Step Forward; Fear will Step Back.
Ever feel like investing has too many complicated terms and strategies?
Imagine you're trying to decide on a stock to invest in, but there are so many opinions, charts, and data points that it's hard to make sense of it all. You might wonder, “Do I need to understand all of this to be successful?”
What if I told you that keeping things simple could actually be your best strategy?
This idea of focusing on simplicity is known as the "KISS Principle," which stands for "Keep It Simple, Stupid."
What is the KISS Principle?
In the world of investing, the KISS Principle is all about avoiding unnecessary complications. It encourages you to stick to simple strategies that you can understand and manage, rather than getting lost in overly complex analysis.
Investors sometimes believe that the more complicated a strategy is, the better their chances of making money. They dive into technical details, advanced models, and overanalyze every move.
But in reality, complexity often leads to more mistakes, stress, and missed opportunities.
Learning from Warren Buffet
Let’s look at Warren Buffett, one of the most successful investors of all time.
Buffett’s investment strategy is known for its simplicity. He focuses on buying businesses that he understands and holds onto them for the long term.
Instead of using complicated models and constantly trading stocks, he invests in companies with strong fundamentals and lets time do the rest. This approach has helped him achieve consistent success over decades.
Why Does It Matter?
Keeping things simple not only makes investing easier to understand but also reduces the chances of making emotional decisions.
When you have a clear, straightforward strategy, you’re more likely to stay calm during market ups and downs and avoid costly mistakes.
Keep things clear, stick to what you understand, and let your investments grow without overthinking every detail.
MEME OF THE WEEK:
Market Kya Keh Raha Hai, Sir?
This week, let’s explore a story that mixes history, economics and a bit of politics. It’s about two of the world’s biggest economies: India and China, and their journey from tension to what looks like a cautious handshake.
A Complicated Friendship
If you think back to June 2020, you might remember hearing about a violent clash between Indian and Chinese troops in the Galwan Valley. It wasn’t just a border issue; it marked a shift in their relationship.
India reacted with multiple measures—from banning popular Chinese apps like TikTok to putting tight rules on investments coming from China. Back then, there was a lot of distrust, and surveys showed that around 67% of Indians viewed China negatively.
But now, a few years later, both countries are taking steps towards normalizing their relationship. Recently, Prime Minister Modi and President Xi Jinping met for the first time since 2019 at the BRICS summit in Russia. This meeting and the recent agreement to ease tensions along the border have given hope for smoother ties.
Now, the big question is—can this lead to better trade and investment relations between these two nations? Let’s find out.
The Reality of Trade
Despite all the tension, trade between India and China didn’t slow down. In fact, it kept increasing. Data from FY23-24 shows that India’s imports from China crossed $100 billion, making China India’s largest trading partner, even surpassing the US.
But there’s an issue—the trade is heavily in China’s favor. While India exported around $15 billion worth of goods to China, it imported goods worth $94 billion, leaving a huge trade gap. This imbalance has been a big concern for India.
So why does India still rely so much on Chinese goods?
The reason is simple: many of India’s industries, especially electronics and machinery, still depend on Chinese imports.
What About Investments?
After the Galwan clash, India introduced a rule called “Press Note-3,” which requires government approval for any investments from countries sharing a border with India, aimed mainly at China. This led to a sharp decline in Chinese investments in India.
Recently, there’s been talk about loosening some of these restrictions, but the government is being careful. While it may allow quicker visas for Chinese technicians, each investment proposal from China will still be reviewed individually to protect India’s strategic interests.
The latest Economic Survey recommended that India should reconsider its views on Chinese investments.
It mentioned that if Chinese companies set up factories in India, it could help lower the need to import goods and support the “Make in India” initiative, which aims to boost local manufacturing.
What Lies Ahead?
Experts believe that if relations continue to improve, trade restrictions could gradually ease. There’s even speculation that India might consider rejoining the Regional Comprehensive Economic Partnership (RCEP), a large trade agreement it backed out of in 2019 due to concerns over China’s dominance.
However, trust between the two countries has to be rebuilt slowly.
Global Indices:
Let’s talk about CAC 40, an index that represents the French stock market and is a key player in the European economy.
If you study the index, you’ll notice that the CAC 40 often reflects the strength of global companies, especially in luxury goods and energy, making it significant in Europe and worldwide.
What is the CAC 40?
The CAC 40, short for Cotation Assistée en Continu, translates to "continuous trading listing." Launched in 1987, it acts as a barometer for the French market, helping investors understand how the economy is doing by tracking the 40 largest companies by value.
In 2007, Euronext, the exchange that manages the CAC 40, merged with the New York Stock Exchange (NYSE), forming NYSE Euronext. Even after these changes, the CAC 40 remains central to tracking and trading French stocks.
How Does the CAC 40 Work?
The CAC 40 is calculated as a price return index. This means the index level reflects changes in the prices of its stocks without considering dividend payouts.
The index calculation is based on real time trades of these 40 companies. Each company has a weight based on its size, which means bigger companies like LVMH have a larger influence on the index’s movement.
To keep the calculation fair, the number of shares of each company is multiplied by its current stock price.
The sum is divided by a special number called the “divisor,” which is adjusted whenever companies are added, removed, or make changes like stock splits.
Key Players in the CAC 40
Not every company gets to join this elite club. The index includes 40 companies that are reviewed quarterly by an independent committee. Here are a few names that stand out:
LVMH: This luxury goods giant includes brands like Louis Vuitton and Dior. Its influence is so significant that it can weigh up to 10% of the entire CAC 40.
L’Oréal: A leader in beauty and cosmetics.
Hermès: Known for its high-end products like scarves and handbags.
Total Energies: One of the world's top oil companies.
Sanofi: A pharmaceutical giant with a global footprint.
A Quick Glance at Recent Events
In July 2024, France held elections for its National Assembly. In a surprising result, the Left-Wing New Popular Front won the most seats but didn’t secure an outright majority, with around 180 seats.
Given that 289 seats are needed for a majority, this political uncertainty adds to the market’s sensitivity.
This week the CAC 40 is showing some stability, despite a weekly drop of -1.3%.
On the economic side, Germany's business sentiment showed a slight rise, while France’s household confidence dipped for the first time since April.
With mixed signals from Europe and key US data coming up, staying aware of these changes will be crucial for investors and traders trading in this index.
What More Caught My Eye:
After cement, Adani flexes muscles in another new sector.
How Twitter Is Losing Value After Musk’s Acquisition.
Electronics makers all charged up as India-China tensions ease
Seven Rare Million-dollar Investments.
Will the Indian market deliver double-digit returns in Samvat 2081?
Recommendations:
This week, I have a YouTube video recommendation explaining the Electoral College and how it affects the way votes count in U.S. presidential elections.
The video discusses why some Americans’ votes matter more than others and how this system leads to outcomes where a candidate can win the presidency without having the most votes overall.
As the U.S. elections unfold in the coming weeks, you’ll hear this term mentioned a lot in the news.
Thanks for reading this weekend’s newsletter! I’d love to know what you think, so feel free to drop your comments below. Your feedback helps us improve!
Song of the Week:
(Note: Make sure to listen closely to the lyrics of this song as they're really beautiful!)
This is Parth Verma,
Signing off.
If a refinery contributes to almost 50% of the copper melt in india, it becomes "systemically important" for the nation, right? How could government let it shut? I fail to understand how the government thought of shutting it down instead of relocating the portion of people impacted by it or taking different measures to offset the environmental harm.
Loved it