Certainties & Serendipities

Investment literacy is essential for building and keeping wealth. But for most us the world of investment is “a parallel universe controlled by prophecy, mysterious symbols, obscure cycles, and strange ideas about how human beings behave.” It doesn’t have to be that way; it can be safe and simple is the message that Harry Browne is spreading through this tiny book.

The book encourages a commonsense based, practical approach to building wealth rather than on speculation. So you won’t find any tips about getting rich quickly or retiring in Bahamas.

There are 17 rules in Part I of the book. In Part II, the author provides more information on these 17 rules. For a glimpse into the book, I discuss three such rules.

Rule #1: Build Your Wealth Upon Your Career – I never heard this rule before and if you have not read this book earlier, you wouldn’t have heard it too. The author emphasizes that your career and investment together build a prosperous and secure future. Yes, investing will build wealth but it is your career that gives you the money to invest. So keep your feet on the ground and remember, you got to go to work tomorrow.

Rule #7: Invest Only On a Cash Basis – When you see a ‘golden opportunity’, borrowing money can seem like a smart way to exploit the opportunity. But borrowed money can just easily enlarge your loss as increase your profit.

Rule #11: Build a Bulletproof Portfolio For Protection – This rule is the crux of the book. According to the author, economic circumstances can be broadly classified into prosperity, inflation, recession and deflation. To be protected in all circumstances, there must be at least one investment in the portfolio that responds well to it. The author identifies stocks, bonds, gold and cash as the investment instruments for these economic circumstances. He also proposes an equal distribution of these instruments within the portfolio.

Other rules are as conservative as these. It is better to be conservative and preserve the capital rather than end up in the investment graveyard.

This is one of the book that defines my investment principle (others are about ‘Value Investing’). Because of these simple and safe investment principles, I sleep better at night.

I will finish with the often repeated statement in the book. Whenever someone pressures you to strike while the iron is hot, remember: When in doubt about an investment decision, it is always better to err on the side of safety.

Good luck with your safe investing.

Every week I post a digest of very fine links and tweets. Here are the best links I found in past week:

• Bill Gates: In Five Years The Best Education Will Come From The Web : “Five years from now on the web for free you’ll be able to find the best lectures in the world. It will be better than any single university.”
• Introducing ‘Nokia Listings’ beta: Connecting buyers and sellers in India : A local marketplace on mobile where users can discover and transact with other users using a simple mobile client interface.
• Stock Shastra #14: To enjoy the fruits of stock investing, be like a fruit orchard owner : Once the fruit owner has planted the tree, he waits patiently for the tree to bear fruit. He depends on the health of the tree to grow and bear fruit. He knows that once the tree bears fruit, it will continue to do so for a long time and hence, he can reap the benefits for many years to come. It may happen that in one season the tree doesn’t bear fruit, but as long as the health of the tree is good, he is confident that it will bear fruit in the next season.
• Why Online2Offline Commerce Is A Trillion Dollar Opportunity : O2O finds consumers online and brings them into real-world stores. Its a new model of offline commerce being driven by an online storefront and transaction engine.

Here are the best tweets of past week:

• vijayanands: dont give yourself the satisfaction of accomplishment with the birth of an idea, follow through with it .
• vwadhwa: Immigrants cause economy to grow/pie to get bigger. Make US more innovative/competitive.
• MarkFritz: PROCESS OR ACHIEVEMENT: Some confuse following a new process as an achievement. It’s just an enabler for AN achievement.
• BentleyGTCSpeed: Market and deliver concurrently. They are not “either/or” decisions.
• MarkFritz: WHERE & WHY: Too many people are rushing to the how & when before they have determined the where & why.