In the World of Investing - Find out your enemy

Have written an article in today's Financial Express. This was on Investing and how the Investor can be his own enemy. Have a look at the link.

http://www.financialexpress.com/news/tactical-asset-allocation-pays-handsome-dividends/835663/0

Pictures speak more than words. But at times, words are as important as the picture.  In the past 12 trading sessions,beginning  15th July'11 - 9th Aug'11 ,  the BSE closing index  has eroded by 11%  ( from 18871 to 16857) .

As I write this, there is a slight bounce back in the US market ( atleast temporary ).

Now that we have seen the picture , I would like to share the thought process in this volatile scenario.

What not to do - Do not dump your equity and exit. Remember 2008 ( If you had dumped all in Oct’08, you must be reeling under losses even now, in few cases)

What to do -

• Look at the opportunities

• Be a vulture

• Accumulate gradually

• Bottom fishing is ruled out

• Continue your SIP’s ( Remember 2008… do not stop the SIP’s)

• Use Short Term Debt funds to park your monies temporarily

• Have a word with your advisor, seek opinion, but finally trust your gut

Gold is going up and up … Naturally, it’s the only trusted hedge for the investors- For you and me.

What should you do now. Should I buy now.. should I sell now…or should I take no action…..

The answer lies in you…. When you invest in PPF or when you buy a house…. Do you invest with a horizon exceeding a day or week or month or year. Then why this bias with equity.

With crude price going down , one can expect inflation to go down and with it a temporary respite from the hawkish RBI interest rate hike. The corporate results will be sluggish for a quarter or two or more. But then , if you are invested for the long term, look at this opportunity to actually strengthen your fortress .

This looks like a contrarian view. Do remember the maxim… Be greedy when others are fearful and be fearful when the same tribe is greedy ………………….

One more thing.. do not lose your sleep and stress yourself much.. The current situation only fortifies the point - Invest with a time horizon with asset allocation as per your risk profile.

Enjoy your life…. This too shall pass…………………

Reflection - 2010 : Wealth Creation - Beginning ... Consolidation

Another year has passed by and as we reflect back ( how many of us do ), we find repeating the same things again . History repeats and we’re condemned to repeat it.


Is it so… in all cases ? Well the key to unlock this is in our hands.

Lets start the new year with the resolutions which will hold us in good stead.

1. I will make a budget of my expenses for the year

2. I will save atleast 20% of my take-home income

3. I’ll invest the savings generated from my take-home income in financial instruments I understand

4. I’ll invest based on the principles of:

• Time Horizon

• Risk Profile

• Liquidity of the product

• Asset allocation

5. I will look at insurance and investments as separate products

6. I will cover my risk adequately

7. I will take care of my health and devote atleast 30 minutes in a day to this.

8. I will invest 30 minutes in a month to look at my :

• Bank Statements

• Investment Portfolio Status

• Budget viz-a-viz Actual expenditure status
What is noted is not something new, the basic fundamentals being reinforced.

The point I want to make is, if we get the basics right, there is only one trajectory for your wealth to go…. Upward…. Upward…and Rising.
We recommend keeping things simple and we follow the same maxim in our journey of Wealth creation and Wealth maximization.

I had shared this note on the 1st of January - 2010 and its time to reflect if we had carried out this exercise. The rules have not changed much. If one have not had the discipline in this regard, lets initiatie this in the year 2011.

Wishing a great year year ahead .

Directions

We did expect robust results from the Indian Corporate for fiscal Q1'2010. And we were not disappointed on this front. Mid-cap and small cap shares have started outperforming the big guns and that was to be expected. Does it mean that those sitting on the sidelines, continue to stay in the sidelines. Just would like to share , do and follow what one understands best . At the same time, do try to understand the basic of equity too, which will give the alpha ,else, inflation will eat into your capital.

Based on the increase in the repo and reverse repo rates by RBI , banks have started offering higher interest rates (0.5 – 0.75%), to its depositors, making it close to 7.5% interest on a 1-year deposit. Looks interesting . But do understand – if you are in the top tax bracket, 33% of the interest income goes away in tax , which leaves little over 5% as residual income. Inflation currently is in double digits ( 10% +). So the real rate of return is in negative ( 5-10 = -5). In real terms, inflation is eating into your capital , without even one knowing about this fact. Do have an investment policy in place, to ensure that your wealth grows and not even a silent enemy ( like inflation) can reduce it.

Another small but important change which the Government is proposing is – Allowing foreign nationals to invest directly into Indian equity markets. The proposal is still in the planning stage. How will this change the existing scenario ? Well that is for a different post, at a later date .

As has been our earlier stated recommendation , continue the SIP’s and invest in stock specific shares .

Review - June'2010 Quarter and Outlook

One more quarter has passed . The equity market with all its see-saw is now at 17700 ( BSE sensex at close of 30th June) viz-a-viz the close on 31st Mar @ 17528. A return of less than 1%. In this quarter , we had wild swings and volatility based on the news emanating from Europe (It’s still not out of the woods) .

We had important developments in June quarter viz,
• The patch up between the feuding Ambani brothers
• The bounty collected by the GOI on the 3G spectrum auction and the broadband license
• The issuance of the revised Tax code, which will to an extend influence the way investing in equities is carried out
• The price of 10 gm of gold crossing Rs. 19,000 and more swings expected
• The fuel price de-regulation
• The hiking of the bank rates by the RBI

Though the Indian market also moves in line with the World markets, the opportunity of growth lies in India - the alpha for higher return. Just as the 70’s /80’s /90’s were the period of growth in America/ Europe/East Asia, this is the time of India. The next 2 decades are ours and with the huge domestic market, the growth is here . And equity as an asset class-needs to be a part of the investment portfolio .

Stock picking is the mantra and the virtues of patience, control of greed are also required to ensure that wealth grows.

Outlook for the next quarter(s):

• The Government will bring in few more deregulations ( Good in the long –run)
• More see-saw in the equity markets
• More news ( good / bad) from the European zone
• Robust corporate results from the Indian companies

Market Dynamics - The approach

The sensex had gone by more than 550 points on 10th May'2010,in a single day to close at 17,330.

Today - on 7th June'10,  the same sensex has retreated down to 16,781 ( today’s fall – 336 points ) . In between , the sensex vacillated between 16,750 – 18,000.

In today’s market, we are stating that the possibility of a fall is more predictable than the rise. This is purely on account of the market being driven by forces of sentiment , as noted below :

• 10th May – the market gave a thumps up as the IMF and the other creditors put forth a rescue package for Greece.
• 0n 7th June- the market gave a thumps down , as rate of jobless in US grew more than anticipated; Hungary said that it could have a Greek – like crisis.
• In between these days, based on various news , the sensex vacillated, irrespective of the impressive results by majority of the Indian Corporates

This period of uncertainty is the time of cherry picking of stocks for the long term ( 3 years ) and also for short term ( 6 months) . The market is fairly priced today and the cheap valuations which we had in Mar 2009 are non-existent.

The sectors on which we are bullish and are selectively buying include - Pharma ; Banking ; Education ; Auto ; Construction ; Heavy Engineering ; FMCG .

Telecom is one space we are avoiding (though we keep a watch on it )

The strategy for investing for Mutual Funds as shared in May’10 does not change and we did execute the strategy.

For equity, its still cherry picking and it’s the way to grow.

Happy investing ( albeit, with a bumpy and volatile ride).

What the Greek tragedy can teach us and the approach in the uncertain times

This is an article ( click on the click below) on the Greek fiscal crisis , ( which has been shared by the author in a simple and lucid manner) , and how it has reached to the state it has

http://www.dnaindia.com/opinion/column_what-the-greek-tragedy-can-teach-us_1380762

The same did not happen overnight, but was built up over time . We cannot be sure that the bail-out package will revive the economy.

With some positive news on the US economy front, we do expect the dollar to become stronger and a flight of capital from the equity market of emerging economies , including India.

10th May’2010, saw the highest gains ( 568 points) by the sensex in the last 10 months. We would recommend to be cautious. Those who have been investing in Mutual Funds, we would recommend that the gains and the capital invested till Mar’09, be moved to debt funds. ( This is an conservative approach and we could go horribly wrong in our Outlook, but atleast the hard-earned monies will not be taken to the cleaners)

Watch the market and then take the call to move into equity again. The SIP’s / STP’s currently in progress should continue ( to take advantage of value averaging) .

On the direct equity front, its stock specific and we recommend allocating a substantial portion of the corpus with a horizon of 18- 24 months.

Happy investing (but do not forget it will be a bumpy and volatile ride).