Warren buffet's execellent Quotes

ON EARNINGS          :  Never depend on single source of income.Make  investment to create a second source of income.

ON SPENDING          : If you buy things you don't need, soon you will have to sell things you need.

ON SAVINGS             : Don't save what is left after spending,but spend what is left after saving.

ON TAKING RISK      : Never test depth of the river with both the feet.

ON INVESTMENT      : Don't put all eggs in one basket.

ON EXPECTATIONS  : Honesty is very expensive gift. Do not expect it from cheap people.

Power of Compounding- An interesting story

There was  once a poet who fell upon such hard times...
that he was no longer able to feed his family. Hearing that the king greatly encouraged talent and was famed for his generosity,the poet set off for the Royal Palace. When brought before the king,he bowed low and asked that he may recite a poem. On hearing his recitation,the king,well pleased,asked him to name his reward.

The poet,pointing to a finely wrought chess board before the king said "Your highness,if you place just one grain of rice on the first square of this chess board, and double it for every square,I will consider it myself well rewarded. "Are you sure?" asked the king,greatly surprised. "Just grains of rice,not gold? "yes,your highness" affirmed the humble poet.

"So it shall be" ordered the king and his courtiers started placing the grain on the chess board. One grain on the first square, 2 on the second, 4 on the third,8 on the fourth and so on. By the time they came to the 10th square they had to place 512 grains of rice. The number swelled to 5,24,288 grains on the 20th square. When they came to the half way mark,the 32nd square,the grain count was 214,74,83,648-that is over 214 crores! Soon the count increased to lakhs of crores and eventually the hapless king had to hand over his entire kingdom to the clever poet. And it all began with just one grain of rice!

Moral of the story : Never underestimate the power of compounding. If you stay invested long enough,it'll work for you. A small sum invested every month from the beginning of your work-life can lead to a very impressive amount at the time of your retirement.

Hedge Fund- Now new alternative investment oppertunity for HNI's.

Hedge funds are known for the spectacular gains and losses that they make. Now Regulation of SEBI (securities & Exchange board of india) is allowing hedge funds to operate in india under Alternative Investments Funds (AIF) structure of category 111.  With this  the HNI investors will have access to the missing financial products in  india. In general terms hedge fund can be described as an investment program in which managers or investment partners seek absolute returns by exploiting investment opportunities at the same time protecting principal investments from potential financial risks. These are private partnerships in which the manager or partner got major personal stake in the fund and they are free to operate in a variety of markets and to utilize investments and strategies with variable long or short exposures and degrees of leverage.

The general perception of hedge funds can be termed as high risk-high return initiatives, only a small percentage fit this profile. Hedge funds generate returns based entirely on particular or concentrated risk by hedging away systematic risk. A hedge fund cannot truly be considered separate asset classes as the funds do not have a predictable rate of return over time nor do they as a group respond in a predictable way to distinct economic events. Hedge funds are structured in many innovative ways in order to meet regulatory and tax needs of the manager. The structure basically depends on where it is domiciled-onshore or offshore. Based on this factor the structure is that of limited partnerships or corporations. Also the fund structure could vary depending on the fund being open or close ended. Fund structure could be based on the fee structure which could be performance based or otherwise to the hedge fund managers. The structure can also depend on minimum permissible investment. Moreover, hedge funds have a higher degree of flexibility in the instruments that the fund can invest in. Many but not all hedge funds invest in derivatives-instruments that derive from an underlying security. The diversity of strategies and instruments utilized by hedge funds result in the low correlation to typical equity market benchmarks. This is the basis of forming a hedge fund structure that performance has more to do with superior stock selection than market direction. Hedge funds are generally less liquid than traditional investment vehicles. Some hedge funds have longer lock up periods, so that they can properly implement their trading strategy without concern for fluctuations in assets.

A well diversified & constructed portfolio of different fund strategies in order to ensure both individual fund manager level and the systemic level risks are minimized. The different hedge fund strategies are exposed to different systemic risks, and returns will therefore change with changes in the market environment. These different risk or return profiles provide almost endless possibilities for creating value through active portfolio allocation, where strategies interplay to generate consistent absolute returns. A number of hedge fund strategies invest in more than one asset class, therby diversifying the return generation, but not necessarily reducing the total risk exposure. The risks can be measured both as standard deviation and as value at risk.

The hedge fund investing requires specialized skills, such as an understanding of complex security instruments, extensive industry knowledge, and analytical ability. The fund structure rests on strategy that the fund adopts that range from relatively conservative to basically speculative. The fund managers own securities that they consider to offer distinct investment value and they can take advantage of overpricing of securities not just by underweighting them relative to a benchmark but also by explicitly betting, by shorting that such securities will underperform. Hedge funds can take both long and short positions, make concentrated investments, use leverage, use derivatives, and invest in many markets. Most hedge fund managers commit a portion of their wealth to the funds in order to align their interest with that of investors. Thus the objectives of managers and investors are the same.

Disclaimer: The information given above are the result of personal readings of related genuine magazines and personal understanding of the subject matter. This is written to make the readers understand, how the very new alternative investment opportunity can be explored by HNI’s at present scenario in India. However, this blog is not responsible for any error or inaccuracy in the same.