The Hindu Business Line : Don't lose money

How to get high returns with low risk? Phil Town offers an answer in `Rule #1' (www.crosswordbookstores.com), a book that guides you to `returns of 15 per cent or more in the stock market, with almost no risk.'

There are only two rules of investing, Warren Buffett would say. "Rule #1: Don't lose money... and Rule #2: Don't forget Rule #1."

The first rule can work for the majority, assures Town. It is easy to learn, and you don't even have to be that smart, either, he says.

How not to lose money? Invest with certainty, says Town. "Certainty comes from this: buying a wonderful business at an attractive price." Wonderful implies three Ms, viz. the business should have meaning, moat, and good management.

The business must have meaning for you, and reflect your values; "you understand it enough to want to own the whole thing if you could." Moat refers to the criteria of financial strength and predictability.

Business that is wonderful isn't enough; the price has to be attractive, meaning `a very big margin of safety,' the fourth M.

Thus, the `four straightforward steps' of Rule #1 investing, according to Town, are: find a wonderful business, know what it is worth as a business, buy it at 50 per cent off, and repeat until very rich.

Rule #1 is just about being a good shopper, cheers the author. "There are opportunities to buy wonderful companies at attractive prices - they really do exist - if you're willing to do your homework and say good-bye to mutual funds."

Meaning is important, because you buy a business, not a stock, the author reasons.

To infuse discipline into investing, he lays down the 10-10 rule: "I won't own this business for ten minutes unless I'm willing to own it for ten years."

The rule doesn't, however, preclude you from buying and selling the business over and over; rather, it makes you think as a long-term investor.

Identify your list of `wonderful' companies using three circles: passion (`what do you love to do, professionally and as recreation'), talent (`what things are you really good at'), and money (`what do you do to make money or what do you spend money on').

See how the words that show up in the circles point to a product, an industry, or a certain business.

"Anything that's in two or all the three circles is something you probably understand much better than most of the rest of us. It's probably something that has meaning to you, which automatically makes it an industry worth researching."

Elsewhere in the book, you'd read about `the three tools' to help you "have the courage to grab the stick from Mr Market, which is a good thing because we don't want Mr Market to beat us... "

Too imperative to ignore.

Manage the mind

The all-important productivity tool you have is not the mobile or the computer, but `the three pounds of grey-coloured electronic equipment that sits inside your skull' - the brain. Thus writes Price Pritchett in `Hard Optimism' (www.tatamcgrawhill.com).

The book is about how to manage the mind, which in today's knowledge economy is the main gizmo; `thinking' is the key competency, and `thought processes', `the most important performance factor.'

Performance is shaped by our thought patterns, mindset, and mood, explains the author.

The optimism he describes in the book is not about `rose-coloured-glasses view of the world' but something `tough, forceful, steadfast' to help you `develop a buffer zone against stress, setbacks, and disappointments' and `give you staying power and resilience when your future is fogged with uncertainty'.

But why is optimism so valuable? "An attitude of positive expectancy energises us and calls out our potential," answers Pritchett. "It heightens our awareness of opportunity... The positive-minded person interprets events from the angle of hope, finding benefits and creative solutions the pessimist overlooks."

You are the boss of your attitude, pumps up the author. "Nobody can do our thinking for us... You choose how you'll interpret circumstances." For instance, optimists interpret bad events as short-lived, `a passing thing, surely to be followed by better times'; they also protect their self-confidence by looking for `how other factors or circumstances might have contributed to the problem', instead of beating themselves with blame.

Optimists do not blow bad things out of proportion. They make it a habit of `putting boundaries around their fears and failures', and thus see any problem as `unique to a specific situation and not likely to have a generalised damaging effect'.

Interpreting setbacks this way gives optimists a sense of control, says Pritchett.

Recommended read for those who would like to see a fuller glass.

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