Wealth Creation

[amitrandive]

 

[amitrandive]

 

[amitrandive]

Humility and Investing
http://www.subramoney.com/2016/01/humility-and-investing/

We are a race that has rewarded the go getter, right? So everybody wants to project himself as a decisive person. So in case of uncertainty. So we are confident in our fund picking, our stock picking, picking the school / college for ourselves or for our children etc. We do not like to share the process with our kids. We ‘know’ best.

We buy confidently. We even switch confidently. We hate accepting our mistakes, so we hold on to our losers till we cannot sell it!

Actually we are very confident when we invest, paralyzed into inaction when there is some major change, and panic when the storm is over. This is just hard wiring. We are going for a hunt in a group, a tiger attacks one of us, we have no clue what to do so we climb a tree, jump in the river, or …and AFTER the tiger has killed and gone we may still panic. WE WERE SAVED JUST BY LUCK THAT THE TIGER CHOSE ANOTHER PERSON, not by our skill. Cut to investing.

A lot of humility helps (I could do with a lot, lot, more). Even worse just a few years away from the worst economic mismanagement of the world economy, we believe that the world economy is now well managed. Our portfolio still has the 2008 scars. Our infra stocks are still languishing and we keep calling Larsen&Toubro the barometer of what is happening in the economy. If L&T is the barometer, our country is in a mess. I can assure you that!!

When we are setting our goals, we need to be realistic about equity returns. Remember in a world which had no great environment laws, bribing was the norm, third world governments and dictators could be bought, and US dominated the world Warren Buffett earned about 19% CAGR. Yes, there are Indian funds which have done better than that (remember we have not yet adjusted for inflation) but when people ASSUME that they will get 18% p.a. for the next 20 years or thereabouts, I can only be amused. Honestly some of these IFAs make these assumptions so that the client feels ‘justified’ to pay the ‘fiduciary’ fees of Rs. 35000 per annum. As far as the IFA who sells products, such assumptions ensure SIP investments – or that is the thought process.

As an individual investor it helps to start with a lot of humility. Look at your past luck and past mistakes. I have so many mistakes of my past investing life, that I have no clue why I am as arrogant as I am now. However, one thing is sure, these days I am far, far more a cautious and my mistakes of commission have almost been eliminated. Mistakes of omission are still happening, but at my age I guess I can live with that. I recently (over the past 2 years) moved about Rs. 1o million of a friend’s money to Tax Free PSU Bonds. He, his brother, his IFA, his CA, were all aghast because his equity portfolio was doing well. However, recently they were all happy to see an almost 20% appreciation in his portfolio apart from a 8.3% average portfolio yield.

Let us take the case of the ‘expert’ – the guys who come on television. Generally we like the well educated, precise numbers guy who speaks with confidence. He is normally wrong. However, he has a greater following – Bull or Bear. Typically in the Indian context he is an engineer from IIT, MBA from IIM, or CA. He is articulate. Speaks with an accent, never admits to a mistake, has made money in the equity market, has of course out performed the indices over long periods of time. We actually have no clue how is year to year performance is. Remember if you bought Wipro in 1980 and are holding on till today, and you reinvested the dividend in the index, you would have still outperformed the index because of ONE CORRECT MOVE – and maybe you invested by LUCK.

See how well you plan 4 activities in the same direction. Say you had to go to the bank, get breakfast, pay school fees, chase the car mechanic who is not picking up the phone. Did you do all the activities? did you plan the sequence of visits right? did you take your cheque book along? do you never miss?

Do you see government projects NOT being completed on time? Did you hear about Jio launch in 2014? has it happened?

So stop being over confident. It pays to be humble towards the market. Remember Ken Fisher calls it ‘The Great Humiliator’ ? You may get more than 12% return in your portfolio, but planning that you will get 19 is amazing over confidence. Re look at your goals. Some of them may not be reachable.

 

[amitrandive]

 

[amitrandive]

The Peter Lynch Approach in Brief
Philosophy and style
https://web.csulb.edu/~pammerma/fin382/screener/lynch.htm

Investment in companies in which there is a well-grounded expectation concerning the firm’s growth prospects and in which the stock can be bought at a reasonable price. A thorough understanding of the company and its competitive environment is the only "edge" investors have over other investors in finding reasonably valued stocks.
Universe of stocks

All listed and over-the-counter stocks-no restrictions.
Criteria for initial consideration

Select from industries and companies with which you are familiar and have an understanding of the factors that will move the stock price. Make sure you can articulate a prospective stock’s "story line"-the company’s plans for increasing growth and any other series of events that will help the firm-and make sure you understand and balance them against any potential pitfalls. Categorizing the stocks among six major "story" lines is helpful when evaluating prospective stocks. Specific factors depend on the firm’s "story," but these factors should be examined:

• Year-by-year earnings: Look for stability and consistency, and an upward trend.
• P/E relative to historical average: The price-earnings ratio should be in the lower range of its historical average.
• P/E relative to industry average: The price-earnings ratio should be below the industry average.
• P/E relative to earnings growth rate: A price-earnings ratio of half the level of historical earnings growth is attractive; relative ratios above 2.0 are unattractive. For dividend-paying stocks, use the price-earnings ratio divided by the sum of the earnings growth rate and dividend yield-ratios below 0.5 are attractive, ratios above 1.0 are poor.
• Debt-equity ratio: The company’s balance sheet should be strong, with low levels of debt relative to equity financing, and be particularly wary of high levels of bank debt.
• Net cash per share: The net cash per share relative to share price should be high.
• Dividends and payout ratio: For investors seeking dividend-paying firms, look for a low payout ratio (earnings per share divided by dividends per share) and long records (20 to 30 years) of regularly raising dividends.
• Inventories: Particularly important for cyclicals, inventories that are piling up are a warning flag, particularly if growing faster than sales.

Other favorable characteristics

• The name is boring, the product or service is in a boring area, the company does something disagreeable or depressing, or there are rumors of something bad about the company.
• The company is a spin-off.
• The fast-growing company is in a no-growth industry.
• The company is a niche firm controlling a market segment.
• The company produces a product that people tend to keep buying during good times and bad.
• The company can take advantages of technological advances, but is not a direct producer of technology.
• The is a low percentage of shares held by institutions and there is low analyst coverage.
• Insiders are buying shares.
• The company is buying back shares.

Unfavorable characteristics

• Hot stocks in hot industries.
• Companies (particularly small firms) with big plans that have not yet been proven.
• Profitable companies engaged in diversifying acquisitions. Lynch terms these "diworseifications."
• Companies in which one customer accounts for 25% to 50% of their sales.

Stock monitoring and when to sell

• Do not diversify simply to diversify, particularly if it means less familiarity with the firms. Invest in whatever number of firms is large enough to still allow you to fully research and understand each firm. Invest in several categories of stock for diversification.
• Review holdings every few months, rechecking the company "story" to see if anything has changed. Sell if the "story" has played out as expected or something in the story fails to unfold as expected or fundamentals deteriorate.
• Price drops usually should be viewed as an opportunity to buy more of a good prospect at cheaper prices.
• Consider "rotation"-selling played-out stocks with stocks with a similar story, but better prospects. Maintain a long-term commitment to the stock market and focus on relative fundamental values.

 

[amitrandive]

Combo plans for all your needs

http://epaperbeta.timesofindia.com/...s-for-all-your-needs-01022016114005&eid=31818

 

[amitrandive]

How to read a mutual fund statement
http://epaperbeta.timesofindia.com/...ssroom-Numbers-Your-Fund-House-04022016011020



1. What does a mutual fund statement contain?

Whenever you make an invest ment in a mutual fund scheme, the fund house has to send you an account statement providing details of your holding You can opt for a physical copy or a soft copy which can also be accessed on line. This statement gives details about the transac tions conducted by you within a defined period. It is sent within a period of 3-5 working days after the transaction. The state ment also indicates any changes in the account whenever there is a re demption, additional in vestment, dividend decla ration or a change such as KYC details. Each folio created has a different ac count statement.

2. Should you preserve your MF statement?

It is not neces sary to preserve a physical copy of a statement from a mutual fund house. An investor's ownership is recorded by the AMC in its records. To redeem your units, or to pur chase more units, you need to only mention the folio number, scheme name and fill the rele vant form.

3. What details does a mutual fund statement have?

Investors' personal details and bank details:

Your name, address, e-mail ID and contact numbers of the investor or joint investors, if any , are mentioned in this section. Ensure that the details mentioned in the account statement are correct.

Ensure that the name of the bank and account number is correct else you will face problems when you were to redeem your mutual fund units.

Folio number:

Each time you make an additional investment in a mutual fund ensure that the folio number is the same as the previous one. Use the same folio number to invest in any fund be it debt, equity or a tax plan, with the same fund house. Using a single folio makes it easier to track all investments with a particular fund house.

Current cost and value:

The current value is the latest market value of the investments on the date the statement is generated while the current cost indicates the amount invested in the scheme. The number of units allotted is calculated using the amount invested divided by the NAV of the scheme as on the date of allotment. Any exit load, would be deducted from the NAV and the proceeds paid out to the investor.

Advisor's name, EUIN and PAN details:

If you have invested through an agent, his name and code and EUIN number will appear in the account statement. Ensure that the PAN mentioned in the account statement is correct.

Transaction summary:

This section mentions the types of transactions that you have opted for, which might include purchase, the systematic investment plan (SIP) or the systematic withdrawal plan (SWP).Besides, other transactions are also mentioned, along with the percentage or rupees per unit at which the dividend is reinvested or paid out.

 

[TraderAbrar]

Yes, we friends have done number of such studies and we found that in the long term residential flats appreciate at 12 % CAGR. I bought a 1 BHK flat in a good locality in 2001 for 7.00 L . If I had invested the same amount in HDFC Equity Mutual Fund or Reliance Taxsaver it would have grown to over 85 Lacs and over 110 Lacs respectively. I still hold that flat and I can get max Rs 50 Lacs for it at todays prices.

Another financial number cruncher friend of mine bought a 3 BRHK flat in a good locality. He calculated in greater details over 15 years considering municipal taxes, rent received, society maintenance charges etc and found out that investing in a mutual fund would have given him more returns.

There was a further analysis in a newspaper article. There they assumes A and B are two friends. A buys Rs 50 L apartment with Rs 5 L down payment and takes housing loan for 15 years and pays installments.He lives in that apartment.

B puts Rs 5 L as lumpsum investment in HDFC Equity Fund and the installment amount he invests in the same fund as a monthly SIP. As he has no place to live, they have assumed that he takes a rental flat paying a rent of Rs 15 K per month on average.....

Comparing both the cases they found that B who invested in mutual fund has more wealth value than A even considering the appreciation of the flat...

Investments in equity and mutual funds are very good considering the tax treatment which the capital gains get.

I am told that plots appreciate faster if they are in good location but it has its problem of encroachment, land grabbing, zopadpattis, land mafia , local goons,politicians etc.....

Smart_trade

ST
I also think it is much easier (for transaction) to invest in mutual funds, and most importantly no one notices your wealth.
But it is always difficult to get invested in the right fund, and even if you get invested, the performance drops after a while.
Most of the large fund houses have so many funds that a few of them will always be on top 10 in each category, but many others within the fund house will not be doing well. They will advertise only the best funds. So even investing in the right fund and getting the best out of your investments is also difficult.

Also taking a loan for real estate investing is similar to buying other assets with leverage. when the going will get tough, then the leverage will hit you

 

[Fundootrader]

ST
I also think it is much easier (for transaction) to invest in mutual funds, and most importantly no one notices your wealth.
But it is always difficult to get invested in the right fund, and even if you get invested, the performance drops after a while.
Most of the large fund houses have so many funds that a few of them will always be on top 10 in each category, but many others within the fund house will not be doing well. They will advertise only the best funds. So even investing in the right fund and getting the best out of your investments is also difficult.

Also taking a loan for real estate investing is similar to buying other assets with leverage. when the going will get tough, then the leverage will hit you

Three points-

a) All comparison charts/articles - focus on showing long term view - while they omit completely the short term benefits of investing in real estate - where leverage gives you better return - Dn payment 10L, loan of say 35 L and flip that flat post 2 years - the returns will never be matched by mutual fund/equity return.

But yes if we just compare- buy a house and keep it long term - then CAGR of equity investment will beat real estate any time - as real estate curve is 4X-6X in first few year and then flattens

b) If you don't have a primary home, then buying a home is must have and staying in the fully paid up home gives you security and you can agressively invest in equity/real estate

All comparison's omit this primary need of home ownership.

c) Liquidity - This is main part - Real Estate is highly illiquid - when the going is great I have seen folks flipping flats at speed of burgers in Macdonalds - but when the market stagnates - your money is stuck badly

While equity (assuming you investing in liquid stocks) is there @ click of button - your money @ your disposal - always buyers - and you know fair price and the real loss you will be booking

 

[amitrandive]

Investment Myths need bursting
http://www.subramoney.com/2016/02/investment-myths-need-bursting/

There are a few Investment myths which are so prevalent that I do not make too much of an attempt to break it in private conversations! When I am in a crowd or a group people do step up and ask ‘what do you think the market will do’. I actually do not have to answer that question at all. Somebody else will answer that question talking about US, Japan, Gold, Oil, Raghuram Rajan, SIP inflows being sticky,…..etc. and the dinner would be served . Let us talk about some of the investing myths:

1. You Get what you pay for: Wrong. India has 40+ mutual funds, a zillion portfolio managers, 18 life insurance companies, etc. almost all of them charge the same amount of money for managing your money. Not all of them are good. Some are bad. Many are corrupt (you could easily ask them to buy a lemon), many are incompetent, and some are purely lucky. Some have a track record that looks good just because they started early. So you do not know whether you are paying for a brand, luck, talent, or you are just being lazy investing in a big fund. You surely do not get the value that you expect from a fund manager if the fund is poorly managed. Or managed by corrupt managers.
   
2. Fund managers, Advisers, and Investors: the interest is not really aligned. The Fund manager is actually worried ONLY about the size of the Assets Under Management. His fee depends on that and he will sponsor articles like “SiP should be done for the next 3000 years”, ‘Power of compounding for the past 555 years’ – and I find that many people cannot digest this. The adviser wants / needs action. He has to remove your money from Hdfc Equity fund and put it in Icici Prudential Discovery fund or Franklin India Bluechip fund. This may be good or bad – does not matter, I am just saying that an adviser benefits from activity. You, the investor benefits from good performance of a fund WHEN YOU ARE ALREADY in the fund. See the missing alignment? So it is in your interest to stick to good funds, read about ‘Regression to the Mean’ and be willing to experiment with at least a small amount of money.
   
3. Buy and Hold is the ONLY approach: “Buy Right, Sit Tight” says the Motilal Oswal ad. True. The problem is in the ‘buying right’. Many of us cannot accept that Asian Paints, Hdfc Bank, etc. can be good buys. So we go around looking for the ‘next asian paints’ and ‘next Hdfc Bank’ – so we buy some small company and ‘sit tight’ hoping that this caterpillar will morph into a butterfly. Many of them do not. ‘Buy and Hold’ works for a person with awesome stock picking skills, ability to read the results (see LnT slipping?), get rid of companies with poor management (Bombay Dyeing?), pick small companies and monitor them regularly (Biocon in the year 2000), realign and reallocate portfolios. Just buying without any science and holding on till the cows come home is not a good strategy. Active Inaction is necessary. You should know on a year on year basis why Colgate is there in your portfolio from 1977 to 2027.
   
4. You Need to Invest with a Household Name: it is difficult to get investor to invest in smaller fund houses, or in companies with not a great visibility in the main stream media. Imagine telling somebody “I am removing your money from the biggest mutual fund and investing it in a fund house ranked 30th”. If I were not in this industry I would have considered this as a sure fraud. The myth of a ‘household name’ while investing is almost stupid, but most of us do it, simply because all of us think that the basic hygiene is in place. However remember one of the ‘household names’ was found with a fund manager’s hand inside the cookie jar? They were let off with a rap on the wrist. Fund management requires skill and integrity. Locating good fund managers, and creating a good atmosphere for them is the job of a good fund house. Let us see what Nilesh Shah does in his new avataar as the CEO of a fund house.
   
5. You will get rich by investing: Investing to get rich is a multi decade, multi generational compounding effect. So if your great grand father was a farmer (and your family sold the farmlands when the laws were changed..you are no long a farmer), your grand father worked well but lived hand to mouth, and your father was an honest senior bureaucrat, your family would not have had too much money to invest. Assuming you are the first generation investor, chances are that you started investing at the age of 34 instead of 1 year of age that a business family would have started him. Many advisers (and hence investors) believe that it is their BIRTH RIGHT to get about 20% p.a. return over the next 30 years and they will get really rich. Perish the thought. The way to get wealthy is concentrating on your DAY JOB. The investments should grow above the rate of inflation..and create a nice corpus for you to last from retirement age (55 years) till your death or spouse’s death (age 94). Be happy with a 2% REAL CAGR. That spread over 40 years is a serious amount of money, but not RICH!!!