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The complete man made incomplete

Financial mistakes are made by us all at some point or another. Many of the mistakes can be corrected ( bad investment choices, ignoring inflation and taxes, etc)  or if not at least the loss of money can be made up over time and the lesson learnt for future but some money mistakes lead to more or less ruin and these are likely when we make an emotional decision without consulting others. The biggest contributor of this kind of mistakes seems to come from within family than without.

Knew some one who was a household help,  she lived in a small space underneath the stairs near our apartment with her husband. She had some property in her name but gave it to two of her sons who have built houses in the property but have no space for their parents. Luckily for them their daughter takes care of them. A similar story was made into the movie Baghban featuring Amitabh Bachchan sometime back.

And then i came across this news :

Vijaypat Singhania promoter of Raymond Ltd was one of the richest man in India but today seems to have been reduced to penury thanks to having given up not only his real estate but also his shareholding in Raymond Ltd worth about 1000 crs to his son. Though this is an extreme case it is no different from the household helpers story.

As a financial advisor I come across many parents who save and invest significant sums for their children’s education and marriage which is fine but our own retirement expenses should not be ignored. Rule of thumb ( an approximation and not written in stone ) says that one needs about 18-35 times today’s annual expenses today by the time one is 60 years ( click here for the article). How many of us plan for that ? If we bring the children up with a sense of entitlement and follow up with giving up most of our earnings than we are living on hope that they will take care of us in future, and as the saying goes, hope is not a great strategy.




Three type of investors

Investors are of many types. I list broadly the three types in the hope that you can see if you are one of them :

  1. I-want-the-best-investment-only-type : This investor has the need to own the best investment that there is, if equities did well over last three years he wants to be in equities and even there he wants the best fund. No second best fund will do. This is a great idea to loose money. None of us know what will be the next best investment in 3 years and frankly i don’t think anyone else does either. Searching for the top pick is a fools errand. 5-6 years back real estate was supposed to be the sure shot bet for many investors but not anymore. Searching for the next big thing is fraught with risks. Investment planning is all about having allocation to different asset classes and not being over exposed to one be it equity or FDs or RE
  2. Waiting-eternally-for-the-right-time /opportunity type : This guy is the opposite of the one above, he knows that equities can do well in the long run but some how feels that if he waits long enough an opportunity to buy low will come. The problem is that he never invests or if he does unfortunately it will be at the top of the market as he looses patience and goes all in at the worst possible time.  There is a solution for this investor, he first needs to invest in a liquid fund and move money periodically to equities and if by chance market does fall he can buy more.
  3. The-what-about-trump-effect-on-______ ( China / IT/ etc)-investor : This investor is alarmed by headlines of today forgetting that the headlines keep changing. Our own economy and markets have gone through terrible droughts, terrorist attacks, near war situations , global financial crisis and many other calamities but the fact remains that this hard working nation grows. Grows at 6-7-8 % does not matter, It grows relentlessly. If we wait patiently for every thing to be perfect before investing, we will never be able to. Moreover our financial situation is in our hands. What matters is how much we can save and invest and how we allocate that investments across assets to grow, rest is all noise. Though this blog talks about three types of investor there is a rare species called the fourth type.
  4. This investors does not focus on finding the top investments, he focuses on how much can he save and what are his goals. He focuses on what his in his control ie how much can he invest and how long can he stay invested and what is his asset allocation between safe and risky assets. He does read the headlines obviously but does not react to it as they are beyond his control and he tends to focus on what is in his control. For him investing is what they call in Hindi as ” Lambi race ka ghoda” or the horse that is meant for long races. The long race of our working carreers, our family,  and our own goals for children or retirement matter most than searching for the best investment, waiting for the right time or fearing the headlines.  We do hope that you are playing the long race in your control and not the short race that can go anyway.

Wishing a happy and fun filled weekend with family and friends.






What Howard Marks can teach investors ?

Howard Marks is a billionaire investor who runs Oaktree Capital. Among great investors  the name Howard Marks comes right after Warren Buffett & Charlie Munger. Recently Mr. Marks was in Mumbai  and gave a talk on ” The Truth about Investing”, Though this talk was not open to all, some one who attended the same sent notes from the meeting. Few points from the notes are given below and my comments on the same in italics.

 1. No one can consistently forecast. Our industry is full of people who became famous by getting it right once. Investors would be wise to accept that they can’t see the future and restrict themselves to doing things that are within their control. While we can’t see where we are going, we ought to have a good sense of where we are.
More often than not since the future is unclear, we rely on experts who come on TV and talk about where the markets are headed etc. Many of these experts will tell you for example why de-monetization was a bad idea, and when data comes out that it was not as bad as it was predicted to be, they will also tell you why it was a good idea !! Instead of listening to these people, if investors focus on where they are financially and where they want to be, it will do them a lot of good.
2. Superior results don’t come from buying the  right asset , but from buying assets at less than their worth. Investing is not about what you buy, but what you pay.
This needs no explanation, price is what you pay, value is what you get. We refrain from buying mangoes or buy less quantity in off season but buy more at lower prices in season. It should not be any different in investing too.
3.Sometimes there are plentiful opportunities for unusual returns, wait patiently for such opportunities. Big gains come when consensus underestimates reality. Be aggressive at bottoms, defensive at highs. Key to out performance is to think different, and to think better. Superior returns come not from being right, but being right more than others.

The key phrase is when consensus underestimates reality. Few years back investing in Gold was in fashion and consensus was that Gold was a great investment, there were gold funds launched and after the crash of 2008 who wanted equity funds ?. Today the 5 year return of Gold is negative ! and equity funds in the same period have returned anywhere from 13-20% p.a !

4.Over the last few years, investor time frames have shrunk, obsessed with quarterly returns. Advantage is to be right in the long run.

Many investors fret over the short term returns and churn portfolios to ‘maximize returns’, this can actually minimize returns ! As long as the allocation is right it is best to avoid tinkering the portfolio especially over 1-2 years. It is enough to review the investments once every 6 months or even better once a year.

5. It is essential to invest counter-cyclically. Cyclical up’s and down’s don’t go on forever,  but at extremes most act as if they will. Markets are riskiest when there is widespread belief there is no risk, this was the case in 2007.

In 2007, Infrastructure & Real Estate were the ‘open sesame’ magic words to open the Ali Baba’s cave of wealth. Good stocks like Hindustan Unilever were ignored and DLFs and Unitechs ruled, While as on date Unilever gave 16%+ p.a returns if bought and held since 2007, DLF & Unitech have lost close to 80% & 97% of invested value. It was believed that infrastructure co’s were no risk investments exactly when they were the riskiest, as these co’s were borrowing heavily from banks and betting big, while stocks like Unilever with great businesses and zero debt were looked down upon ! Today everyone is behind mid and small caps , small cap index is at a 9 year high and midcap index is trading at 35 times earnings, history says this kind of moves can not be sustained, but who cares !

Of course all the above are obvious to us today but they should have been obvious back then too. While following these rules is easier said than done ( try telling midcaps are expensive today !)  if we internalize the key learnings which are A. To avoid forecasting, B. Invest for the long term and C. Stay away from expensive assets that itself would ensure prosperity.

Happy Weekend !









The 3 most important things in life and investing

Tim Feriss after interviewing about 100 of the most succesful people ranging from a 5 Star general to billionaires (have to tell here that he is one of them himself ) has written that the common thread in all of them can be found in a passage written in a novel in 1922 about a monk in ancient India ! In the novel the monk named as Siddhartha is asked by a merchant how can Siddhartha  give anything if he owns nothing, Siddhartha replies that he can give what he has which is  his learning which is summed up as

I can think, I can wait and I can fast – these three things says Tim Feriss is what sets apart successful people. Let us how this can help us as investors.

  1.  I can think – As investors we need to think for ourselves

While Spending : Every expense is just a click away and the temptation to waste money instead of saving it is very high. Advertisements used to be in ear panels in front pages, now advertisements are the front pages !, If you search online for a watch, every web page that you visit shows ad for the watch !. The attempts to lure us with zero down payments, buy-one-get-one, etc is high. So thinking for ourselves ensures we buy what we want and only what we want is important.

While investing : Many of us who take few days looking at Trip advisors ratings for a 2 day vacation stay  blindly sign cheques for lakhs, only to find later that it is not a good investment and what is more can not be even sold for next 5 or 10 years !

Both the mistakes one of over spending with out saving and other of investing without knowing says that we don’t think for ourselves, if we did so our financial life could be at least more peaceful and a source of happiness.

2. I can wait – patience which literally pays in investing !

if the first is tough, the second is even more so, patience is not seen as a virtue in today’s world but in investing patience literally pays ( around 18% pa !! if we go by last 20 odd years of returns of equity MFs).  Patience will be tested with every scary headline and the problems that the world faces. Markets as the proverb goes, climb a wall of worry. Patient investors invest and keep on investing, and are not distracted by the headlines of the day, week or month. They think in terms of years and even decades. Another mistake is waiting to invest, i have friends who seem to track markets regularly and ask such smart sounding questions like ‘ Is Trump victory good for our markets’ but have not till date invested much, so they wait for the ‘right’ time that never comes. So it is better to invest and then wait patiently than to wait patiently to invest !

3. I can fast – delaying gratification

I can fast – this is the toughest one, I do fast at times and it is not easy, going without food for 36 hours is tough but it is a system cleaner as we all know. Financially it can mean giving up something today for something better tomorrow. Delayed gratification as this is known is what separates the men from the boys.  Just a Rs 2000 outing a week can set you back by Rs 104,000 a year or a cool Rs 520,000 in just 5 years, let us say we want to spend on outings but cut it by half, once every fortnight instead of weekly, and save 52000 a year, and invest the money saved in a equity fund which gave us 12%, after 15 years, this humble Rs. 52000 per year or Rs 142 per day saved would be worth a cool Rs 19,38,000 ! The humble 2000 bucks saved every fortnight is now grown big, thanks to delayed gratification. What is more the rest of time we spend the money will be looked forward to and can be spent guilt-free. Much like the feasting that comes after the fasting !

As the year draws close,  these three things – I can think, I can wait and I can fast, could make better investors and better humans of us all. Happy Holidays.

PS : The link to the article mentioning the passage from Herman Hesse’s Siddhartha :




MF Queries answered in Economic Times

1) I want to invest my PF amount of Rs 5 lakhs in a mutual fund for a 5 year period. Which mutual fund will be best for this purpose. I need a 10- 12 % return. Also I am operating Rs 5000 recurring deposit for 5 years for my post retirement period and should I switch over to SIP by closing this recurring deposit early because it is taxable. Will SIP give higher return than recurring deposit? —Mukund

A Mutual Fund can be anything from Equity, Debt (Bonds of various types), Gold or a mix of any 2 or3 of these. So it is important for an investor to understand what Mutual Fund he is looking at based on both the risk he is ready to take and the returns expected. From your input i would assume that you want equity / balanced funds since return expected is high. I would recommend diversified multi cap funds such as ICICI Dynamic that have some debt too. That said please understand that you are investing PF proceeds hence invest only amounts that you are comfortable taking some risks with, as markets by nature are volatile and give returns only to the patient investor. MF SIPs are equity investments hence come with considerable risks, they can not be compared to a safe RD/FD. I would suggest that if you dont need the money after completing the 5 year SIP and can wait for 3 years more you can consider an SIP,especially if you have other FDs or bonds etc. If not please do not put all your eggs in one basket, also note that the tax rules on equity can change in future, so investing in equity should not be solely on the basis of past high returns or its tax free status after 1 year.

2) I am 30 years old and I have 10 monthly SIPs of Rs 2000 each since last two years in BSL Top 100, Franklin India High Growth Companies, Franklin Build India, Franklin Smaller Companies, HDFC Midcap Opportunity, ICICI Focussed Bluechip, ICICI FMCG, ICICI Technology, SBI Bluechip and SBI Pharma. All these are in direct plans and growth options. My age is 30 years and I can take high risk long term for 10 years to build fund —Moizz Kara

Congrats on starting a SIP at the age of 28, hope you will be continue investing for the long term even in volatile times. There is no need to have 10 SIP’s, normally 2-3 SIP’s of a large cap, multi-cap & mid-cap fund would do. Sector funds like Pharma and Technology are generally not meant as very long term bets but more of 3-5 year bets, hence if you would like to focus on long term, have 2-3 funds so that it is easy to maintain the portfolio as well. Hope you not only continue your SIP but increase it as well based on your income till 58 and enjoy the returns.

3. I am a doctor by profession and my age is 30 years. I want to invest for accumulating a corpus of about 1.5-2 crore in next 15-20 years for children’s education and around 4 crore for my retirement in next 30-35 years. I can invest about 10-15k(max 20k) per month as SIP, which I can increase by 10% every year. Is this right way to plan? Kindly advise good funds to invest in — Sanket

Heartening to see you plan for your children’s education as well as retirement at 30, While back of the envelope calculations shows that you are on the right track, I would advise you to contact a few financial planners in your city and sit with one to go through a proper financial planning exercise to assess your current financial position, the investment amount monthly, the return required to meet the goals and then we should think of which funds to invest in.

This may take a few hours of your time but can save you lots of time and money in future. Think of it like a health check up we do once with a follow up every year to assess for changes. There are good DIY calculators online too, you can check them for basic planning and then approach a planner. As far as fund selection goes i would suggest a large cap fund such as Birla Frontline or ICICI Bluechip, Multicap funds like Franklin Prima Plus or ICICI Dynamic. All the best.

As banks lower deposit rates, investors rush to lock money in post offices, govt bonds : Economic Times quotes Credo Capital’s view

Mumbai :  Investors are rushing to lock money into post office deposits and a government bond, which are yet to cut interest rates even as banks lower deposit rates.A bank deposit now pays a maximum of 7%, while post office deposits pay 7.8% and the government bond pays 8%.

“There is a rush amongst investors to lock into longer-tenure products and where there is no announcement of rate cuts so far,” said Vikram Dalal, managing director, Synergee Capital.

For retirees and other investors living on interest income from deposits, financial advisors said, the government savings bonds, which have a tenure of six years for small investors, make sense.

“There is no reinvestment risk as you can lock in at a rate as high as 8% for 6 years. It works well for those whose income is not subject to tax or who are in the marginal tax bracket,” said Dalal. The minimum investments amount is Rs 1,000 and there is no ceiling on the upper limit.

he bonds are issued in physical form.

“The only drawback of this product is that it is illiquid since they are not traded and cannot be encashed in an emergency.However, investors can opt to take a loan on this product, says Anup Bhaiya, MD, Money Honey Financial Services.

Interest rates on bank fixed deposits fell post demonetisation. Banks like SBI, ICICI Bank, HDFC Bank, Kotak Bank have all cut fixed deposit rates by 15-25 basis points.

Post the rate cuts, a five year fixed de posit fixed de posit from State bank of India fetches 6.5%, while HDFC Bank gives 6.75%. Taking a cue from banks, finance companies too have lowered deposit rates. HDFC now offers 7.65% for a five-year deposit, while Gruh Finance is offering 7.5%.
“The banking system is flush with liquidity and there are not enough avenues to deploy money .Given this and expected rate cuts, fixed deposit rates could head even lower in the coming months,”

says Shankar S, financial planner at Credo Capital.

Life before & after De-mo :)

Halfway through their term, the NDA government has unleashed a tsunami by withdrawing 500 & 1000 Rs notes( De-monetization or De-mo in short !).

The opinion on the outcome of this move is sharply divided, while no doubt it has caused hardship to people, most have accepted it as the cost to clean the system of black money accumulated over ages.  This is the big bang reform that no one thought would be even remotely possible to do in such a large,diverse and to a large extent un-banked country as ours.  Let us actually forget this for the moment (difficult as this is the hottest topic in the country!) and see what has been done in last 2.5 years before this move to see where we are heading.

While our GDP has averaged at 7% since 2010, our population growth has been slowing down making the per capita GDP grow at 5.8% approx, this growth if it continues makes us one of the fastest growing economies in the world.

  1. GST – likely to become reality early next year, this by itself is a monumental reform
  2. Fuel prices deregulation – done for diesel
  3. Direct benefit transfer – partially done,
  4. Repeal unwanted laws – many redundant laws have been done away with
  5. Bankruptcy code
  6. transparency in auction of resources like spectrum, gas etc – done
  7. Jan Dhan accounts – 22 cr new accounts opened in 2 years, to put this in perspective we had 40 cr accounts opened from 1947-2014 !!

Apart from this infrastructure developments like Road, Railways and reforming Agriculture are in ‘mission mode’ to borrow the phrase from railway budget.

So this is the report for how things have moved before de-mo, and de-mo is something that will pan out over a longer time frame. The half year report card reads well and if this pace is maintained we may truly enter a period of good growth with a much cleaner economy. That is what any one would want for himself as an investor but as a citizen too as these changes can pull many people out of poverty and into productivity.

A disclaimer : All the data has been culled from publicly available sources and believed to be reliable. The idea for this note came from a investment managers perspective.








A tale of two investments

Though we all know the proverb never judge a book by it’s cover, we seldom follow it, the attractiveness of the packaging is a selling point.

Over the last 15 odd years spent in advising people on how to manage their money, i have learned the sad fact that packaging sells more than the product.

The best performing investment over the last 20 years has been equity and along with it equity mutual funds but many are still reluctant to buy equities but dont seem to mind buying Insurance policies that can at best give 5-6% returns after 10,15 years but are sold well as the packaging is good ( never talk about lock in, costs and actual returns but make great advertising about childrens education and retirement etc!)

I have lost count of the number of investors who have been taken for a ride by their banker, agent or relative who pushed a insurance policy that gives low return but packaged well as money back or some other name ( your own money coming back after 5 years that too partially is somehow a great idea !!), etc., While most investors are afraid of the volatility in equity they seem fine taking the same risk with a ULIP which will give a lower return !

Packaging is fine but what is inside is whats going to give you the returns, Buying a soap or shampoo as the ad or packing was good is fine, as one can stop buying it from next time. when it comes to investing where the results are after many years away, it is better to focus on what is inside than how it is packed !

Have a great weekend !

Shantideva on investing !

Yesterday, by any parameter was a remarkable day, every year we get few remarkable days like this, sometimes the news is good but often not. Britain voted in favor of exiting the European Union and this brought down the markets the world over.  This is like a country divorcing from a common union and will take years to resolve. Obviously, the markets were surprised  and went down (some 600 points on Sensex in India). The whole day there were conference calls, research reports, endless discussion on TV etc. I stayed away from almost all except for one report which focussed on what exactly is meant by exiting the EU, as per the report it is still not official as once it is announced, Britain has to negotiate trade agreements separately with all the countries since now EU negotiates as a block. This will take years to resolve and in the meanwhile as an investor there are only two things that we can do

A. If markets fall a lot, see if we can invest more or

B. Do nothing since markets are where it was about few weeks back, they were much lower in February as China was slowing down.

These things will keep happening, it was Raghuram Rajan last week, China few months back and we are hardly 6 months into the year. Investing in equities is never smooth and that is why it gives great returns, If it were smooth the returns wont be this good.

Shantideva  – a Buddhist scholar who lived in Nalanda during the 8th century said ” If you can solve your problem what is the need for worrying and if you can not solve it what is the use of worrying ” As investor we have very little control over what happens in the world but have control over our own emotions. Use it and invest wisely. Spend the time with doing what you love to do,  save time and money !!



The 80/20 Rule of investing or how to make money in investing

Pareto principle or the 80/20 rule is fairly well known simply put it says  20% of inputs is responsible for  80% of results and vice-versa, which goes to show that most results are due to a small number of factors. This seems to hold good in investing too but with a twist.

IDFC mutual fund recently came with an intriguing ad IDFC Ad – want to loose money ( click for the ad)

The ad makes an interesting observation,

  1. When markets are cheap ( ie they are down badly and it is a good time to buy) hardly 1% investors put money and this 1% investors make amazing returns over next few years (29% p.a is the return over next 3 years)
  2. When markets are fairly valued ( they are not down but are not expensive either) around 19% investors put money to work and they get good returns ( ~ 19% p.a is the returns over next 3 years )
  3. And when markets are over-valued ( they are up and expensive ) a whopping 80% investors put their money in and they see pathetic returns (hardly 3% p.a over next three years)

If you add the investors in 1 & 2 above it is 20% investors who make good money and 80% investors do not make money.

Why does this happen? Answer lies in our memory which is oriented to look out for only short term,

In stage 1 above when equities are undervalued, the news flow would be negative ( Ex : some crisis in Italy /high interest rates in India/ Recession in US or something like that) at this point in time the past return from equities too would be poor, so no one would be interested in investing except for the 1% and they are buying at the cheapest rate available for the next few years !!

In stage 2 some positive news is emerging  and past returns would be o.k but nothing great, at this point in some more investors come in thinking it is still fairly valued.

In stage 3: This is lift off stage, there is no dearth of positive news ( India GDP at all time high / ABC Group buys largest steel company in US / GLobal markets are up,etc), Last 3 years returns are a great 25% pa and business channels are saying this is a ” New era ” !! This is when even your uncle and his neighbour are heavily investing ( the 80% investors move in quickly seeing the past returns ) and both stage 1 & 2 investors become nervous &  don’t invest more. Anyone investing at this point historically is likely not to make money but that does not stop us from trying as we believe that the great returns of the past will keep happening, what happens instead is poor returns at best or loss of capital at worst. In 2-3 years after stage 3, Things will be likely back in stage 1 & history repeats itself.

The best choice for investors is invest via lumpsum in stage 1 & 2, even though it would be tough to do so when no one else is investing and stay put for 5 or 1o years, and avoid  buying near stage 3.

In this new financial year, here’s wishing that you are in the 20% who make good returns.