Contrarian Investment Strategy

Eugene Fama and Kenneth French propounded the ''Contrarian Investment Strategy'' which requires the investor to embrace stocks whose prices are in the dumps because they have fallen out-of-favour with most other investors-being greedy when others are fearful and being fearful when others are greedy. This is in tandem with the secret of successful investing which requires an investor to buy low and sell high.

Warren Buffett, under the tutelage of his mentor, Benjamin Graham, imbibed this principle. He, however, modified and christened it ''Selective Contrarian Strategy''. While the traditional contrarian strategy does not consider the long-term fundamentals of the company to be invested in, selective contrarian strategy advocates investing in low-priced companies that have long-term economics that can make their prices soar in the future.

Warren amassed stupendous wealth by taking advantage of the ignorance of unscrupulous investors in the capital market. Templeton described himself as a ''Philanthropist'' because he was buying from people ( when they sell out of fear), and selling to them (when they buy out of greed). What a philanthropist!

Ten Trading Rules From Bernard Baruch

Bernard was born on August 19, 1870. He became a broker and then a partner in A.A. Housman & Company. Thereafter, he established his own brokerage firm (1903) and was a well-known financier on Wall Street.  Bernard was a millionaire in his early thirties. Presidents Woodrow Wilson and Franklin Roosevelt appointed him as economic adviser due to his success in business. He laid down the following rules:

1. Don’t speculate unless you can make it a full-time job.

2. Beware of barbers, beauticians, waiters — of anyone — bringing gifts of “inside” information or “tips.”

3. Before you buy a security, find out everything you can about the company, its management and competitors, its earnings and possibilities for growth.

4. Don’t try to buy at the bottom and sell at the top. This can’t be done — except by liars.

5. Learn how to take your losses quickly and cleanly. Don’t expect to be right all the time. If you have made a mistake, cut your losses as quickly as possible.

6. Don’t buy too many different securities. Better have only a few investments which can be watched.

7. Make a periodic reappraisal of all your investments to see whether changing developments have altered their prospects.

8. Study your tax position to know when you can sell to greatest advantage.

9. Always keep a good part of your capital in a cash reserve. Never invest all your funds.

10. Don’t try to be a jack of all investments. Stick to the field you know best.

Towards a Better Credit Control

The major cause of credit risk is lack of regard for credit control policies. Companies have their liquidity expunged by accumulation of huge trade receivables. In most of them, management overrides laid-down credit control measures.

The Boards of directors  sometimes fail in discharging their oversight functions. And the song on the lips of everybody is: Strengthen the risk management in these companies. Suffice it to say that the chief cause of failure of all risk management measures is neglect of the implementation of the measures put in place to reduce the undesirable effects of risk.

P.M. Stevenson, a credit expert in the U.S., proffered the following guides for the effective control of credit risk:

1. Classify your customers based on their credit-worthiness.
2. Set a credit limit for each customer and refuse to give credit that a customer cannot handle conveniently.
3.   Avoid ambiguity in stating the terms of payment before the credit is given.
4. Ensure that probable excuses are eliminated by delivering only goods in good condition to the customers or giving allowance for faulty ones immediately you have been notified.
5. Use correspondence, telephone conversation and visits by key officers in trying to collect debts.
6. Do not hesitate to write-off any debt that seems irrecoverable, instead of wasting valuable resources in chasing the customer who has defaulted.
7. Maintain a proper record of sales debtors by compiling a good sales ledger.
8. Periodic, regular reports on debtors, their outstanding balances and overdue accounts should be given to the management.
9.  A periodic target of cash collection from debtors should be set and monitored.