Wealth Creation

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Investment adviser errors
http://www.subramoney.com/2016/02/common-investment-adviser-errors/

Let us look at some of the common errors that I have seen:

• Lack of understanding of risk, standard deviation etc. – IFAs are just as guilty
• Confusing Long term investing with risk tolerance
• believing CEOs saying “if you invest in equities take a 3 year view”
• not liking CIOs who say “Equity makes sense only if you have a 10 year view”
• Not enough clarity on short term strategy and long term strategy
• Thinking aggressive investing means more mid cap
• Confusing need to take risk vs Ability to take risk
• Reading Jeremy Siegel’s book like a time pass book. For heaven’s sake it is a text book, not a novel.
• Thinking of 18% p.a. return in equities is their BIRTHRIGHT.
• Thinking that in the long run STOCKS will surely make money
• Not understanding the difference between what a good fund manager can do and what time can do to your portfolio
• Not understanding how time can ravage a poor fund manager
• Not understanding how the ‘Bucket’ theory works for a retired person

I am constantly asked ‘But Subra what returns should one expect from Equity?’ and i have tried answering this from various points of view. I told one audience ‘forget 19% that you seem to have got from 1979 till today..see what Prof. Zvi says

“It matters, of course, what I think the expected return is, but after all, if a respected scholar like Jeremy Siegel can say he thinks the expected real return is 5 percent, the editor of the Financial Analyst Journal, Rob Arnott swears that it’s zero right now. And one of Jeremy’s best friends, Bob Schiller, what is Bob saying it is these days? One percent or zero? So who am I to render a judgment as to which of these people is right? ”

I rest my case. I also known some celebrated asset gatherers (aka Fund managers, IFAs, …) who swear by 18% – and they tell you ‘long term’ without putting an EXCEL sheet to it. God bless them. I can assure you, it will be much further south..and that ON THE INDEX..pre fund manager’s LION CLAIM

 

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LOL candle bro awesome rich guy is one thats sitting ?
mhm no wait a min i have $7.1 the guy thats browisng this page
Now tell who is rich guy ^^
Evil smile\

Hell hound

 

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About market timing and time in the market
http://www.subramoney.com/2016/02/about-market-timing-and-time-in-the-market/
This is a slippery banana peel and I am wearing roller skates. So time in the market or market timing?

Honestly there is no single answer. Some people who have no public record of their investment track record (like me) can say whatever we want and get away.

A Prashant Jain or a Warren Buffett or a Naren Sankaran are open to full scrutiny of their investing lives and can be subject to analysis.

People like Rakesh Jhunjhunwala or a Vallabh Bhansali are partially open and partially closed, so we do not know the whole story…so what to do?

Let me start at the beginning. Long time being spent in the market is an absolute MUST. However that does not mean you will earn too well. You need the following things:

• have a good/ great portfolio – either you create one or stick to a good fund manager like PJ, Naren, PPFAS. Ramdeo Aggarwal, or may be an Index fund, etc.
• buy as regularly as possible, try to buy more if the MARKET PE (or portfolio PE) is low (like 19)
• try to either buy less (or not at all) when the PE is high like 24
• DO NOT STOP THE SIP AT ALL
• the top up when the pe is low and the withdrawal when the pe is high should be over and above the SIP
• the problem with high and low pe is for very very long periods the market can remain over heated
• in 2003 the market looked high for the people who came into the market in 2002.
• when the media says markets are finished and there is no hope, it is time to buy more
• when experts start writing how 3 year SIP in an index fund has given lesser return than a bank fd it is time to buy
• when TV experts wear a Tee shirt saying “Index 40,000” see if the market is standing there to take off their pants
• who else but buffoons carry balloons with the index printed on them?
• patience has to be learnt, and technology cycles can be short and commodity cycles long
• a bad share in a booming industry can give better returns than a great company in a bad end of a commodity cycle
• Quality of management is very important especially if you are picking stocks directly
• Debt does give good quality returns like psu debt paper – that too tax free, do not ignore it at the top of a debt cycle
• Learn to read ROCE, RONW, ROE, Dividend pay out ratio,
• See whether the GROUP keeps coming to the market regularly for raising debt or capital

If you entered the market in 2009, you would have got good returns in 2010 itself. However if you entered in Jan 2008 you would have got good returns only 10 years later. A very important lesson is a simple lesson too – at a lower price earning market you can afford to have less patience. At a high PE if you entered the market you will have a 5-7-10 year wait to get a good return, that is all.

For people like me who can NEVER invest a BIG amount – as compared to my portfolio, the index of the MARKET does not matter. I rarely look at the market PE. I recently (reluctantly, very reluctantly actually) sold all my Hdfc and Hdfc bank stocks. I am sitting on some more cash from sale of Fmcg, pharma stocks (a part of the credit should go to PJ I just copied).

Honestly I do not know how much is sheer luck, but I believe that the market is a slave of EPS and PE. However some senseless PE can keep going up – I still hold PnG!! Do not look for very strong rules in the equity market, I can find an exception for every equity market rule.

 

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Portfolio Review is a Must
http://www.subramoney.com/2016/02/portfolio-review-is-a-must/

When you spend a lot of time in the equity market and buy, sell, hold shares for a long period of time..some moss and junk is likely to gather in your portfolio. This happens because over a period of time with some innumeracy, laziness, lack of diligence, lack of well written rules..let me tell you about what I wish I had done with my portfolio..

• Have very clear reasons to buy: Roce, PEG, Ronw, – a very stringent mathematical criteria and then (and then only) meet / research about the management.
• Keep looking at the management especially if there is a change in the management from one gen to another.
• A deep stop loss – say I bought Hindustan Oil at Rs. 102. If i did not have a steep stop loss of 20%, I would have reeled with a much bigger loss – today the price is Rs. 30 or thereabouts, Obviously the falling oil price took its toll. It would have s…d my overall annual performance.
• A deep time limit: If i bought Hindustan Oil at Rs. 102 and it had not gone beyond Rs. 110 in one year, it better have a solid, solid reason. Again look at that reason in 12 months. Collect contrarian views. Re read the research reports. Call the analyst who had recommended it in the first place (and hope he has not changed his view). Ask the brokerage firms which love ‘commodity’ stocks and call the brokers who hate commodity stocks (experience tells you whom to call). In 15 months if it is not giving you index+ returns sell this piece of ****.
• Buy more if you are right: I bought Essel Propack from 22-23 right up till Rs. 80 and then sold off at about Rs. 105 in one particular cycle of about 14-18 months. It is important to put more and more money if the PRICES GO UP. We love to average down and NEVER AVERAGE UP. The conviction should be in the EPS, growth and management. We have conviction in the world looking at us as ‘heroes’ rather than in our research – that can hurt.
• We hate admitting our weakness, mistakes and a very small ‘circle of competence’ .
• Meeting research people with different view points is a must, must, must and a MUST.
• When you are sure that Hindustan Oil is a good shorting candidate at Rs. 105 ask a bull ‘why is HOEL a good buy’ and you will get an amazingly different point of view. Pack your ego and listen.
• Most big good investors are BORING to listen to – Prashant, Naren, Ramdeo – most of us can predict what they will say. Proves that putting a system in place is the challenge. Once the system is in place monitoring it work is as boring as watching paint dry.
• Read, read, read, read, read and Read. Then Read. Anthropology, Biology, History, Philosophy, Mathematics, Psychology, Mythology, Animal stories, …and of course capital markets. Read.

 

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How to become a Crorepati
http://www.subramoney.com/2016/03/how-to-become-a-crorepati/

Every Hindi movie buff has heard the dialog ” tum koi karodpati ho kya” – like the word ‘millionaire’ in the US. Lets face it once you have a house in a city like Mumbai, and your loan paid off, the chances are that you are a ‘Crorepati’ as we call it. I guess that does cover a lot of the people reading this post.

So let us make the target a little higher..how to be a US $ Millionaire without taking your own house (self occupied). This means…how do you accumulate about Rs. 7 crores. Well one book you should read is ‘The Millionaire next door’. Shows how the millionaire is perhaps staying in a middle class to upper class kinda locality, driving an old car, taking local vacations, educating his children in local schools and colleges…I AM ASSUMING YOU ARE EARNING AT YOUR OPTIMUM level – the single biggest and smartest thing to do is to earn to your HIGHEST CAPACITY and invest smartly..this post does nothing for you to increase your professional income!!

According to statistics from the book, “more than 80% [of U.S. millionaires] are ordinary people who have accumulated their wealth in one generation.”

What really stops you in this journey or puts you in the ‘Not a good wealth accumulator’ category?

Did you buy a house far beyond your ability to buy or need to buy? (choice of location and size). Beware: you easily fit into the house your mind thinks you ‘deserve’. So both your children ‘deserve’ separate rooms, you and your spouse need space so the bedroom has to be extra large with that sit out and television, your parents need a room, you need a study so that you can work on days that you do not go to office, you need an extra big drawing room in case you entertain, and of course you need the guest house. So your mind can easily justify a 5 bedroom, 4 bath, 3500 sqft house in a reasonably well located suburb!! Sadly, this comes at a steep price of Rs. 6 crores. Alas it also has a monthly maintenance bill of Rs. 23,000. Ask yourself did you make AT-LEAST a 50% down payment for your house (forget the fact that the lending institution expects you to pay only 20, it is 50 which is prudent).

Do you drive the big car? I do see some of the kids I meet who buy a car which is 3x their CTC. A bigger car uses more fuel and obviously takes a bigger EMI and maintenance costs. This has another problem – when you upgrade every 4 years instead of 11 like some seriously rich fund managers do. No, not sensible at all. Another impediment.

Sadly all these material stuff – a big house, a huge range of dresses, a big car, nice vacations….do NOTHING towards making you rich or help you retire early. They carry a huge EMI, stress, catching up with the Joneses syndrome, and not enough money for retirement.

Do you invest safely? Apart from consumption, the next big problem is keeping all the money safe in places like PPF, EPF, NSC, bank fixed deposits, .. no assets like equities or real estate. This comes from lack of understanding – and because we lack the clearness of mind, the opportunity or the capability to make timely decisions, we opt for simple, low-volatility investments. If you do not invest in volatile asset classes (short term Real estate), long and very long term (equities) – your money will sleep and you will not reach the $ million mark very easily.

Do you pay too much taxes? The greatest change I have made in people’s investing style is shifting them from taxable bank fixed deposits to Income funds with growth option. This dramatically changes their total taxable income. One more sensible shift is from an equity fund, and an income fund to a balanced fund. This means the debt portion of the balance fund is also coming tax free because of the 65% equity rule.

Largely in my head these are the main reasons why you re an ‘Under Accumulator of Wealth’ – apart from late start, interrupting compounding, etc. These days i meet kids who have done all of this…AND WILL END UP worse than their parents.

 

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"If you depend on your company to take care of your retirement, your future income will be divided by five. Take care of it yourself, and you can multiply your future income by five." — Jim Rohn

 

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"One of the best kept secrets of the rich is the management of time." — Jim Rohn

 

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Live within your means
http://www.success.com/article/16-rich-habits

Wealthy people avoid overspending by paying their future selves first. They save 20 percent of their net income and live on the remaining 80 percent.

Among those who are struggling financially, almost all are living above their means. They spend more than they earn, and their debt is overwhelming them. If you want to end your financial struggles, you need to make a habit of saving and budgeting what you spend. Here are some sensible ways to budget your monthly net pay:

• Spend no more than 25 percent on housing, no matter if you own or rent.
• Spend no more than 15 percent on food.
• Limit entertainment—bars, movies, miniature golf, whatever—to no more than 10 percent of your spending. Vacations should account for no more than 5 percent of your annual net pay.
• Spend no more than 5 percent on auto loans, and never lease. Ninety-four percent of the wealthy buy instead of leasing. These folks keep their cars until the wheels fall off, taking great care along the way so that they save money in the long run.
• Stay away from accumulating credit card debt. If you are doing this, it’s a clear sign that you need to cut back somewhere.
• Think of savings and investments as two completely different things. You should never lose money on your savings. Try to stash six months of living expenses in an emergency fund in case you lose your job or your business goes belly-up.
• Contribute as much as you can afford to a retirement plan. If you work for a company that matches your contributions up to a certain percentage, great. Always take that free money when you can get it.