanding markets requires a lifetime effort. Always look at learning new
things and exploring your knowledge base.
Business ethics – is the management involved in scams, bribery, unfair business practices

Corporate governance – Appointment of directors, organization structure, transparency etc

Minority shareholders – How does the management treat minority shareholders, do they consider their
interest while taking corporate actions

Share transactions – Is the management buying/selling shares of the company through clandestine
promoter groups

Related party transactions – Is the company tendering financial favors to known entities such as promoter’s
relatives, friends, vendors etc at the cost of the shareholders funds?

Salaries paid to promoters – Is the management paying themselves a hefty salary, usually a percentage of
profits

Operator activity in stocks – Does the stock price display unusual price behavior especially at a time when the
promoter is transacting in the shares
Shareholders – Who are the significant shareholders in the firm, who are the people with above
1% of the outstanding shares of the company

Political affiliation – Is the company or its promoters too close to a political party? Does the business
require constant political support?

Promoter lifestyle – Are the promoters too flamboyant and loud about their lifestyle? Do they like to display
their wealth?
Buffett Checklist - Read, Remember, Follow!

Parameter Explanation
Consumer monopoly or commodity? Seek out companies that have no or less competition, either due to a
patent or brand name or similar intangible that makes the product unique.
Such companies will typically have high gross and operating profit margins
because of their unique niche. However, don't just go on margins as high
margins may simply highlight companies within industries with traditionally
high margins. Thus, look for companies with gross, operating and net profit
margins above industry norms. Also look for strong growth in earnings and
high return on equity in the past.

Understand how business works Try to invest in industries where you possess some specialized knowledge
(where you work) or can more effectively judge a company, its industry,
and its competitive environment (simple products you consume). While it is
difficult to construct a quantitative filter, you should be able to identify areas
of interest. You should "only" consider analyzing those companies that
operate in areas that you can clearly grasp - your circle of competence. Of
course you can increase the size of the circle, but only over time by
learning about new industries. More important than the size of the circle is
to know its boundaries.

Is the company conservatively Seeks out companies with conservative financing, which equates to a
financed? simple, safe balance sheet. Such companies tend to have strong cash
flows, with little need for long-term debt. Look for low debt to equity or low
debt-burden ratios. Also seek companies that have history of consistently
generating positive free cash flows.

Are earnings strong and do they show Rising earnings serve as a good catalyst for stock prices. So seek
an upward trend? companies with strong, consistent, and expanding earnings (profits). Seek
companies with 5/10 year earnings per share growth greater than 25%
(along with safe balance sheets). To help indicate that earnings growth is
still strong, look for companies where the last 3-years earnings growth rate
is higher than the last 10-years growth rate. More important than the rate of
growth is the consistency in such growth. So exclude companies with
volatile earnings growth in the past, even if the "average" growth has been
high.
Does the company stick with what it Like you should stock to your circle of competence, a company should
knows? invest its capital only in those businesses within its circle of competence.
This is a difficult factor to screen for on a quantitative level. Before
investing in a company, look at the company’s past pattern of acquisitions
and new directions. They should fit within the primary range of operations
for the firm. Be cautious of companies that have been very aggressive in
acquisitions in the past.

Has the company been buying back its Buffett prefers that firms reinvest their earnings within the company,
shares? provided that profitable opportunities exist. When companies have excess
cash flow, Buffett favours shareholder-enhancing maneuvers such as
share buybacks. While we do not screen for this factor, a follow-up
examination of a company would reveal if it has a share buyback plan in
place.

Have retained earnings been invested Seek companies where earnings have risen as retained earnings (earnings
well? after paying dividends) have been employed profitably. A great way to
screen for such companies is by looking at those that have had consistent
earnings and strong return on equity in the past.

Is the company’s return on equity above Consider it a positive sign when a company is able to earn above-average
average? (better than competitors) returns on equity without employing much debt.
Average return on equity for Indian companies over the last 10 years is
approximately 16%. Thus, seek companies that earn at least this much
(16%) or more than this. Again, consistency is the key here.

Is the company free to adjust prices to That's what is called "pricing power". Companies with moat (as seen from
inflation? other screening metrics as suggested above (like high ROE, high grow
margins, low debt etc.) are able to adjust prices to inflation without the risk
of losing significant volume sales.

Does the company need to constantly Companies that consistently need capital to grow their sales and profits are
reinvest in capital? like bank savings account, and thus bad for an investor's long term
portfolio. Seek companies that don't need high capital investments
consistently. Retained earnings must first go toward maintaining current
operations at competitive levels, so the lower the amount needed to
maintain current operations, the better. Here, more than just an absolute
assessment, a comparison against competitors will help a lot. Seek
companies that consistently generate positive and rising free cash flows.

Conclusion Sensible investing is always about using “folly and discipline” - the
discipline to identify excellent businesses, and wait for the folly of the
market to drive down the value of these businesses to attractive levels.
You will have little trouble understanding this philosophy. However, its
successful implementation is dependent upon your dedication to learn and
follow the principles, and apply them to pick stocks successfully.
Never Forget
Focus on decisions, not outcomes. Look for disconfirming evidence.