Chaitanya Patel

Airtel plans to charge you for calls made using services like Viber, Skype etc. And while this is so anti net-neutrality, Airtel has come up with a justification which goes as follows.

Over the last twenty years, we have invested over Rs. 140, 000 crores in rolling out telecommunications services in every nook and corner of the country. In addition, we have paid over Rs. 50, 000 crore in terms of government levies in just 5 years. Going forward, we are committed to rolling out data networks across the country. In order to ensure this, our business must be viable and sustainable. Our voice services that are enjoyed by every one of our customers provides us the capacity to continuously invest in and upgrade our networks on an ongoing basis. We, therefore, believe that VoIP services in their current form are not tenable for us as a business. As a result, we will charge separately for VoIP services.

However, in line with our philosophy of putting our customers above all else – we are committed to making VoIP services extremely affordable and attractive by ensuring adequate minutes for a very small charge on VoIP.

As a result, in line with the recent announcement of our VoIP (Voice over internet protocol) pack, Airtel would like to clarify the following:

• Our Customers can enjoy a superior VoIP calling experience on Airtel’s network by choosing from a range of new VoIP specific data packs that will soon be launched. For prepaid users, the VoIP exclusive pack will be priced at Rs. 75 for 75MB with a validity of 28 days. This will allow customers to make between 200 and 250 minutes of calling. Similarly, affordable VoIP plans will soon be launched for postpaid customers. There would be no other charges in respective of VoIP calls.
• The VoIP update is not applicable with immediate effect. This change will be implemented in a phased manner over the next few weeks. In all cases, our customers will proactively be informed about these VoIP charges in advance through the company’s standard communication channels like SMS, USSD pop-up, email etc.
• Prepaid customers who have purchased data plans before 24th December 2014 are entitled to use all services opted-for till their packs are consumed or expire, following which, the new terms & conditions on VoIP usage will apply.

Time to move out of Airtel network which is facing severe QoS issue?

Where will they stop? Charge Internet service companies for network access? Is Airtel paving way for Reliance to come and f**k them with 4G rollout?

What’s the role of TRAI here?

The post Airtel Justifies Its VoIP Stand..Still Makes No Sense appeared first on NextBigWhat.

The World may come a full circle..but it is nice to see the elimination of the small in the BFSI space.

The very early victims of the elimination program was when they eliminated the small sub broker. He had a role to play when there was a physical securities – shares had to be transferred physically…delivered to the broker, etc.

The next to be eliminated was the mid level broker – he could not attract talent, had no ability to deal with the painful regulator. It used to be (I no longer do it, but I guess it could not have changed much) ..so the mid level brokers closed down.

Then the small broker did not find it worthwhile so they closed down.

Then SEBI tried to push other reforms…..and crushed other small players.

Then the AMFI was formed. Amfi is a manufacturer’s club dominated by the big mutual funds. So the big fund houses now want the following:

– Minimum Net Worth (Rs. 10 crores is likely to be raised to Rs. 100 crores over say a 10 year period. Right now the push is to make it Rs. 20 crores.

– Will not be surprised if they say you should have minimum net worth of Rs. 25 crores to launch an ETF

– or say to distribute mutual funds you should have minimum net worth of RS. 20 lakhs…thus eliminating the small distributor…

the small investor can continue to  commit hara kiri

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

“This is one of the most important rules of investing. If you never peek from the age of 20 to the age of 70, you’ll rip that first 401(k) statement open at age 70, and I recommend you have a doctor on hand because you’ll go into a dead faint. Your heart might even stop. You’re going to have an amount of money you can’t even imagine.” – John Bogle

This statement kindled my interest and I wanted to calculate the same for someone who at the age of 25 starts saving Rs.10,000 every month till he reaches 75 and wants to leave the money for his grand children.

John Bogle has mentioned the age 20 to 70. Since Indian kids start their career a bit late, usually after completing post graduation, I assumed age 25 to 75. Why grand children because, 50 years of savings would be useful only to them; neither the investor nor his children may be able to enjoy its fruits.

Since I’m confident that for next 20 years, Indian markets are capable of producing 18% annualised returns, I’ve assumed the same rate for the young man (from age 25 to 45). For the subsequent 20 years (age 45 to 65), I’ve assumed a rate of 12% and for the last 10 years (age 65 to 75), I’ve assumed a rate of 9%.

If he keeps investing 10K month on month, for next 50 years, and get the above rate of return, he would have accumulated Rs.65.21 crores. Just 10K a month produces 65 crores.

If you want to know, today’s value of that Rs.65.21 crores, we’ve to calculate the present value after adjusting for inflation. RBI is projecting an inflation of 4 %(+) or (-) 2% over long run. Assuming an inflation of 4%, in today’s money, it is worth Rs.9.17 crores.

Rs.9.17 crores is not a small amount in today’s terms to leave for one’s grand children. You would be able to do the same by investing 10K a month for a very long period. 10K per month would become light on anyone’s purse after 10 or 20 years. So without pinching one’s pocket, anyone can plan a good inheritance for his grand children.

So John Bogle is right. This is the power of compounding, power of long term, power of patience and the power of time. As I always emphasise, there is no substitute for time in investing.

No, I’m not asking you to save for your grand kid for next 50 years. It’s your choice. But please do understand the role of time in investing. That’s why we encourage you to have investment tenure as long as possible.

If you can understand and internalise power of compounding and the role of time; you would be extremely successful financially.

“Subra will you speak to my Dad regarding his flat in Navi Mumbai?”

This was almost a frantic call from a friend. And knowing my views on Real Estate, I was surprised to get such a call from a guy whose family past time was to buy RE in Mumbai and Delhi.

A little bit of the background – here was a real rich man with a few properties and 2 sons doing very well professionally. They as a family own about about 10 properties including a real big farm house in Mumbai. Being an early starter their properties are in good locations and their portfolio of RE should be in the region of atleast about Rs. 100 crores.

The dialog went like this:

Hello Uncle I hear you have an offer of Rs. 3 crores for your Navi Mumbai flat?

U: Yes, yes,  I got a call – no not for Rs. 3 crores, but Rs. 2.85 crores. I am waiting for an offer for Rs. 3 crores.

Me: Is the difference so high? It is just 5% – so what difference does it make?

U: IN 2012 itself I decided that I want Rs. 3 crore and I have not really gone up on my price.

Me: What is the best price that has been offered to you, ever?

U: In 2012 I got an offer for Rs. 2.5….but the buyer could not arrange for the money, so he backed out.

Me: So from 2012 till now the increase is only marginal at best.

U: Yes but it is increasing

Me: You have not used the flat for the past 7 years – and it is lying vacant – and just being maintained by a friendly neighbor, right?

U: Yes, yes, I do not wish to give it on rent – after all we do not need the Rs. 55,000 per month rent, what difference does it make?

U: Subra once the airport in Navi Mumbai is commissioned the price of this flat will increase – it might even reach Rs. 6 crores in a couple of years, so why should I sell now? After all I do not need the money.

If I were a broker I could be accused of pushing this guy, but this is what I said:

“Mr. Uncle you are in Delhi and there is no chance in hell that you can come and stay in this 5 bhk + servant quarters house. At 78 years given your health condition you will now continue to live in Delhi.

You have kept this house LOCKED for the past 7 years AND your notional loss on this alone is Rs. 30 lakhs or thereabouts. During this period the cash flow on account of salary for the servant maintaining it, society charges, electricity, maintenance – including the painting is about Rs. 10 Lakhs. So the total loss comes to about Rs. 40 lakhs.

Look at it this way, if you had sold it in Jan 2012 for Rs. 2.5 cr, and put the money in the bank, you would have earned about Rs. 50L as interest and saved Rs. 5L on maintenance etc. So net, net you would have more than Rs. 3 cr. which is what you are currently asking for. Just mathematically speaking you are NOT attributing time value of the money that has been offered to you.

Your sons are unlikely to come to Mumbai – and even if they come it is very unlikely that they will come to Navi Mumbai, even if the ariport becomes a a reality.

I think you should take the best offer AS OF TODAY and go ahead with the deal.

Can you get Rs. 5 crores for this house? Sure, I have no clue when. I also know that you do not need the money. Great, let me suggest some charities to whom you can send the cheque. Sigh.

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

Wishing you a Merry Christmas.

As per this piece, since 1825, the US stock market has produced an annual gain 71% of the time, or 134 times, while losing ground just 55 times. A standard distribution chart, which happens to take the shape of a Christmas tree, shows how for most years, the market moves within a range of zero to up 10%.

When I mentioned the above in a tweet yesterday, I got a query from @StableInvestor about Indian stock markets.

As you are aware, we’ve maintaining a detailed database on various asset classes since 1979-80 (year in which Sensex base was set as 100).

From 1979-80 to 2013-14; for the last 35 financial years; we had a 24 years of positive Sensex returns and 11 years of negative returns. So since 1979, the Indian stock market has produced an annual gain 69% of the time, or 24 times, while losing ground just 11 times.

After taking into account both the above positive and negative years, the annualised return of Sensex during the above period was 16.72%. If we assume a dividend yield of 2%, then the long term returns works out to 18.72%.

Since we’ve more positive years than negative years, it is better for us to stay the course and be in the market all the time. Positive years more than compensate for the negative years. It’s difficult to guess which would be a positive or negative year but can be confident that we would have more positives years than negatives.

So be positive. Not 69% but 100% positive!

Olacabs has launched Pink cabs (driven by women drivers) which is a way forward to strengthen security for women passengers.

Ola In Pink

This comes after the unfortunate Uber rape incident that happened in Delhi, the court had banned mobile based taxi services from operating in certain regions.

Ola Pink Rates

What’s interesting is that the pink cab option is available only to women passengers (and Ola does a good job of profiling, even though they don’t collect the male/female information during signup).

Competition TaxiForSure recently added panic button in cabs to strengthen security.

Read : A Look at T&C Of Online Cab Operators [Nobody Cares. Nobody Will Own Up].

Hat tip : @sartajanand

The post Olacabs Launches Pink Cabs For Women Passengers [TravelTech] appeared first on NextBigWhat.

I have found both these questions IMPOSSIBLE to answer. I have no clue how much to invest – obviously depends on your income levels, sensible goals, etc. When should you start? Well from your first salary….well let us see…

If you ever wondered how much to invest, read on!

THERE are some word pairs that go hand in hand. When you say one you cant help but think of the other – eg. chicken and egg, carrot and stick, marriage and love, beach and sun and so on. When it comes to investment, the only word that pops up is return.

No doubt, everyone invests for returns. That magic figure governs the fate of all investment products. The logic in people’s minds is simple: The better the returns, the more money you will end up with.

But it’s not that simple in reality. Returns are not the sole deciding factor of how much money you are going to make from your investments. Two more factors determine how much money you will end up with:

a. The amount you put into your savings and investments

b. The amount of time you keep it there.

These two factors will have a greater impact on how much money you will end up with, rather than mundane things such as investment returns.

Have a play on the calculators elsewhere on this site. Put with your own numbers and you’ll quickly arrive at the number you should be doing.
Here’s an example:

a. Let us suppose you need to cobble together Rs 5 crore over 40 years. With an investment return of 12 per cent per year you realise that you have to save a paltry Rs 3,980 per month.

b. If you deduct ten years from this horizon the figure automatically changes to a difficult Rs 14,000 savings per month – over three times the monthly amount today, although you have only taken 25% off from your time period.

c. Now you argue: What if you aim for a higher investment return? Surely then you can amass Rs 5 crore even in 20 years! You would need a fantastic return of 21% per year to turn Rs 14,000 into Rs 5 crore in 20 years.

Is that realistic? Consider this:

The stock market today is perhaps the only way you can reach your goal since it can give anywhere between 12% to 44%, depending on time period and how enterprising your fund adviser is.

Now, the charges of investing vary between 1% per annum to 2.5%, depending on the nature of fund management. So any expectation number you hear above 14% is almost a fraud if suggested by your advisor and foolish thinking if you expect it.

And in fact for an efficient indexing strategy, you should use a figure of 9 per cent to 15%. So, that 12% I was using is, if anything, fairly ambitious. It would certainly be easier to argue for a figure of 9% per year than 12% per year.

And hold on! Taking into account inflation and taxation, from gifts and cash which is generally quoted as a little below 2 per cent, So, you are now left with a paltry 10% return!

So now plug in the numbers!

You now have an investment return to aim for, an amount of money that you need to reach and if you put in a realistic guess at how many years you have till retirement – hey presto! The calculator will tell you how much you need to save.

But remember:

i. It is important to know that these calculations only tell you what to do, given certain assumptions. These are guesses at best and change regularly.

ii. You may find articles on the web saying ‘static calculators are wrong, you should be using dynamic calculators’. It does not matter.

iii. This is good enough to make a start. The investment return you get might be different from what was predicted, and the date of your retirement might get closer or further away.

iv. Most important, since you are saving money in today’s world, you have to keep increasing the amount you save to take into account inflation and average earnings growth.

Fast Forward 2019:

Let’s fast-forward to the year 2012 with our original numbers of 5 crores in 40 years with 12% rate of return and look at two possible scenarios: one good and one not so good.

Scenario I: Life is Rocking!

You manage an excellent investment return of 22% per year. That gives us a pot of investments worth Rs 450,000. The investment return is all the more impressive because we have only had inflation of 6 per cent.

Plugging the numbers in (a final value of Rs 5 crore which takes 35 years and Rs 4.5 lakh already invested at a 12% annual return), you need to save Rs 3,500 per month to get there. That is a paltry fall of Rs 480 per month.
In spite of the fact that we have a cracking 22% per annum, the amount we should be investing falls by such a small sum. Again, keeping a conservative mindset, you should not reduce the amount that you invest. You are just providing for a goal. So, till the goal is near, changes are not recommended.

Scenario II: Life is not all that rocking

You have actually managed an investment return of 10% per year. That gives us a pot of investments worth Rs 325,000. Again, inflation and earnings growth have amounted to 6%. Plugging in the numbers for this scenario (a final pot value of Rs 5 crore, 35 years to get there, Rs 3.25 lakh already available and a 12% annual return), we find that we need to put by Rs 4,800, again just a little more than what we have been investing so far.

So, have things really got harder for us because of the poor investment return that we managed? No. Our income has gone up much more, so paying this extra Rs 820 is now a breeze. Should you increase the investment? Yes, absolutely.
Either way, it’s better than doing nothing.

In conclusion, the gap between 22% and 10% is not small, is it? But the impact is subdued because of the time frame that we are looking at — and the impact is marginal. So the rate of return, though important, is not the be all and end all of investing.

By repeating the sums on a regular basis, you can adjust your rate of investing to account for changing circumstances and how well your investments have actually done.

What you can see from both the above scenarios is the importance of getting started early to minimize impact.
a. If all goes well in the first five years, you will want to invest Rs 3,500 per month.

b. If things go wrong, you would be left saving Rs 4,800.

c. However, if you hadn’t started saving at all, you would be left needing to save an unlikely looking Rs 7,650 per month.

So, remember now remember that Investment goes hand in hand with not just Return but also Time!

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

It has been an interesting couple of weeks for Indian equities. The markets suffered a slight tremor the past week as the major broad-market indices, the Sensex and the Nifty went down slightly on Tuesday and Wednesday, only to surge back upwards over the last 2 days of the week.

As we approach the end of the year, we decide to look back at how the Nifty has performed so far this year.

We are looking at the performance starting from the opening value of the Nifty on 01 January till the end of 19^th December 2014, last Friday.

The Nifty opened this year at 6,323.80 on 01 January while the Sensex opened the year at 21,222.19. As of the end of 19^th December, the NSE had moved up by 30.07% to end at 8,225.20, while the Sensex rose 28.98% to end the previous Friday at 27,371.84.

For comparative purposes, we decided to split the year into 2 phases: one, from 01 January till the end of 15^th May, and two, from the end of 15^th till December 19^th.… (Read On...)

I have promised to be different from typical personal finance sites, so let me tell you how. Here let me start with a story.

One man goes to the King of a land and says ‘Please give me some land’. The king says “Take your horse and ride..all the land that you can cover in a day belongs to you”.

The king puts one condition though. He says ” You have to start from here and you have to be here by sunset”.  So he gets about 12 hours of riding time. The guy goes riding..and he rides really far…and realizes his folly only when it is too late. He needed to get back.

Remember the book ‘No Shortcuts to the Top’. Read it, if you have not.

People set for themselves very difficult to achieve goals and are told “If you are a successful person a little pain should not bother you”. Excellent. However, one has to realize that reaching the goal is optional, being alive to enjoy that goal is not optional. So should you go and chase your goal while jeopardizing your life? I do see people do it. They burn themselves, break their marriages, doctors describe them as Type A. They are sleep deprived. Healthy life is an oxymoron for them.

What for? What would you have achieved if you do not have the health to enjoy the goal?

While climbing the Himalayas you need to live by certain rules. Most people who get killed break the SIMPLE rules. No not an avalanche, not storm, blizzard, rain or a snow leopard. Just breaking the rules. You need to know how much your oxygen will last. How much time you need to climb up and come down to the base camp (reaching the top is optional, coming back with adequate oxygen is COMPULSORY).

I have seen runners in big marathons not knowing how to set SENSIBLE goals. They run hard and injure themselves – preventing running for 12-24 months! Be careful about the sensible goals that you set.

What does all this have to do with a financial post? Well, I have seen craving and desperation among people to improve their returns. So if I tell them “saving / investing  a bigger amount for a longer period is the key” they do not like it. They are hoping to delay the investment, play around with ‘r’ . Then suddenly a friend comes with a ‘will never fail, ever, never’ so about Rs. 20 L is invested. Subra of course knows about this only when there is panic .

So the original idea was to retire at 53.  The fly by night operator has made a ‘just cannot fail’ portfolio. It fails. It has wiped out all the money. Ha now back to the grind. Retirement age postponed to 60. Not because of the loss alone. Also because the whole portfolio goes through a churn. The equity fund becomes a balanced fund. The Income fund becomes a short term income fund. Or worse, liquid fund. Reducing the Real Return.

Sad. So you need to know whether the goals are reasonable, whether the risk is sensible, whether the risk taking ability has changed. Sure you can do it online, but it helps a cynic rip it apart. For a fee or free. Avoiding the audit is a step of amazing stupidity. I have seen people do it. Hey attempting suicide is no longer an offence.

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

Photo Credit: Rob Pym

This is another Aleph Blog series of indeterminate length.  I won’t bleed as much as my friend James Altucher, but I will reveal the worst investments of my life.  There have been a lot of them.  Good investments have more than paid for the losses, but the losses were significant in two ways:

• The losses were large enough to hurt.
• Each loss taught me something; usually I did not make the same mistake twice.

After I finish this series, I hope that it can serve as a guide on what to avoid in investing for younger folks, so they don’t repeat my errors.  Okay, older folks can benefit as well… and maybe along the way, I’ll throw in a few colorful stories of investments that weren’t losses, but still taught me something.

Here we go!

=-=-=–=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-==-

In the late 1980s, I fell prey to a boiler room scam.  I was relatively new to investing for myself, though I had paper-traded stocks for years, and was seemingly able to pick good stocks.  So why did I give in to the slick sales pitch?  Inexperience, for one, and slack capital for two — in my late 20s I really did not have a plan for what I wanted to do with my slack capital.  I had done some investing in the stock market, but made money too quickly, and I feared that the market was once again too high (isn’t it always?).

Regardless, it was pretty dopey, and ended up being a 98% loss.  A class action suit was created, which after 8 years ended up with nothing for any of the plaintiffs, and as far as I can tell, the lawyers lost money as well, since they were seeking a share of the recovery.  Somewhat bitter at the end, the law firm closed its last letter saying something to the effect of, “At least we have the satisfaction that all of those that we have sued have lost all of the money that we can find.”  Cold satisfaction, that.

I can tell you that the experience made me unwilling to transact any personal business over the phone that I did not initiate.  For long-time readers, this helped lead to my saying,

Don’t buy what someone wants to sell you.  Instead, research what you need, and buy that.

That’s a good lesson to begin with.  Till next time.

Photo Credit: International Monetary Fund

Comments

• Pretty much a nothing-burger. Few significant changes, if any.  The only interesting thing is that they have given up on inflation getting anywhere near 2% for now.
• Despite lower unemployment levels, labor market conditions are still pretty punk. Much of the unemployment rate improvement comes more from discouraged workers, and part-time workers.  Wage growth is weak also.
• Equities flat and long bonds rise. Commodity prices are flat.  The FOMC says that any future change to policy is contingent on almost everything.
• Don’t know they keep an optimistic view of GDP growth, especially amid falling monetary velocity.
• The FOMC chops some “dead wood” out of its statement. Brief communication is clear communication.  If a sentence doesn’t change often, remove it.
• In the past I have said, “When [holding down longer-term rates on the highest-quality debt] doesn’t work, what will they do? I have to imagine that they are wondering whether QE works at all, given the recent rise and fall in long rates.  The Fed is playing with forces bigger than themselves, and it isn’t dawning on them yet.
• The key variables on Fed Policy are capacity utilization, labor market indicators, inflation trends, and inflation expectations. As a result, the FOMC ain’t moving rates up, absent improvement in labor market indicators, much higher inflation, or a US Dollar crisis.

Retirement Planning – sounds very intimidating to many people. However, like all long journeys it begins with a small step. First of all you need to accept that you will retire, and like all events in life the person who is better prepared will face it better. So retirement planning can be made to look simple by breaking it into small steps. If it looks scary – each step will be only 20% scary if we can split it into 5 steps!

So let us start.

Step 1:

If you have a financial plan include retirement planning into that plan. It helps to start early, and I have no clue how to convince anybody in their 20s to plan for their retirement! Imagine asking a person collecting the first salary to think of investing for retirement. It is tough. However it helps. Like any budget retirement budget starts by estimating your income and expenditure during your retired life. The most important estimate is how much will be your retirement expenses be – both day to day expenses and big chunky investments.

Step 2

It is very likely that you will buy at least one house, a few cars, white goods, tours and holidays, nursing and care etc. during your retirement. Apart from these capital draw downs that you do, you will have to estimate the expenses on food, shelter and clothing too.

How much you will spend in retirement is a function of your standard of living and how long you expect to live! If your parents (or grandparents) have been living to the age of 90 years, chances are you will hit a century!

Step 3

Make a realistic estimate of help that you may need for day to day living – say nursing, assisted living, old age home, inflation, un-insured medical expenses, medical insurance expenses – these are what we can call the ‘non-negotiable’ expenses. Then there are expenses like travel, fun, eating out, entertainment, – called the ‘discretionary’ expenses. These expenses will happen if the body listens to the mind!

Step 4

Next draw up your list of things you own and the amounts you owe! Estimating how much you really have is an excellent exercise which you may or may not have done. This statement will tell you about all your assets and liabilities – and your ‘net worth’. Your net-worth is the mathematical difference between your assets and liabilities. Many people forget to add the cash value of their life insurance, their provident fund, etc. in their net-worth. Ensure that you include all your assets, and all your liabilities like home loan, car loan, personal loans, etc.

Your retirement life should be distributed into at least 4 parts, if not more. In case you retire at 55 and live till the age of 95 years. Your lifestyle (and therefore your expenses and income) will be different in 4 blocks as follows:

55-65,                65-75,                75-85 and                        85-95.

Step 5

Once you have decided your ‘blocks’ estimate your ‘retirement income’. From 55 to 65 years you may end up earning some amount by pursuing some activity – right from maintaining accounts for co-operative societies to teaching in a coaching class. Apart from this of course you should identify any income you will have in retirement – pensions, as well as any rental, dividend, interest, or other income.

Systematically withdrawing from your capital is something which you should consider only after you and your spouse reach the age of 72-73. Till then you will have to live within your income.

So make sure your expenses are less than your income!

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

So you are 22 years of age and wish to invest in equities, right?

And you have heard of stories like Wipro, Hdfc, Itc, LnT and the likes. You think this is tough, but what the hell, you want to try, right?

Welcome to the very many people who wish to invest in equities, but do not know where to start.

First things first. If you are doing a career in medicine, or are a lawyer or any other professional, chances are you will not get enough time to do direct investments. You might be better off investing in a mutual fund.

Having said that upfront, I do think that with a little bit of research and some diligence it might be possible to perform better than many of the fund managers. However your ability to beat the best fund managers looks close to impossible.

Start at the very beginning. First of all make YOUR Investment Philosophy Statement. THAT HAS TO BE THE FIRST STEP.

http://www.subramoney.com/2008/02/secret-of-successful-investing-philosophy-statement/

If you do not know where you are going, it does not matter which road you take – sounds so elementary, but it is absolutely true. So make that statement, and be honest about your capabilities – discipline, account keeping, etc. and then take the plunge.

Once you know why you are investing start reading books – and I am not saying that reading has any sequence. Be very careful about what you read. Too many half baked websites on personal finance, equity, etc. – best is stick to the books. Unfortunately or fortunately most of the books on investing are American. No great Indian books, but Parag Parikh has made some start. Good websites by people like Chetan Parekh are a rarity, but yes a good place to start for sure.

http://www.subramoney.com/2011/06/investing-books-the-must-read-types/

Every share that you buy (portfolio) or decide to buy (watchlist) should have a logic, price target, time target, etc. The portfolio and the watchlist should go into a FREE WEBSITE like value research online, Morningstar (I have not used it myself),  so that you can analyse it industrywise, and track the performance vis a vis a top fund like I Pru discovery, or a Franklin India Bluechip or Hdfc Equity. Surely you will have your own preferences. What it matters is a 3-5 year performance, but if you are miles behind on a quarterly or a monthly basis for one whole year, you better have a solid, solid reason for that. All the reasons, logic, etc go into an Investment diary – the human mind deletes INCONVENIENT thoughts and data, SO IT MUST BE HANDWRITTEN diary – NOT just a word document saved somewhere on the web.

http://www.subramoney.com/2012/08/5-important-reasons-for-an-investment-diary/

this is a good beginning. Lots of people will tell you that it is impossible to outperform the fund managers. That is true only for the top fund managers – and some of them have some amazing advantages which you and I can NEVER HAVE. Do remember that all the fund managers have RIL which has pulled down the sensex from the year 2007 to 2013. Sure they will have solid reasons for that, but remember even if you have bought some FMCG share in 2007/8 you would be much better off. Do read fool.com – an American website which believes that individuals can beat fund houses.

I am caught between the academics who say YOU cannot beat the index, and some reality of index beating friends….so the choice is yours.

However if you do invest on your own or through a MF the above-mentioned steps are worth doing…..

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

Photo Credit: Chris Piascik

Most formal statements on financial risk are useless to their users. Why?

• They are written in a language that average people and many regulators don’t speak.
• They often don’t define what they are trying to avoid in any significant way.
• They don’t give the time horizon(s) associated with their assessments.
• They don’t consider the second-order behavior of parties that are managing assets in areas related to their areas.
• They don’t consider whether history might be a poor guide for their estimates.
• They don’t consider the conflicting interests and incentives of the parties that direct the asset managers, and how their own institutional risks affect their willingness to manage the risks that other parties deem important.
• They are sometimes based off of a regulatory view of what can/must be stated, rather than an economic view of what should be stated.
• Occasionally, approximations are used where better calculations could be used.  It’s amazing how long some calculations designed for the pencil and paper age hang on when we have computers.
• Also, material contract provisions that are hard to model/explain often get ignored, or get some brief mention in a footnote (or its equivalent).
• Where complex math is used, there is no simple language to explain the economic sense of it.
• They are unwilling to consider how volatile financial processes are, believing that the Great Depression, the German Hyperinflation, or something as severe, could never happen again.

(An aside to readers; this was supposed to be a “little piece” when I started, but the more I wrote, the more I realized it would have to be more comprehensive.)

Let me start with a brief story.  I used to work as an officer of the Pension Division of Provident Mutual, which was the only place I ever worked where analysis of risks came first, and was core to everything else that we did.  The mathematical modeling that I did in there was some of the best in the industry for that era, and my models helped keep us out of trouble that many other firms fell into.  It shaped my view of how to manage a financial business to minimize risks first, and then make money.

But what made us proudest of our efforts was a 40-page document written in plain English that ran through the risks that we faced as a division of our company, and how we dealt with them.  The initial target audience was regulators analyzing the solvency of Provident Mutual, but we used it to demonstrate the quality of what we were doing to clients, wholesalers, internal auditors, rating agencies, credit analysts, and related parties inside Provident Mutual.  You can’t believe how many people came to us saying, “I get it.”  Regulators came to us, saying: “We’ve read hundreds of these; this is the first one that was easy to understand.”

The 40-pager was the brainchild of my boss, who was the most intuitive actuary that I have ever known.  Me? I was maybe the third lead investment risk modeler he had employed, and I learned more than I probably improved matters.

What we did was required by law, but the way we did it, and how we used it was not.  It combined the best of both rules and principles, going well beyond the minimum of what was required.  Rather than considering risk control to be something we did at the end to finagle credit analysts, regulators, etc., we took the economic core of the idea and made it the way we did business.

What I am saying in this piece is that the same ideas should be more actively and fully applied to:

• Investment prospectuses and reports, and all investment and insurance marketing literature
• Solvency documents provided to regulators, credit raters, and the general public by banks, insurers, derivative counterparties, etc.
• Risk disclosures by financial companies, and perhaps non-financials as well, to the degree that financial markets affect their real results.
• The reports that sell-side analysts write
• The analyses that those that provide asset allocation advice put out
• Consumer lending documents, in order to warn people what can happen to them if they aren’t careful
• Private pension and employee benefit plans, and their evil twins that governments create.

Looks like this will be a mini-series at Aleph Blog, so stay tuned for part two, where I will begin going through what needs to be corrected, and then how it needs to be applied.

I was sitting with one of the 16,000 Vee Pees of a big bank…when he got a call. One of the kids had gone to meet a very big client and had goofed up.

The client called the Vee Pee and said something…obviously not very complimentary..so the Vee Pee asked for the boy and said “Just leave the client alone and come here immediately’. Then he turned to me and said ‘what a bunch of useless guys these business schools are turning out’ .

I burst out laughing. I pushed a plain paper towards him and said…please for heavens sake write down all the products that your bank sells.

He could not write beyond 9. He had missed out Forex card. He had actually missed out a lot of things…the kid was taught about 2o products – CASA, mutual funds, life insurance, general insurance, brokerage account, demat account – the works.

I told him I know how this ‘training’ happens. The kid has just joined and he is put in a 3 day pressure cooker training. He is taught about 20 products, the back office document, the process for making the voucher, how to, when to, why to, why not – of the bank, ….and in that excitement he is also taught many other things. Yuck.

This happened long back and this man has now retired. His bank did not believe (does not would be more appropriate) in training or even in a good process in recruiting. There is a huge demand for Relationship Managers (call them by any name, these are the kids facing the customer) and  so recruitment is done at a very fast pace.

There is just not enough time for training – if you have 1000 branches you need about 5000 RMs – and the 1000 Branch managers.

Kids are picked up from 100 odd management institutes, some BBAs are also taken and put through the grind. I have a lot of sympathy for the kids.

On the other hand I think the kids are a little lazy. They should not be seeking jobs in Indian companies. Go abroad. Go to the Middle East, go to China, go to Europe – the world is waiting for decent kids who can speak a little decent English and are willing to work hard. Indian corporate sector is not too willing to train you, so they get you and expect you to perform from day one. Go to Australia, New Zealand, Germany – the job opportunities are balanced with an awesome weekend time to be spent with family. Nobody who is there is regretting. If somebody is regretting it is the locals there – saying these Indians are working too damn hard.

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

Photo Credit: brett jordan

Beware when the geniuses show up in finance. “I can make your money work harder!” some may say, and the simple-minded say, “Make the money sweat, man!  We have retirements to fund, and precious little time to do it!”

Those that have read me for a while will know that I am an advocate for simplicity, and against debt.  Why?  The two are related because some of us tend toward overconfidence.  We often overestimate the good the complexity will bring, while underestimating the illiquidity that it will impose on finances.  We overestimate the value of the goods or assets that we buy, particularly if funded by debt that has no obligation to make any payments in the short run, but a vague possibility of immediate repayment.

The topic of the evening is margin loans, and is prompted by Josh Brown’s article here.  Margin loans are a means of borrowing against securities in a brokerage account.  Margin debt can either be for the purpose of buying more securities, or “non-purpose lending,” where the proceeds of the loan are used to buy assets outside of brokerage accounts, or goods, or services.  Josh’s article was about non-purpose lending; this article is applicable to all margin borrowing.

Margin loans seem less burdensome than other types of borrowing because:

• Interest rates are sometimes low.
• They are easy to get, if you have liquid securities.
• They are a quick way of getting cash.
• There is almost never any scheduled principal repayment or maturity date for the loan.
• Interest either quietly accrues, or is paid periodically.
• You don’t have to liquidate securities to get the cash you think you need.
• There is no taxable event, at least not immediately.
• Better than second-lien or unsecured debt in most ways.

But, what does a margin loan say about the borrower?

• He needs money now
• He doesn’t want to liquidate assets
• He wants lending terms that are easy in the short run
• He doesn’t have a lot of liquidity at present.

So what’s the risk? If the ratio of the value of assets in the portfolio versus accrued loan value falls enough, the broker will ask the borrower to either:

• Pay back some of the loan, or
• Liquidate some of the assets in the portfolio.

And, if the borrower can’t do that, the broker will liquidate portfolio assets for them to restore the safety of the account for the broker who made the loan.

Now, it’s one thing when there isn’t much margin debt, because the margin debt won’t influence the likelihood or severity of a crisis.  But when there is a lot of margin debt, that’s a problem.  As I like to say, markets abhor free riders.  When there is a lot of liquid/short-dated liabilities financing long-dated assets, it is an unstable situation, inviting, nay, daring the crisis to come.  And come it will, like a heat seeking missile.

Before the margin desks must act, some account holders will manage their own risk, bite the bullet, and sell into a falling market, exacerbating the action.  But when the margin desks act, because asset values have fallen enough, they will mercilessly sell out positions, and force the prices of the assets that they sell lower, lower, lower.

A surfeit of margin debt can turn a low severity crisis into a high severity crisis, both individually and corporately, the same way too much debt applied to housing created the crisis in the housing markets.

I would again encourage you to read Josh’s excellent piece, which includes gems like:

Skeptics from the independent side of the wealth management industry would ask, rhetorically, whether or not most of these loans would be made with such frequency if the advisors themselves were not sharing in the fees. The answer is that, no, of course they wouldn’t.

He is correct that the incentives are perverse for the advisors who receive compensation for encouraging their clients to borrow and take huge risks in the process.  It’s another reason not to take out those loans.

Remember, Wall Street wants easy profits from margin lending.  They don’t care if they encourage you to take too much risk, just as they didn’t care if you borrowed too much to buy housing.

The Free Advice that Embraces Humility

Just say no to margin debt.  Live smaller; enjoy the security of the unlevered life, and be ready for the day when the mass liquidation of margin accounts will offer up the bargains of a lifetime.

If you have margin loans out now, start planning to reduce them (before you have to).  You’ve had a nice bull market, don’t spoil it by staying levered until the bear market comes to make you return your assets to their rightful owners.

Wisdom is almost always on the side of humility, so simplify your life and finances while conditions favor doing so.  If you must borrow, do it in a way where you won’t run much risk of losing control of your finances.

And after all that… enjoy your sleep, even amid crises.

Is this a good time to enter the market?

I do not know.

Which asset class (do you think) will out perform all the others over the next 10 years?

I do not know.

Should I sell some of my Fmcg and buy infra NOW?

I do not know.

Sadly the truth is all these questions are almost impossible to answer especially in a public forum. Simply because if I were a portfolio manager, I could do some mid stream correction. If you are reading my blog, there is no way how I can manage your portfolio on a remote basis (not that I want to, but just saying).

So when I heard one the good looking TV anchors say the following, here is my reaction to the same.

“This is a good time to enter the market”

What bull shit. Complete bull. Nobody, repeat nobody knows whether it is a good time to enter the market or not to enter the market.

So what do we do? We watch TV or ask our broker.

If the TV anchor says wait for 5 months, they lose a viewer for 5 months.

So we ask our broker. He lives on the velocity of our portfolio.

Both love you. They cannot hurt themselves, can they?

So they say..

‘get out of volatile stocks like commodities and get into defensives like fmcg, pharma etc’

or ‘rate sensitives will find it difficult if interest rates go up – and we are at the upper end of the interest rate cycle…so get out of rate sensitives like …’

or

‘the markets are overheated, it would make sense to sell infrastructure stocks and enter day to day consumables like fmcg’

‘Oil is likely to go to about $ 38 to a barrel – if this were to happen, RIL will hit Rs. 700 soon’. Bharti Airtel has hit a big problem in Africa, that makes it a bad buy’

Honestly I do not know how much of this is true, correct, or useful.

….was it not Warren Buffet who said if you ask a barber ‘do i need a hair cut?’ what will he say

“This way…Sir!”

So if you are a retail investor pick a nice well managed fund and do a SIP for a 30 year period. A couple of fund houses – like Hdfc and Icici allow you to AUTOMATICALLY increase the SIP amount on a regular basis. So even if you were to start with a small SIP of Rs. 5000, you can increase the amount of sip by say Rs. 1000 every year…so at the end of 10 years your sip amount is Rs. 15,000…and is growing at a good pace.

Which fund? ha, that please do your homework.

Easy for me to deal with a customer, difficult to deal with an unknown reader. Really tough.

Why do I have to remind you regularly…you know it na?’

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

Russia’s being deep sixed by the fall in crude oil prices. The Russian Ruble has crashed to a record low of 55 to a dollar, which would make its 2014 performance devastating.

That is because the crude oil prices have fallen all the way to $60 a barrel. (This is WTI, Brent is below $65)

This hurts Russia because it is a massive exporter of crude. But let’s think in rubles. If crude at $100 was giving them 3,300 rubles at the 33 USD/RUB rate, then crude at $60 is giving them the same $3,300 at 55 USD/RUB.

In that sense there is no inflation of crude prices within Russia, but a lot of other things will have gotten far more expensive, if they have to import them. That’s stoked inflation, which is running at 9%. And to attempt to control that inflation, Russia has raised rates five times, the latest one today to 10.5% (a 1% increase).… (Read On...)

One of the speakers at the recent Morningstar Conference said ‘people who have passed out in 2007 have only seen a volatile market’. To me this showed lack of understanding of the history of the markets. Sorry for being blunt, but markets have been volatile from the day they were created. More than 100 years ago when somebody from the media asked Mr. J P Morgan ‘How do you think the markets will be?’ he said ‘Volatile’. This is very true today, and is likely to be true 200 years later too.

People forget that VOLATILITY allows you to make money. In fact for the guys who understand volatility makes a great bedfellow.

Many of today’s equity sales people (never mind if they are hawking mutual funds, direct equity, pms, or life insurance) may not really have a perspective on the long-term positive attributes of equity investing. Certainly, equity markets do not always deliver positive returns in a steady upward fashion. Nor are they obliged to do so. Instead, equity markets are volatile. This short-term volatility is the reason we expect a long-term real return. IN fact many people keep wondering how compounding works in such a situation!! Shows that they neither understand markets nor mathematics.

July 2008 was an ugly month for equities – nationally and internationally. A combination of oil prices hitting record highs and bad news about credit and housing in the US caused the indices to give up a lot of its gains – tough pill to swallow.

Sudden and sharp drops in the stock market make for scary headlines and unfortunately high TRPs! However, they can also make for sleepless nights for investors who look at drops in their net worth without an awareness of the ample backdrop of historical data that shows we have been here before and eventually recovered the loss. The other problem for never say die bulls is the temptation to buy. This happens because of a disease named “anchoring” – “I have seen L&T at 4320, so it must be cheap at 2745” or “I have seen SBI at Rs. 2450, so it must be cheap at Rs. 1345”. I am not here to teach behavioral finance, but I am sure that you get what I mean.

Now in 2014 December, people pretend that the market is in a bull run and other than Subra everybody knows that. I am amused by people who say that I am scaring people away from equities. Let us get something clear – my blog gets about 5000 readers a day – and I would think many of them are equity investors, and many of them WERE equity investors before this blog was born in 2008. So obviously on those people I cannot be having an impact. I am just saying that markets are volatile. Willing to repeat it a zillion times.

I am also saying that volatile markets help you make money. Tons of it. Go learn, take your money and make it more. If you cannot run a blog like so many of us are doing.

For this reason, an understanding of stock market history enables investors to maintain confidence in capitalism and the long-term staying power of the equity markets. Reading a Peter Lynch or Buffet or Fisher surely will help you go a long way.

Post Footer automatically generated by Add Post Footer Plugin for wordpress.