The happionaires way to create wealth in a crash, slowdown or recession

DISCLAIMER The author and publisher of this E-book have used their best efforts in compiling this E-book The author and publisher make no representation or warranties with respect to the accuracy, applicability, fitness or completeness of the contents of this E-book The information contained in this E-book is strictly for information purposes only Should you desire to apply any information contained in this E-book, you may verify the information with a third party and take full responsibility for your actions Network18 Publications and Network18 group companies not endorse any advertisements appearing on this E-book This E-book contains copyrighted material and must not be copied, reproduced, transferred, distributed, licensed or publicly performed or used in any manner whatsoever except as specifically permitted in writing by the publisher or as allowed under the terms and conditions under which it was purchased or as strictly permitted by applicable copyright law Any unauthorized distribution or use of this text may be an infringement on the author’s and/or publisher’s right and those responsible may be liable in law accordingly The author and publisher disclaim any warranties (express or implied), merchantability, or fitness for any particular purpose The author and publisher shall in no event be held liable or responsible to any party for any direct, indirect, punitive, special, incidental or other consequential damages arising directly or indirectly from any use of this material, which is provided “as is”, and without warranties By subscribing to or using this service you are deemed to hereby accept this disclaimer Network18 Publications and Network18 group companies reserve the right to take legal action, as deemed fit, if the terms and conditions of the use of this E-book or its services as described herein are not compiled with Any disputes in relation thereof shall be subject to the exclusive jurisdiction of the courts at Mumbai, India Network18 Publications and Network18 group companies and content providers shall have no financial liability whatsoever to the users/subscribers of this E-book For more information contact Network18 Publications and Network18 Group Companies at cd@network18online.com E-Book ISBN 978-93-80200-90-3 Published by Network18 Publications Private Limited in 2013 507, Prabhat Kiran, 17, Rajendra Place, New Delhi-110008 CONTENTS I Have No Money! What Is The Key To Financial Nirvana? The Big Crash What the 2008 Crash Taught Us About Exotic Financial Instruments Was The 2008 Bailout Package Day Light Robbery? Do You Want To Be Like The Monk Who Mortgaged His Ferrari? The Rich Guys Are Telling Us The Economy Is Terrible (And What They Actually Mean!) Was the 2008 Crash The Greatest Destruction of Wealth In History? Every Ending Is Also A New Beginning! 10 What Is Keeping You Away From Cash? 11 Don’t We All Have Pet Elephants in India? 12 Is India Immune To Financial Crises? 13 Why Am I So Optimistic About India’s Future? 14 The Happionaire Way Of Understanding Financial Statements – Balance Sheets to Profit and Loss! 15 The Secret Of Free Cash and Free Assets! 16 The Monkey Who Didn’t Buy His Ferrari! 17 Do Most Things Actually Become Cheaper or More Expensive? 18 Should I Invest In Real Estate Now? 19 What Currency Do You Have In Your Pocket? 20 What Happens To Commodity Prices? 21 Professional Strategies – Put Options, Call Options & More! 22 Future Investment Opportunities 23 Analyzing One Of My Investments And Why I Made It 24 How To Detect A Crash Before It Comes! 25 There Is Nothing Like Unemployment If You Believe In Finding Opportunities! 26 The Solution To A Global Financial Crisis Conclusion – This Isn’t The Last Chapter – But The First! Financial Glossary There was once a little boy, he had nothing, his family barely had any money, but what he had was love, laughter, joy, the power of goodness, love, humanity, spirituality and the blessings of God and his elders This boy went on to everything he had dreamed and visualized He did it with a smile on his face and spread happiness to all Deep down he still remains a little boy Aren’t all of us deep down like that little boy (or girl!)? We should ensure that little boy within us never dies and we continue to dream and live this life beautifully WHAT DO I DO WHEN THINGS GET TOUGH? Every time our economy goes through challenging times, almost everyone gets concerned about job losses, pay cuts, bankruptcies, stress, depression, slow downs, stock market churn and mutual fund losses Everybody suddenly seems to feel poorer in his or her pocket when there is an economic downturn History has shown that some of the biggest names in the world of finance, business and entrepreneurship, have gone bust or been taken over in the West and fortunately, or unfortunately, India too has been affected Take the recent crisis as an example During this period, everybody, right from the biggest real estate developers and investment bankers to the pav bhaji stall outside the Bombay Stock Exchange, said that business was down and there was no work Now while most people sit and worry and curse their luck, the economy, inflation, stock markets, mutual funds, capitalists, their mother-in-law (I don’t think cursing your mother-in-law is a very good idea; it could have very grave consequences!) and whatever else they can out of frustration, there is a small minority who quietly and silently benefits and makes the most of such situations Almost every time in history, this group of people has taken advantage of such situations and gone on to create tremendous wealth This book will help you think like them, and hopefully make you one of them SEIZE THE MOMENT! “Be Greedy When Others Are Fearful Be Fearful When Others Are Greedy.” This is what the richest man on Earth, Warren Buffett, says, and most people still never seem to follow this logic Many of you may not believe it, but some of the best times for me to invest, create wealth and capitalize on opportunities, have been times when there is economic depression, recession and gloom I have learnt from experience and from some of the richest people around, that simply looking for opportunities while others are cursing their luck and the economy, can create immense wealth When the world is turning one way, learn to turn the other Cursing your luck, politicians, big institutional investors and people around you won’t help your financial situation at all Instead, if you want to create wealth and succeed, you need to make the most of now, invest in knowledge and use this knowledge practically I have never believed in waiting for opportunities to find me and then knock at my door I would rather build my own house with several doors right in front of the opportunity and then pounce on the opportunity The Happionaire’s way to CREATE WEALTH is meant for anybody and everybody who wants to create wealth irrespective of whether the stock markets are up or down — irrespective of where inflation, interest rates, real estate prices are headed — and irrespective of which economic cycle we are in Being in control of your own destiny and prosperity is very important Everybody makes money when things are good But the truly wealthy people, preserve, create and control wealth irrespective of the environment around them This book has been specially written for someone who might not have a PhD in finance, but simply wants to know what to when times get challenging and how to actually benefit in such times This book is based on the principles of being a Happionaire and creating wealth in a fun, simple and interesting way THE STREET TEACHES US THE MOST! I believe that life and the street are our greatest teachers My university has been the street and practical experience I started not by enrolling for a financial degree, but by actually investing and learning from my mistakes and making losses I’m not ashamed or afraid to accept the fact that the losses I made in my early days have in fact, been a blessing as they have taught me the importance of several things Never be afraid of tough times, but be afraid of being afraid of tough times It is very important to be fearless when it comes to failure, losses and tough times Those who stay cool and not lose hope are usually the ones who get ahead in every field Whether it is sports, war, relationships, business or investing, not giving up is what makes you win As the erstwhile financial crisis has shown, rules are meant to be broken and rewritten A new genre of books has spawned, one that breaks away from the old ways of understanding and playing finance The very small minority, who know these rules, will end up benefiting the most It is up to you to make the most of this rare opportunity in history, or a few years from now, you will look back in regret and say, “I wish I had done this and I wish I had done that” WHY THIS BOOK IS FOR EVERYONE One of the main reasons for a financial crisis is a lack of practical financial education and literacy What I’m talking about isn’t some theoretical course that teaches you about quick ratios and liquid ratios, but something that teaches money management in a basic and practical manner Today, money is a basic tool needed for survival It is almost like oxygen, water or food Yes, most certainly money isn’t everything But it is something without which you won’t be able to survive If more people learnt and understood how money works and treated it with respect, hordes would be financially free and independent If more people were financially independent, they would certainly be happier than when they are financially dependant Being financially secure does make things easier A few might not agree, but I can certainly tell you from experience that I have experienced both — being financially secure and being financially insecure I would chose being financially secure and free Asset stripper A corporate raider (company A) that takes over a target company (company B) in order to sell large assets of company B to repay debt Company A calculates that the net, selling off the assets and paying off the debt, will leave the raider with assets that are worth more than what it paid for company B Asset turnover The ratio of net sales to total assets Asset value The net market value of a corporation’s assets on a pershare basis, not the market value of the shares A company is undervalued in the market when asset value exceeds market value Assets A firm’s productive resources Audit An examination of a company’s accounting records and books conducted by an outside professional in order to determine whether the company is maintaining records according to generally accepted accounting principles Available cash flow Total cash sources less total cash uses before payment of debt service Balance of payments A statistical compilation formulated by a sovereign nation of all economic transactions between residents of that nation and residents of all other nations during a stipulated period of time, usually a calendar year Balance of trade Net flow of goods (exports minus imports) between two countries Balance sheet Also called the statement of financial condition, it is a summary of a company’s assets, liabilities, and shareholder’s capital Basis point In the bond market, the smallest measure used for quoting yields is a basis point Each percentage (1%) equals 100 basis points Basis points also are used for interest rates An interest rate of 5% is 50 basis points higher than an interest rate of 4.5% Bear market Any market in which prices exhibit a declining trend Bearish Words used to describe investor attitude A bearish investor believes that a particular asset or the market as a whole will decline in value Bid price This is the quoted bid, or the highest price an investor is willing to pay to buy a security Practically speaking, this is the available price at which an investor can sell shares of stock Bidder A firm or person that wants to buy a firm or security Board of Directors Individuals elected by the shareholders of a corporation who carry out certain tasks established in the charter Bond Bonds are debt and are issued for a period of more than one year Book value A company’s total assets minus intangible assets and liabilities, such as debt A company’s book value might be higher or lower than its market value Bottom fisher An investor seeking stocks that have fallen to prices at or near their bottom, which he or she believes will trend up in the future Break even The reduction of a project’s net cash flow to zero by altering an input variable such as price or costs Break-even analysis An analysis of the level of sales at which a project would make zero profit Break-even point Refers to the price at which a transaction produces neither a gain nor a loss Broker An individual who is paid a commission for executing customer orders related to buying and selling of stocks, bonds, etc Bubble theory A theory under which security prices sometimes move wildly above their true values, or the price falls sharply until the “bubble bursts” It is also possible for a bubble to deflate gradually Bull market Any market in which prices are in an upward trend Call An option that gives the holder the right to buy the underlying asset Capital asset A long-term asset, such as land or a building, not purchased or sold in the normal course of business Capital budget A firm’s planned capital expenditures Capital gain When a stock is sold for a profit, the capital gain is the difference between the net sales price of the securities and their net cost, or original basis If a stock is sold below cost, the difference is a capital loss Capital goods Goods used by firms to produce other goods, e.g., office buildings, machinery, equipment Capital market Traditionally, this has referred to the market for trading long-term debt instruments (those that mature in more than one year) That is, the market where capital is raised More recently, capital markets is used in a more general context to refer to the market for stocks, bonds, derivatives and other investments Chartered Financial Analyst (CFA) An experienced financial analyst who has passed examinations in economics, financial accounting, portfolio management, security analysis Chief Executive Officer (CEO) A title held often by the Chairperson of the Board, or the president The person principally responsible for the activities of a company Chief Financial Officer (CFO) The officer of a firm responsible for handling the financial affairs of a company Chief Operating Officer (COO) The officer of a firm responsible for day-to-day management, usually the president or an executive vicepresident Circuit breakers Measures instituted by exchanges to stop trading temporarily when the market has fallen by a certain percentage in a specified period They are intended to prevent a market free fall by permitting buy and sell orders to rebalance Commodity A commodity is food, metal or another fixed physical substance that investors buy or sell, usually via futures contracts Credit Crunch The situation created when banks hugely reduced their lending to each other because they were uncertain about how much money they had This in turn resulted in more expensive loans and mortgages for ordinary people Credit rating An evaluation of an individual’s or company’s ability to repay obligations or its likelihood of not defaulting Currency future A financial future contract for the delivery of a specified foreign currency Current assets Value of cash, accounts receivable, inventories, marketable securities and other assets that could be converted to cash in less than year Current liabilities Amount owed for salaries, interest, accounts payable and other debts due within year Debenture Any debt obligation backed strictly by the borrower’s integrity, e.g an unsecured bond Debt ratio Total debt divided by total assets Deficit An excess of liabilities over assets, of losses over profits, or of expenditure over income Deflation Decline in the prices of goods and services Antithesis of inflation Depression Period when excess aggregate supply overwhelms aggregate demand, resulting in falling prices, unemployment problems and economic contraction Derivative A financial contract whose value is based on, or “derived” from, a traditional security (such as a stock or bond), an asset (such as a commodity), or a market index Derivative instruments Contracts such as options and futures whose price is derived from the price of an underlying financial asset Derivative markets Markets for derivative instruments Dividend A portion of a company’s profit paid to common and preferred shareholders Earnings before interest, taxes, depreciation and amortization (EBITDA) A financial measure defined as revenues less cost of goods sold and selling, general and administrative expenses In other words, operating and non-operating profit before the deduction of interest and income taxes Depreciation and amortization expenses are not included in the costs Earnings Per Share (EPS) A company’s profit divided by its number of common outstanding shares If a company earning Rs crore in one year had crore common shares of stock outstanding, its EPS would be Rs per share Equity Ownership interest in a firm Also refers to shares and stocks Fixed asset Long-lived property owned by a firm that is used by a firm in the production of its income Tangible fixed assets include real estate, plant and equipment Intangible fixed assets include patents, trademarks and customer recognition Fund manager The person whose responsibility it is to oversee the allocation of the pool of money invested in a particular mutual fund The fund manager is charged with investing the money to attain returns consistent with the level of risk outlined in the mutual fund prospectus Fundamental analysis Security analysis that seeks to detect misvalued securities through an analysis of the firm’s business prospects Futures A term used to designate all contracts covering the sale of financial instruments or physical commodities for future delivery Going short Selling stock that an investor does not own by borrowing shares from a broker The assumption is that the price will fall The investor anticipates buying (covering the short) the shares back at a lower price than what they were sold for, recognizing the difference as a profit Antithesis of going long Hedge A transaction that reduces the risk of an investment Hedge fund An investment vehicle that somewhat resembles a mutual fund, but with a number of important differences such as more privacy and flexibility Usually preferred by very wealthy investors Index fund Investment fund designed to match the returns on a stock market index Inflation The rate at which the general level of prices for goods and services is rising Investment Banks Investment banks provide financial services for governments, companies or extremely rich individuals They differ from commercial banks Leverage The use of debt financing, or property of rising or falling at a proportionally greater amount than comparable investments For example, an option is said to have high leverage compared to the underlying stock because a given price change in the stock may result in a greater increase or decrease in the value of the option Also, commonly known as Gearing in Europe Liability A financial obligation, or the cash outlay that must be made at a specific time to satisfy the contractual terms of such an obligation Liquid asset Asset that is easily and cheaply turned into cashnotably, cash itself and short-term securities Liquidity ratios Ratios that measure a firm’s ability to meet its shortterm financial obligations on time, such as the ratio of current assets to current liabilities Margin Allows investors to buy securities by borrowing money from a broker The margin is the difference between the market value of a stock and the loan a broker makes Margin call A demand for additional funds because of adverse price movement Market value The price at which a security is trading and could presumably be purchased or sold Mutual fund Mutual funds are pools of money that are managed by an investment company They offer investors a variety of goals, depending on the fund and its investment charter Some funds, for example, seek to generate income on a regular basis Others seek to preserve an investor’s money Still others seek to invest in companies that are growing at a rapid pace Funds can impose a sales charge, or load, on investors when they buy or sell shares Net asset value (NAV) The value of a fund’s investments For a mutual fund, the net asset value per share usually represents the fund’s market price, subject to a possible sales or redemption charge For a closed-end fund, the market price may vary significantly from the net asset value Net income The company’s total earnings, reflecting revenues adjusted for costs of doing business, depreciation, interest, taxes and other expenses Net sales Gross sales less returns and allowances, freight out, and cash discounts allowed Option Gives the buyer the right, but not the obligation, to buy or sell an asset at a set price on or before a given date Investors, not companies, issue options Buyers of call options bet that a stock will be worth more than the price set by the option (the strike price), plus the price they pay for the option itself Buyers of put options bet that the stock’s price will drop below the price set by the option An option is part of a class of securities called derivatives, which means these securities derive their value from the worth of an underlying investment Other income Income from activities that are not undertaken in the ordinary course of a firm’s business Oversubscription The excess number of shares or bonds that investors want to buy but are not available due to high demand Paid-in capital Capital received from investors in exchange for stock, but not stock from capital generated from earnings or donated This account includes capital stock and contributions of stockholders credited to accounts other than capital stock It would also include surplus resulting from recapitalization Pension fund A fund set up to pay the pension benefits of a company’s workers after retirement P&L Profit and loss statement Portfolio A collection of investments, real and/or financial Price-book ratio Compares a stock’s market value to the value of total assets less total liabilities (book value) Determined by dividing current stock price by common stockholder equity per share (book value), adjusted for stock splits Also called Market-to-Book Price-earnings ratio/ PE Ratio Shows the multiple of earnings at which a stock sells Determined by dividing current stock price by current earnings per share (adjusted for stock splits) Earnings per share for the P/E ratio are determined by dividing earnings for past 12 months by the number of common shares outstanding Higher multiple means investors have higher expectations for future growth, and have bid up the stock’s price Profit margin Indicator of profitability The ratio of earnings available to stockholders to net sales Determined by dividing net income by revenue for the same 12-month period Result is shown as a percentage Also known as net profit margin Put option This security gives investors the right to sell (or put) a fixed number of shares at a fixed price within a given period An investor, for example, might wish to have the right to sell shares of a stock at a certain price by a certain time in order to protect, or hedge, an existing investment Return of capital A cash distribution resulting from the sale of a capital asset, or securities, or tax breaks from depreciation Return on assets (ROA) Indicator of profitability Determined by dividing net income for the past 12 months by total average assets Result is shown as a percentage ROA can be deconstructed into return on sales (net income/sales) multiplied by asset utilization (sales/assets) Return on capital employed (ROCE) Indicator of profitability of the firm’s capital investments Determined by dividing Earnings Before Interest and Taxes by (capital employed plus short-term loans minus intangible assets) The idea is that this ratio should at least be greater than the cost of borrowing Return on equity (ROE) Indicator of profitability Determined by dividing net income for the past 12 months by common stockholder equity (adjusted for stock splits) Result is shown as a percentage Investors use ROE as a measure of how a company is using its money ROE may be deconstructed into return on assets (ROA) multiplied by financial leverage (total assets/total equity) Return on investment (ROI) Generally, book income as a proportion of net book value Return on sales A measurement of operational efficiency equalling net pre-tax profits divided by net sales expressed as a percentage Return on total assets The ratio of earnings available to common stockholders to total assets Speculation Purchasing risky investments that present the possibility of large profits, but also pose a higher-than-average possibility of loss Stagflation A period of slow unemployment with rising prices economic growth and high Sub-Prime Mortgages These carry a higher risk to the lender (and therefore tend to be at higher interest rates) because they are offered to people who have had financial problems or who have low or unpredictable incomes Technical analysis Security analysis that seeks to detect and interpret patterns in past security prices Technical analysts Also called chartists or technicians, analysts who use mechanical rules to detect changes in the supply of and demand for a stock, and to capitalize on the expected change Undervalued A stock price perceived to be too low or cheap, as indicated by a particular valuation model Write-Down Reducing the book value of an asset to reflect a fall in its market value For example, the write-down of a company’s value after a big fall in share prices Yield The percentage return paid on a stock in the form of dividends, or the effective rate of interest paid on a bond or note Find Out More From The World Of Happionaire™ Invest in knowledge It is the best investment you will ever make We would love to see you on www.happionaire.com and discover: Financial Education Products Seminars, Events, Training Programs and Workshops Happionaire™ Education Also, interact with Yogesh and other Happionaires through The Happionaire™ Blog! Keep smiling and happy wealth creation! HAPPIONAIRE™ (Happionaire™) is a trademark owned by Yogesh Chabria Happionaires™ Cash It!, The Happionaire™ Way © Copyright 2010 Yogesh Chabria All Rights Reserved www.happionaire.com “I find it strange when people are willing to lose lakhs and crores because of ignorance, but aren’t willing to invest a few hundreds or thousands into learning more.” Happionaire’s Cash It! is the book the guys responsible for financial disasters don’t want you to read! It will help you understand how to invest and create wealth in a fun, simple and interesting way Happionaire’s Cash It! Will Reveal • • • • • • • • • • • • • • • • • • • • • • How to benefit from crashes, slowdowns and recessions The Big Crash and how it happened How the Sub-Prime Pav Bhaji changed the world Robber Hood and The Bail Out Package The Secret of Free Cash and Free Assets How To Be Like The Monk Who Mortgaged His Ferrari What The Rich Guys Actually Mean When They Say The Economy Is Terrible The Greatest Destruction of Wealth In History Why This Is One Of The Best Opportunities In History For India Going from Crash to Cash Why Having No Money Is A Great Opportunity How A Simple Idea Helped A 23 Year Old Make Over A Billion Dollars In Less Than Four Years Do We Have Pet Elephants in India? How To Understand Financial Statements like Balance Sheet, Profit & Loss In A Fun Way How to Understand Real Estate, Commodities & Currency The Monkey Who Didn’t Buy His Ferrari Analysing One Of My Investments What Shahrukh Khan Can Teach You About Investing How To Detect A Crash Before It Comes Future Investment Opportunities Why You Never Have To Be Unemployed Possible Solutions To Financial Crises – And Why Countries Can Go Bankrupt If They Don’t Follow It! • And Much More! Knowledge Is Recession Proof! ©2010 Copyright Yogesh Chabria/The Happionaire™ Way www.happionaire.com ... mistakes and making losses I’m not ashamed or afraid to accept the fact that the losses I made in my early days have in fact, been a blessing as they have taught me the importance of several things... important and basic as knowing how to eat food or drink water It is a survival skill needed in the modern day world The Happionaire™ Way is dedicated to spreading this message in a way that connects... previous Invest The Happionaire Way, would recall how a 21–year-old created a million dollars in less than a year, with just a simple idea and how Dhirubhai Ambani created wealth by trading in coins