Chaitanya Patel

I am sure you rubbed your eyes when you saw this heading….that too on Subramoney.com (the world believes that I am a RE hater, so be it).

Let me tell you WHO should buy RE, how much, and with how much leverage:

Assumptions:

You are a 48 year old male with a CTC of Rs. 70L, your wife works too and has an income of Rs. 40 Lakhs a year. Your primary residence has been paid off in full and you are likely to inherit a nice big house in a metro from your parents. Your wife too is a only daughter and is likely to inherit one house and that too is in a prime location in a different metro. You have no clue as to when the inheritance will happen.

Your income from other sources is about Rs. 1.75L per month, AND you keep paying 30% tax on that. It sucks. You keep saying this to yourself.

Now you have an opportunity to buy a COMMERCIAL space (office) for Rs. 4 crores, and you are wondering whether to buy. You have about Rs. 1.5cr available and you can rustle up another Rs. 50 L from your wife’s investments. The question is ‘should you buy or should you not’.

THE ANSWER IS:  OF COURSE YOU SHOULD BUY….let us see and say you should…and why:

1. He has a lot of cash sloshing around, and is not invested very wisely: If he has Rs. 2 crores available it means it is lying in some not very efficient funds, it should be used.

2. Assuming he invests Rs. 2 crore of his own money and Rs. 2 crores of borrowed money (possible to borrow for commercial RE also) he will an asset which could start giving him a rent of about Rs. 1.25L a month.

3. It will be a case of negative gearing – and the LOSS that he has on house property will be set off against the salary income – this will reduce his income VERY SMARTLY.

4. He can give it on a big deposit and a very low rent, thus reducing the amount borrowed, as well as the current income.

5. It is easier to let out a commercial property – and he could enter into a longer agreement – with an annual increasing clause.

6.

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The key to quality insurance is in choosing a good quality Agent.  The word agent comes from the Indian Contract Act, 1872 and it is the Christian name for the guy who brings insurance / mutual fund / other investment or borrowing  product to your door step. Nowadays they have various names like Consultant, adviser, Financial consultant, Certified Consultant, ….and the like, but I will use the word in its real meaning!

Very many people do not think it is really material as to whether you select a good quality agent or a friendly neighborhood agent. Risk cover and wealth management are both things that you need to plan for much, much in advance before the event.  Imagine getting up on your 55^th birthday and realizing your retirement target amount is 15 years away. Imagine thinking you have cover for medical emergencies….but realizing that it is not renewed AFTER you have had an accident. It will be too late to react. So choose an agent carefully  . He / she can make your sunset years golden or red!  Lets’ look at reasons for NOT selecting a person as an agent:

1.      He is a neighbor. This can mean he is available for you, not that he is best. Typically if he has meandered in his career and at last (?) decided that selling insurance or mutual fund is his calling that may not be sufficient.

2.      The brother-in-law, sister-in-law, father-in-law syndrome. Same as above. If they have built a business over a long period of time that is a good basis for selection. Not otherwise.

3.      length of being in the business – normally this is an excellent reason to buy from a person. However in some cases it might mean that these are not enough reasons. Check if he / she is unbiased. Normally such people get stuck to one company and so many years brainwashing has lulled them into believing all good things happen only in that company and other companies are bad. For e.g. in India you will find enough insurance agents saying “private companies may not pay the claim”. This is hogwash. All private companies are reputed and have come with very, very strong partners. Lets not kid ourselves. They will all pay. In case they decide to leave India, they will sell their portfolio to an Indian company and then leave. Look at Sanmar.

4.      Its’ the bosses’ wife: I have absolutely no excuses to offer! Play it by the ear, or get your CV ready!

5.      It is a customer’s wife: keep the premium to the diwali gift level!

6.      Its your bank: They know the exact amount of money in the bank, they know where you eat, how you travel, what school your kids go to, which credit card you have, but if they cannot plan your finances, be careful.

7.      The guy who does not talk about term insurance at all. It is not to say that TERM insurance is the best, or it is most suitable, but he should offer it to you. He should tell you that there is something called top up in an unit linked plan. He should tell you about single premium products. You choose the end product. He should give you the choice.

8.      The agent / bank / advisor who sold you a plan which somebody knowledgeable called a lemon! If you have been had once, that is enough. Do not repeat it.  

Having said what CANNOT be the reasons NOT to buy from a set of people, lets look at what you can do to protect / save yourself from trouble:

1. Ask to see the agent’s insurance (IRDA) / mutual fund (AMFI) license. You actually want to be treated by a doctor, not the doctor’s husband, wife, daughter, father…..A license is personal not transferable. See it check for validity. It is yours by right.

2. Ask how many companies the agent represents– if an agent represents a number of mutual funds / insurance companies, he has the ability to look for the best policy to fit your unique needs and to find the best value for your money. PLEASE note in Indian conditions the agency system is some kind of a irrelevant condition. In one house you will find agents for 4 companies. An agent is supposed to be tied a broker is free to choose any solution for you.

3. How long has the agent been in business? How long has the agent been associated with the agency? Check the length of the association. Longer need not be better. It is only an indicator that the agent will not leave it for another business.

4. Has the agent earned any designations signifying that she has received advanced training in the business of insurance / wealth management..

5. Did you learn about this agent from someone you trust and respect?

7. What are the other things he does along with this business? In Indian conditions there are very, very few people who make a full time income by selling only insurance. If he is also selling other wealth products, that may be acceptable. However if he is a PCO owner, real estate agent, or such other businesses you might need to ask yourself “Why is he an agent”.

8. Who will handle your account on a daily basis? If it is not the agent, ask to meet the other person. Ask about his background, length of service with the agency, etc.

9. Ask how the agent perceives his role in handling claims. In case of general insurance you will live to learn! In case of life insurance you cannot even ask him for a reference! Telling him your ghost will haunt him may not be enough.

11. Ask him his educational qualifications. There is nothing to say that a qualified person is more up to date than a person who is not qualified, but it might help. CFA, CFP, CA, CWA, ACS, are all selling life insurance and mutual funds. It is an alphabet soup out there! No single qualification really means that the person understands all your financial needs. Equip yourself with knowledge. That is the real protection.

12. Is the agent a member of any local / national body of professionals which is subject to some code of conduct?

13. Has any action been taken against him in any forum? Does he have any commendation given to him by say, a neutral body?

14. If he criticizes the competition, beware of him. It may be sheer lack of knowledge. Ask him to say good things about the competition. That is a great test at being balanced. Believe me, its tough!

15. Ask him whether the money that he earns from the product that he sells is significant part of his earnings. If it is not, he is likely to give it up.

16. Make sure he understands risk cover, asset allocation, risk profiling, switching between funds, and equip yourself enough to ask all these questions.

Start with a prayer that always helps!

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Here’s wishing you a very Happy Diwali! Here’s the eighth edition of the Capital Mind Prediction Series, which tells you that it’s darn difficult to predict anything with reasonable success. Which is probably why last year I succumbed to the idiocy of making weasel rules – that is, making just two of three elements of Brilliant but Useless Predictions.

What Happened In The Last Year

Firstly, the markets went nuts. I mean absolutely nuts. The one year return, since last Diwali, on the headline Nifty Index alone, is 27% with the Nifty moving from 6,300 to 8,000. This has been a great year for stocks.

The Biggest Sector Moves weren’t in the Nifty, really. Smallcaps did the best – over 58% since last Diwali, but Midcaps weren’t too far behind at 50%. The Nifty went up 27%.

Outperforming everything else was Auto, which moved up over 50%. We really don’t know why because car sales have been flat through the period, and even though we’ve seen an excise duty cut, sales haven’t gone up quite that much.… (Read On...)

I am myself not so sure whether I have done such a post. However being a consultant, a sales person and a trainer is really an unfair advantage for being a blogger / author.

I normally deal with people in the wealth category – people wanting to invest. When somebody wants to borrow, I am not of much use. I have really no clue on where to look for good deals, what to ask, how to negotiate etc.

OK, ok do not get me wrong. I know the theory, but I have NEVER done that. I am more like a male gynaec !

These money mistakes that I saw are so so so straight forward and simple that I am surprised that people do not know THIS.

1. Spend MORE than what you earn: When people buy using a credit card, and repaying when they earn a salary, they have NO CLUE about the overspending that they are doing! Stunning? I was stunned too. Here is a simple solution: write down your expenses that you incur in cash. Then at the end of the month, tabulate the expenses. Is it more than your take home pay?

Do it over a period of 1 month, 2 months and 3 months.

See how it looks. Do you need money from your parents or spouse (once in a while) to settle your cc dues? Terrible situation, you need to be in a Financial ICU.

2. Shopping excites you? For a person completely brought up on investing and enjoying the process of investing, I am stunned by the number of people who enjoy shopping! It is so true among boys, girls, men and women. No gender or age bias. If you are in this category, take control of yourself. Find a game to play or a park to walk. Even better find a jogging park and run in the mornings and evenings. Enjoying shopping to me is like an oxymoron. It takes me 4 minutes to buy a white shirt and 3 minutes to buy a black pant.

3. Your credit card debt is being rolled over every month: this is the aids / cancer of personal finance. You are now sliding on the edge of a blade. It cannot be a pleasant experience, can it be? With interest rates of 3.5% p.m – this translates to much MORE than 50% per annum!! No way will you be able to settle this debt without a big infusion of money by SOMEBODY. You your spouse or your parents.

I can assure you one thing. If you see these 3 symptoms in ANYBODY, you can be sure that this person WILL NEVER GET RICH, unless he/ she changes attitude towards wealth creation. The start is to be made by dramatically reducing expenses and finding that proverbial Rs. 1000 every month to do a SIP…all the best.

Happy Dhan Teras and Happy diwali….and happy new year if you are celebrating it now…

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Photo Credit: whologwhy || Danger: Butterfly at work!

There’s a phenomenon called the Butterfly Effect.  One common quotation is “It has been said that something as small as the flutter of a butterfly’s wing can ultimately cause a typhoon halfway around the world.”

Today I am here to tell you that for that to be true, the entire world would have to be engineered to allow the butterfly to do that.  The original insight regarding how small changes to complex systems occurred as a result of changing a parameter by a little less than one ten-thousandth.  Well, the force of a butterfly and that of a large storm are different by a much larger margin, and the distances around the world contain many effects that dampen any action — even if the wind travels predominantly one direction for a time, there are often moments where it reverses.  For the butterfly flapping its wings to accomplish so much, the system/machine would have to be perfectly designed to amplify the force and transmit it across very long distances without interruption.

I have three analogies for this: the first one is arrays of dominoes.  Many of us have seen large arrays of dominoes set up for a show, and it only takes a tiny effort of knocking down the first one to knock down the rest.  There is a big effect from a small initial action.  The only way that can happen, though, is if people spend a lot of time setting up an unstable system to amplify the initial action.  For anyone that has ever set up arrays of dominoes, you know that you have to leave out dominoes regularly while you are building, because accidents will happen, and you don’t want the whole system to fall as a result.  At the end, you come back and fill in the missing pieces before showtime.

The second example is a forest fire.  Dry conditions and the buildup of lower level brush allow for a large fire to take place after some small action like a badly tended campfire, a cigarette, or a lightning strike starts the blaze.  In this case, it can be human inaction (not creating firebreaks), or action (fighting fires allows the dry brush to build up) that helps encourage the accidentally started fire to be a huge one, not merely a big one.

My last example is markets.  We have infrequently seen volatile markets where the destruction is huge.  A person with a modest knowledge of statistics will say something like, “We have just witnessed a 15-standard deviation event!”  Trouble is, the economic world is more volatile than a normal distribution because of one complicating factor: people.  Every now and then, we engineer crises that are astounding, where the beginning of the disaster seems disproportionate to the end.

There are many actors that take there places on stage for the biggest economic disasters.  Here is a partial list:

• People need to pursue speculation-based and/or debt-based prosperity, and do it as a group.  Collectively, they need to take action such that the prices of the assets that they pursue rise significantly above the equilibrium levels that ordinary cash flow could prudently finance.
• Lenders have to be willing to make loans on inflated values, and ignore older limits on borrowing versus likely income.
• Regulators have to turn a blind eye to the weakened lending processes, which isn’t hard to do, because who dares oppose a boom?  Politicians will play a role, and label prudent regulations as “business killers.”
• Central bankers have to act like hyperactive forest rangers, providing liquidity for the most trivial of financial crises, thus allowing the dry tinder of bad debts to build up as bankers use cheap funding to make loans they never dreamed that they could.
• It helps if you have parties interested in perpetuating the situation, suggesting that the momentum is unstoppable, and that many people are fools to be passing up the “free money.”  Don’t you know that “Everybody ought to be rich?” [DM: then who will deliver the pizza?  Are you really rich if you can't get a pizza delivered?]  These parties can be salesmen, journalists, authors, etc. whipping up a frenzy of speculation.  They also help marginalize as “cranks” the wise critics who point out that the folly eventually will have to end.

Promises, promises.  And all too good to be true, but it all looks reasonable in the short run, so the game continues.  The speculation can take many forms: houses, speculative companies like dot-coms or railroads, even stocks themselves on sufficient margin debt.  And, dare I say it, it can even apply to old age security schemes, but we haven’t seen the endgame for that one yet.

At the end, the disaster appears out of nowhere.  The weak link in the chain breaks — vendor financing, repo financing, a run on bank deposits, margin loans, subprime loans — that which was relied on for financing becomes recognized as a short-term obligation that must be met, and financing terms change dramatically, leading the entire system to recognize that many assets are overpriced, and many borrowers are inverted.

Congratulations, folks, we created a black swan.  A very different event appears than what many were counting on, and a bad self-reinforcing cycle ensues.  And, the proximate cause is unclear, though the causes were many in society pursuing an asset boom, and borrowing and speculating as if there is no tomorrow.  Every individual action might be justifiable, but the actions as a group lead to a crisis.

In closing, though I see some bad lending reappearing, and a variety of assets at modestly speculative prices, there is no obvious crisis facing us in the short-run, unless it stems from a foreign problem like Chinese banks.  That said, the pension promises made to those older in most developed countries are not sustainable.  That one will approach slowly, but it will eventually bite, and when it does, many will say, “No one could have predicted this disaster!”

I have written a lot about my mistakes in the past, this post is about financial mistakes made by others! Most of the people were past their 60’s.

I asked a few people about their BIG financial mistakes and I heard the following:

1. NOT investing early: Almost everybody had a regret that they did not invest in their 20’s. However, to be fair ALMOST all of them had a big joint family to support and did not have much of a surplus.

2. MANY people had a regret that there were NO mutual funds to invest – or they would have started some kind of an investment earlier.

3. MOST of them wish they had known about the power of equities and compounding in school / college.

4. MOST of them HAD no regrets that they did not invest in equities, because they STILL do view it as a place for rich people playing with OTHER people’s money.

5. SPENDING too much money on things that they did not find of great value.

6. MANY of them who had not kept accounts ever had no clue about how their life would have been different if they had NOT frittered away money on things that they actually did.

7. STARTING to track expenses and investments too late.

8. FATHER / ELDER BROTHER  not having ANY insurance putting TREMENDOUS pressure to earn money. This changed the career option for many – one person did ICWA (CA was a 3 year not paying anything course), one potential doctor became a Bcom, …

These were the major ones. The minor regrets were :

Supporting over demanding parents, helping siblings and friends who did not bother to return the money, none of them were regretful on the money spent on the kids education – that could also be because for people in their 60s and 70s the REAL expensive education was not really a choice….till about 10 years ago even IIMs used to cost only Rs. 2-3L, not Rs. 25 L the current cost.

WHAT DO YOU THINK ARE YOUR BIGGEST financial mistakes? Please list them here, not on the FB page

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It has been a dramatically pleasant last one year for the Indian investors. While stock markets have given more than 25% returns from Samvat 2069 to Samvat 2070, tax-free bonds could also generate 20-25% returns for the investors, followed by debt mutual funds.

While gold generated negative returns for its investors in the same period, I think a large community of investors knew that gold prices would remain under pressure due to global downward pressure and also due to the Indian government & the RBI taking several measures to keep its demand in control.

Real estate prices also remained under some kind of pressure, albeit with all the genuine reasons. While the overall prices went up at the slowest pace in the last 5-7 years, there were some pocket of areas where prices moved down by about 10-15% to as high as 30-35%. But, unlike stock markets, investors do not panic when they invest in any residential or commercial property and its market value falls to a bearable extent.

However, the idea of this post is to wish all the readers here a very Happy & Prosperous Diwali, from OneMint, Manshu and my side. I wish we have an equally pleasant Samvat 2071 as far as Indian stock markets are concerned.

I also hope, by Diwali next year, Nifty should be trading in five digits i.e. a return of about 25% plus from its current levels. With such high hopes, I wish a wonderful next one year to all the readers of OneMint !!

“Choosing a school is so difficult these days. How do I choose a school?“, remarked my colleague. She was sharing her experiences on visit to a school fair over the weekend.  It is that time of the year when parents are busy picking the school they would like to have their child admitted.. We then had  a discussion on CBSE/ICSE, About the international schools that have come up and about the rising education costs. The next academic year is still 6-7 months away, but schools start the admission process early in the year. Let’s see some facts related to private education system in India.

• Parents want their kids to get the best education possible
• Indian educational institutions are not among the front ranking institutions in the world, though Indians students have done brilliantly outside India and have top positions in many organizations.
• The number of education boards in the country has increased in the past decade, resulting in more options, but at the same time more stress, for already anxious parents. Gone are the days when a parent had just schools of state board or the Central Board of Secondary Education (CBSE) or  Indian Certificate of Secondary Education (ICSE) to choose from. Today, there is a wide range of options, including schools following the The International Baccalaureate (IB)/International General Certificate of Secondary Education (IGCSE) curricula.
• Every school promises an education system, which provides an all-round  holistic education excellent infrastructure giving a positive and challenging environment for children to develop their natural talents. Children are encouraged to be creative, independent, inquisitive, and explorative. But number of schools are mushrooming? Teachers quality is debatable, and attrition rate is High. My friend’s daughter had 3 teachers in an year!
• Education has become expensive. In our earlier article Rising Education costs!  we had shared the findings of Associated Chamber of Commerce & Industry of India (ASSOCHAM) survey How much does a school education for a child costs in 2011? Rs. 94,000 annually for single child on school education. This includes  fees,  books,transport, stationery, uniform,  educational trips,building fund, extra tuition and extracurricular activities. Break up of cost give The minimum outgo for an ICSE /CBSE school is Rs 50,000 to 1 lakh . For International curricula IGSCE/IB, it goes upto few lakhs. This is not just a one-time commitment, it is rather a recurring expense and it keeps rising year after year. Majority of parents spend on average more than Rs 18 lakh-20 lakh in raising a child by the time their teen graduates from high school.
• Education in school is just not sufficient. People are enrolling their children in tuition classes, foundation courses(for IIT starts from class 7 at many places)
• Other than school education a child goes for extra-curricular classes such as dance,music,playing musical instrument, playing games like badminton, football,cricket. And the fees of such classes are also rising.
• If you are worrying about this sharp rise in school education expense, there’s a bigger time bomb ticking away. Higher education costs are growing at an even faster rate. Average fees of Engineering course is roughly Rs 6 Lakh today, five years down the line it would be close to double meaning Rs 12 Lakh. In 10 years’ time, it’s likely to cost around Rs 20 Lakh. There is also trend of sending children to abroad for higher studies (even undergraduate). Raising the question of should I save for retirement or higher studies of children.

Choice of Curriculum : ICSE, CBSE, IB, IGCSE or State Board

The debate between concerned parents and educators on whether a CBSE or an ICSE system is better has been going on for years. With the increasing numbers of schools offering the International Baccalaureate, International General Certificate of Secondary Education (IGCSE) from University of Cambridge International Examinations and the Waldorf system; the debate has widened, providing both stress and options to parents.

Number of Schools offering  ICSE, CBSE, IB, IGCSE or State Board

As per The great Indian education debate(Jul 2013)

• For CBSE There are 12 million students in 12,504 schools including 1,002 Kendriya Vidyalayas, 1,944 government schools, 8,966 independent schools, 562 Jawahar Navodaya Vidyalayas and 30 Central Tibetan Schools,
• ICSE has 1,900 schools in India and about 1,40,878 students (including 232 abroad).
• Interestingly, players such as IB and IGCSE have also managed to carve a niche for themselves with many schools now catering to the expat and NRI community.Both the international boards came to Indian shores years ago, but in the last five years, the number of schools tying up with them has shot up significantly. While there were a mere eight institutes offering the IB programme in 2000, the number of schools offering IGCSE was so insignificant that the board did not even have records of its presence in India in 2000. However, the scene has significantly changed. Currently there are 197 schools in India offering a Cambridge education, while 99 others impart the Geneva-imported IB programme and Maharashtra, with 109 IB and IGCSE schools, leads the tally, followed by Karnataka, Tamil Nadu and Andhra Pradesh.

Curriculum : CBSE, ICSE,IB, IGCSE

CBSE  & ICSE

Both the boards CBSE and ICSE have undergone a significant change over the last 10 years and the focus has shifted from passive learning to learning through experience and experimentation. For both the boards

• There is recognition by all colleges in India.
• Good content and books.

But there are slight differences

CBSE

International Curricula : IB and IGCSE

• IGCSE and IB programmes are more practical and application-based.
• It provide students an opportunity to select courses according to their interest in the subjects of science, humanities, languages, mathematics. The courses also provide them an opportunity to mix these subjects with components of fine arts, visual arts, theatre, technical drawing, music, film making, community service, etc.
• Emphasis is laid on developing critical thinking, analytical skills, communication skills, investigative abilities, problem solving techniques, team work, independent research and other qualities valued by all international universities.
• They have a broader spectrum of subjects that lead to all-round development and are more challenging than Indian educational boards and test student knowledge, not their memory and speed.
• The IGCSE/IB programme has worldwide status and credibility. Many international universities prefer students trained in the thinking style of education. International programmes give students an edge during the college admission process.

CONS

• In the international school system, a student may select the science he wants to study. But entry to science-based degree programmes in India mandates physics, chemistry and mathematics for engineering; physics, chemistry and biology for medicine, dentistry, pharmacy and related fields like physiotherapy, etc. Though Indian universities accept the IB /IGCSE for entry into degree programmes, but students find it tough to get the high scores in order to meet the competitive selection process
• The timing of the Indian entrance examinations, in the month of May, clashes with the final examinations of most international boards. Results also come late.
• The International boards are expensive (around 5 lakh+) compared to CBSE/ICSE schools.

Points to consider if you have a transferable job

• If the parents have a transferable job and the child has to change schools frequently, they should ideally opt for an ICSE or CBSE school.
• If job involves transfer to small cities or towns(technically called tier-II ) one should ideally opt for a CBSE school. If the transfer is restricted to metros or urban areas, parents can opt for ICSE or a CBSE School. The logic is that ICSE schools are still a rare concept in smaller towns of the country
• If parents have a job with prospects of overseas postings.Then people opt for IGSCE (International General Certificate of Secondary Education) board or  The International Baccalaureate (IB) board

Website of the Various Boards

• http://cbse.gov.in
• http://cisce.azurewebsites.net/
• http://www.ibo.org/country/IN/
• http://www.cie.org.uk/

Curriculum has developed, examination system has become comprehensive, classes with less students , better student to teacher ratio, parents totally dedicated to their one or two kids. There is Google  and good websites like khanacademy.org  to help out the kids. But has the education system really changed? Is it still not too much, rote based and exam oriented. Are we still not chasing marks? She fumbled on Karan Johar’s Koffee with Karan show when she was asked  ”Who the President of India was?” Ever since then, Alia Bhatt has constantly been at the receiving at innumerable memes and jokes. But then Alia Bhatt took a potshot at herself by acting in Genius of the Year and showed how one can be caught in Black hole information paradox. How did you choose school for your child? What did you focus on? How much weight-age did you give to the Board?

No. I am not an expert on stress, but I do see a lot of people who are terribly stressed. One person I know had landed in his home town…and went to the DEPARTURE lounge and was sitting there in the club (J class lounge!). When another friend went and asked him where he was going he said ‘Chennai’. He was told he was already in Chennai…and promptly removed to a hospital.

Not all of us go through so much of stress, but some of us may NOT realize that some of these symptoms of stress exist in all of us!

Here is a check list – and remember the level at which you are DOES NOT MATTER. Kids go through a lot of stress too. In fact if you see the number of children committing suicide, you might wonder..who is more stressed:

1. Gaining Weight: If you are gaining weight, the chances are that you might also be eating wrong! Stress makes you eat wrong things, and you put on weight. We may not be calm or mature enough to realize that it is the stress that makes us choose wrong foods. See that happening to you or people around you?

2. Hassled about small things: Do you get hassled over trivia? do you scream, shout, etc. at your spouse, children, subordinates, maid…and have some of these changes been of a recent one?

3. Muscle tension: Do you see/ feel your muscle tense, knotted up and sometimes in pain? It could be in the neck, muscles of the hands and legs…and if a decent massage does not help, it is obviously stress.

4. Stomach ache, and digestion problems.

5. Hair fall, turning coarse? This is just the body’s reaction to some negative juices being generated by the body. This happens only when stressed.

6. Menstrual problems: The first sign of women being in stress is in the regularity of her cycle…

7. Sleep disorders: Not being able to sleep in the night and feeling tired during the day is one clear stress indicator. Do you suffer from this?

Of course there are other things like reduced sex drive, twitching of the eyelid, denial mode – of even attempting to quantify the problem, etc. etc.

CAVEAT: even if you think you are not stressed at all, it is worth seeking the help of a doctor…I mean a good doctor….

see if this works: http://www.therayofhappiness.com/p/home.html

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In every class on retirement planning one question which I always get a wrong answer is:

“Will you buy big assets like house, car, etc. AFTER you retire?”

It is met with an “obviously no. why do you even ask”. Well the obviously no is said and ‘why do you even ask is in the body language.

I tell them, if you get used to using a car for, say 3 years, you have a problem, do you not?

Let us say you retire at the age of 55 (highly probable) and live up to the age of 90 (sad, but again possible). This means you have about 35 years in retirement. If you use a car for say 5 years (instead of 3 at present) you will need to buy at least 5 cars (assuming you drive till 80, then, start using a driver). Also buildings that are constructed today may not last 35 years. So if you have bought a house when you are 45 years of age, that may last say for 35 years. So at your age of 80, you will have to BUY a new house!

This is not really palatable, right? Welcome to old age. Nobody said life is simple.

My father bought a house in Pune – Athashree (see www.paranjapebuilders.com) – which is a beautiful place for senior citizens to live. It has fantastic assisted living facilities.

My mom’s brother bought a place for himself in Coimbatore. My Mom’s sister bought herself a nice house in Bangalore – where they liked the weather compared to their Chennai residence. All of them were above the age of 70 when this 2nd house purchase was made. The funding came from their mutual funds, ppf, sale of equity shares.

All of them had kept their primary residence – just in case they had to come back!

So in your post retirement age you will end up buying at least one house, a few cars, a few mobiles, a few white goods appliances, a few vacations (optional), medical care, assisted living, long term care, etc.

The question is no loans will be available for these purchases. You will pay cash – and the cash will come from redeeming your mutual funds, ppf, ulips, equity shares, etc. So apart from providing for your food, medicines, etc. provide for purchase of all these assets.

The advantage that generation had was they did not see RE prices crash and leave them with assets at a diminished value. Internationally RE has done such things. So in 2014 you can find that assets are at the same price at which they were in 2004. This is called a time correction.

So imagine you are 74 yeas of age, you need to buy a new house and you are short of money. What will you do?

Move in with your children? Really?

Move into an old age home? I find many of my north Indian friends shocked that I even talk about old age homes! The south Indians are afar better prepared for that!

All the best!

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The government now merges The National Spot Exchange Limited (NSEL) with its parent, Financial Technologies (FT). NSEL has been involved in a mega scam (see Capital Mind’s complete coverage) where it was unable to payout exchange trades. The scam was that the whole thing was supposed to be a commodity exchange, but instead it was used by the exchange and by certain parties to finance themselves, with lay investors buying commodities and selling them immediately back on a forward contract to lock in returns. NSEL is a subsidiary of FT.

The problem came when the government banned the “forward” part of the scheme, which unravelled the whole thing – it turned out that the commodities that people had bought (which were sold back), didn’t even exist. That they didn’t exist was because the stocks were held by the counterparties of these trades i.e. the people who were being financed. THose being financed didn’t have enough cash (or commodities) to return, and they were just rolling over all interest and principal into new contracts, because no one was checking.… (Read On...)

Reposting this article after 4 years….as my daughter understood personal finance in class 4….

I had got Amar Pandit’s book for Children. Here is my daughter’s understanding of the book. She is in 4th standard, Apeejay School, Nerul, Navi Mumbai..here it is in her own words. I had posted a part of the article earlier too..this is the full one..

Recently my father got a copy of a book for children about Money.  Here is what I learnt from that book and I thought it will be useful for all of us to know a little about Money. So here are some important concepts about money:

Saving:
Saving money is very important. We should save money because if one day suddenly we need money we will have it with us. If we just keep on spending all the money that we get and one day we need money we will not know what to do.
I am also saving all my pocket money because I might need it in future. I have kept it in a bank account and I get interest on that every year.

Tax:
As we all know that Government pays money for various things we should never spoil those things as Government takes money from our parents in the form of tax. All those people who get regular salary have to pay tax. When we buy a movie ticket half of the money that we pay goes to the government. This is called Entertainment tax.

Investing:
Investing makes our money grow. Just as a plant grows from a seed to a plant. When we keep our money in a savings bank we get interest but if we will invest our money in fixed deposits, shares, mutual funds, public provident funds, etc. our money will grow from a small amount to a big amount faster. Real money takes more time to grow whereas a plant grows within weeks.

Insurance:
Insurance protects you from spending a big amount on medical treatment, repairs, etc. Today if I am spending a small amount on a helmet, kneepad, arm-pads, etc. this will help me in being safe while skating. I will not have to spend a big amount on medical treatment. And if I fall ill the insurance company will pay the hospital bill. This way I  and my family are spending lesser money from our pockets.

Prize Money:
We should treat our prize money just like our pocket money, because that also we have earned by working hard. We should save that money and not waste it on unwanted things. A part of the money we should spend on something fun like ice-cream and the balance we should put in our piggy bank or the savings bank account.

Banking:
We keep our money in the bank so that it is safe. The bank gives us a passbook in which we can see how much money we have deposited and how much money we have withdrawn. For using our money the bank pays us interest – this is also added to our total amount. Last time I saw there was an additional Rs. 314 interest in my savings bank account.

Credit Card:

When we are in a shop and we do not have cash with us we can buy things by using our credit card. The shop-keeper will let us take the goods because he will get the payment from the bank which has given us the credit card. However we have to make the payment to the bank after a few days when the bank asks us to make the payment. If we do not make the payment before the due date, we will have to pay interest on the amount that is due.

—end of Mridula’s article——

comments from kids more welcome than from adults -subramanyam

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Some of these things I tell my clients, and they are not too happy listening to this stuff…so let me enumerate them:

1. Managing your own money is very easy: No nobody believes this. Most people believe that managing money is a very complicated process and is a great amount of mumbo jumbo. If you want index returns, invest in an index fund, it works!

2. It is possible to invest in direct equities, but it requires effort.

3. You should be willing to learn BASIC accounting, and be willing to read, and learn. There is no escape from reading and learning. Without these two things, well equity investing is difficult.

4. You cannot do direct investing in equities without having a lot of STRESS FREE TIME, inclination, willingness and ability to lose money, and the grit to take losses.

5. You need to maintain an investment diary to see what is happening in the market AND HOW YOU ARE REACTING to those changes.

6. Market is normally rational. The investor’s reaction is irrational and many a times stupid.

7. Trading is not investing. Trading and Investing require different skills.

8. Finding a good broker today is IMPOSSIBLE. You find young graduates / MBAs who have revenue targets at the other end of the phone. Many of them do not know the difference between a Gold fund and Goldman Sachs Nifty bees.

9. Leveraging and Investing is only for the very rich who understand safe borrowing, surely not for the retail investor.

10. Couple of unscientifically done trades resulting in good profits DOES NOT MEAN you have become a good trader or a good investor . In most cases it is just luck.

11. To invest in an index fund you can ignore all the points from 2 to 10. Mail me and I will tell you how.

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“You are what you think”. A lot has to be said for POSITIVE THINKING – and the most important is what Henry Ford said.

You are right either way. If you think you can, you can. If you think you cannot, you cannot.

What are the thoughts that are HURTING your Retirement corpus formation?

I think the following thoughts are hurting your corpus formation, but I daresay that there could be more, much more, and these are not in any particular order:

1. I am making a sacrifice by saving for retirement: Banish such a thought. At the age of 27 you are not in a position to even realize how thankful you will be at 54 for this early start, and a disciplined effort at creating a retirement corpus. Just imagine you are buying FINANCIAL FREEDOM – fairly obvious, the earlier that you can retire, the better. When I say retirement I mean financial freedom!

2. I am SAVING for my retirement: Sorry folks you cannot afford to just save for investing. You need to be in more aggressive assets like equity if you need to create a sensible corpus for your RETIREMENT.

3. I am SAVING enough for retirement: At a young age of say 30 it is very difficult to know how much you should invest for creating a retirement corpus, but I can assure you MOST of the people I know are not doing enough. No need to panic, but go to calculators that tell you how much you require for retirement.

4. My financial planner has said I require Rs. 4 crores, and I will head there. Oops sorry, that is a fantastic bench mark….but you will keep changing the goal post depending on ‘life style creep’ and inflation. Unfair world, is it not?

5. Entitlement Spending: Everybody has a power bike, a DSLR, a vacation in Leh, a vacation in Egypt,….please fund your RETIREMENT before you play around with luxury toys. Such thoughts dramatically reduce your ability to invest / save.

6. I am still young: Amusing. I know of 22 year old kids who have made a start INVESTING for retirement, and on the other hand I meet 40 year old people who think that they have forever to start saving for investing. Amazed, I even found a 57 year old SO DAMN OVER CONFIDENT that his Gurgaon house will fetch his RETIREMENT CORPUS, I was stunned. He has been trying to sell it for the past 8 months – he is NOWHERE near the sale. If he does not get an extension for 3 years, there is no chance that he can retire. His Gurgaon flat will fetch him cash for say 10 years. No guesses for what he will do after that. I did ask him my favorite question: “How long are you hoping to be in Retirement?’

7. I have asked Subra whether this is the best plan and I am waiting for him to respond: Sorry chief expect only pointers from me, I am not going to plan your personal plan, UNLESS I have met and know you. Waiting for the PERFECT PLAN is fine, but you will NEVER START….

8. I do not want to retire: Develop your hobbies, support groups, fun groups, etc. …YOU WILL NEED THESE people when you retire….

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Photo Credit: ~Sage~ || King of the Beasts, eh?

It was winter in early 1995, and I was wondering if I still had a business selling Guaranteed Investment Contracts [GICs].  Confederation Life had gone insolvent the August prior, and I noticed that fewer and fewer stable value funds wanted to purchase my GICs, because our firm was small, and as such, did not get a good credit rating, despite excellent credit metrics.  The lack of a good rating kept buyers away.

Still, I felt I needed to try my best for one more year or so, despite my feelings that the business was dying soon.  With that attitude, I headed off in January to sunny Southern California, to attend GICs ’95, something my opposite number at AIG referred to as a Schmoozathon.

Schmoozathon?  Well, you took your opportunities to ingratiate yourself with current and potential clients, across four days and three nights of meetings, with a variety of parties going on.  I was not the best salesman, so I just tried to play it as straight as I could.

In the middle of the whole affair was a special lunch where Bill Gross was to be the Keynote Speaker.  Because I was talking with a client, I got to the lunch a little late, and ended up at a table near the back of the room.

Things were running a little behind, but Bill Gross got up and gave a talk that borrowed heavily from a recent Pimco Investment Outlook that he had written, comparing the current market opportunities to Butler Creek (see paragraph 6), a creek that he grew up near as a kid, which gently meandered, went kinda straight, kinda not, but didn’t vary all that much when you looked at it as a whole, rather than from a nearby point on the ground.

The point? Sell volatility.  Buy mortgage bonds.  Take convexity risk.  Clip yield.  Take a few chances, the environment should be gentle, and you can’t go too wrong.

After the horrible investment environment for bonds of 1994, this was a notable shift.  So he came to the end of his talk, and it was time for Q&A.  Suddenly, the moderator stormed up to the front of the room and said, “I’m really sorry, but we’re out of time.  We’ve got a panel waiting in the main meeting room to talk about the Confederation insolvency.  Please head over there now.”

Everyone got up, and dutifully headed over to the Confederation panel.  I was disappointed that I wouldn’t get a chance to ask Bill Gross a question, so as I started to leave, I looked to the front of the room, and I saw Bill Gross standing there alone.  It struck me. “Wait.  What don’t I know about Confederation? The best bond manager in the US is standing up front.”

So I walked up to the front, introduced myself, told him that I was an investment actuary, and asked if I could talk with him about mortgage bonds.  He told me that he could until his driver showed up.  As a result, for the next 15 minutes, I had Bill Gross to myself, asking him how they analyzed the risks and returns of complex mortgage securities.  His driver then showed up; I thanked him, and he left.

Feeling pretty good, I wandered over to the Confederation panel.  As I listened, I realized that I hadn’t missed anything significant.  Then I realized that the rest of the audience had missed a significant opportunity.  Oh, well.

As it turned out, I made many efforts in 1995 to resuscitate my GIC business.  It survived for one more year, and collapsed in 1996, with little help from senior management.  It was for the best, anyway.  It was a low margin, capital intensive business, and closing it enabled me to focus on bigger things that improved corporate profitability.  I never went to another Schmoozathon as a result, but the last one had a highlight that I would not forget: meeting Bill Gross.

I have always felt and said that for every person there are 2 dates of retiring / resigning.  The first day is when they MENTALLY resign/ retire and the second day is when they actually do so.

Recently a few people have retired / resigned and the reasons that they gave me are stunning and quite shocking…here let me share some of the reasons:

1. I know I have another 4 years to go as the CFO of the group, but I did not want to live a life of lies. Everyday I was meeting people and saying “So happy to see you” – a bloody lie. I was not happy at all meeting all those guys. I was just 5 months into this job and everything was terrible. From the composition of the Board of directors, my colleagues, etc…..IT WAS A TERRIBLE MISTAKE, now just correcting it.

2. Subra I am 27 years old if I do not quit this shit job now and do something new, I will feel miserable for the rest of my life. – a CA, male, from a rich background quit an Internal audit job and is wondering what to do.

3. This company is not adding any value to me, to itself or to society. I am moving on to join an NGO at about 1/5th the salary.

4. I am going to try my hand at social entrepreneurship, and my Investment portfolio can feed me for about 10 years….

5. My boss has no nice things to say about me. It hurts my ego…I would rather go down on salary instead of going down to ask him for a raise…

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Yesterday I did a small gig on what a Real estate agent says…and how you should interpret it…so today it is the turn of the life insurance agent.

1. Sir since you have an income, you should have a life cover: 

Meaning: You have an income, I need to increase my income, so please take a life cover FROM ME AND MY COMPANY only…all others are bad.

2. Our policies combine risk cover along with investments so it is a good option: 

Our investment performance will be dismal so you will tell your wife, look we have insurance. Your life cover will be very low, so you will tell your wife, ‘see we at least have investment’. So now you are stuck with a lousy product. Congrats.

3.  Buy this policy NOW, it is being withdrawn from 31st of October.

Meaning: the @#$%^^& IRDA has dramatically reduced the commission in this product so a new product is being launched – and I WILL EARN A LOT LESSER if you buy the new product. Alas!!

4. Do not buy Term Insurance, it is not about commission, I get 25% commission anyway.

Meaning: He is being truthful, but 25% of Rs. 6000 is only Rs. 1500…however if you buy an endowment plan with a Rs. 40,000 premium I will get about Rs. 16000 as commission. Same difference.

5. Okay if you MUST buy Term, buy term with return of premium – at least you will get back the amount paid!

Meaning: If you buy term with ROP my commission is assured for the next 30 years because you cannot throw away this product for another 30 years. Actually I am securing my RETIREMENT not your LIFE.

6. Our company is excellent in the Claim Settlement Ratio

Meaning: I have no clue about what this means, please ask my boss or Pattabhiraman Murari of www.freefincal.com

7. We will pay an excellent TERMINAL bonus, so our ANNUAL bonus that is attached to your policy is low.

Meaning: Our current CEO has made us tell this, however we are now paying a very poor terminal bonus – you see the CEO who promised has retired..and by the time you get the claim you would have forgotten, but hey this is a brilliant sales pitch and worked for us for the past 10 years. But yes, will pay a big TERMINAL bonus in 2044

8. See the illustration it is for 10% and the amount at maturity is Rs. 2,12,44,543.55 now imagine (like last year) if the return is 20% – the amount can exceed Rs. 5 crores! 

Meaning: Sorry sir, I have no clue how or why I made this statement, but my sales manager asked me to tell this. After all you are also mathematically challenged and will not understand this shit, right? Just buy it. I once attended  a training by Subra and he said ‘illustration is a cost illustration and not a return illustration, honest to God, I have no clue what it means.

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At jagoinvestor we have always been trying new stuff  and this time we are coming up with 5 article series on the topic of INCOME every Thursday. These articles will be inter connected and they will help you to work on any one specific area related to money, this time we are going to focus on increasing your income (I know that you are interested in this topic). Now, there is...

The post 8 Core Reasons – Why your income level remains STAGNANT (part 1/5) appeared first on Jagoinvestor - Personal Finance Blog.

Photo Credit: sea turtle

This is another episode in my continuing saga on dollar-weighted returns. We eat dollar-weighted returns.  Dollar-weighted returns are the returns investors actually receive in a open-end mutual fund or an ETF, which includes their timing decisions, as opposed to the way that performance statistics are ordinarily stated, which assumes that investors buy-and-hold.

In order for active managers to have a reasonable chance of beating the market, they have to have portfolios that are significantly different than the market.  As a result, their portfolios will not behave like the market, and if they are good stockpickers, they will beat the market.

Now, many of the active managers that have beaten the market run concentrated portfolios, with relatively few stocks comprising a large proportion of the portfolio.  Alternatively, they may concentrate their portfolio in relatively few industries at a time, as I do.  Before I begin my criticism, let me simply say that I believe in concentrated portfolios — I do that myself, but with a greater eye for risk control than some managers do.

My first article on this topic was Bill Miller, who is a really bright guy with a talented staff.  This is the “money shot” from that piece:

Legg Mason Value Trust enthused investors as they racked up significant returns in the late 90s, and the adulation persisted through 2006.  As Legg Mason Value Trust grew larger it concentrated its positions.  It also did not care much about margin of safety in financial companies.  It bought cheap, and suffered as earnings quality proved to be poor.

Eventually, holding a large portfolio of concentrated, lower-quality companies as the crisis hit, the performance fell apart, and many shareholders of the fund liquidated, exacerbating the losses of the fund, and their selling pushed the prices of their stocks down, leading to more shareholder selling.  I’m not sure the situation has stabilized, but it is probably close to doing being there.

Investors in the Legg Mason Value Trust trailed the returns of a buy-and-hold investor by 6%/year over the time my article covered.  Investors bought late, and sold late.  They bought after success, and sold after failure.  That is not a recipe for success.

Tonight’s well-known fund with a great track record is the Fairholme Fund. Now, I am not here to criticize the recent performance of the fund, which due to its largest positions not doing well, has suffered of late. Rather, I want to point out how badly investors have done in their purchases and sales of this fund.

As the fame of Bruce Berkowitz (a genuinely bright guy) and his fund grew, money poured in.  During and after relatively poor performance in 2011, people pulled money from the fund.  Even with relatively good performance in 2012 and 2013, the withdrawals have continued.  The adding of money late, and the disproportionate selling after the problems of 2011 led the dollar weighted returns, which is what the average investors get, to lag those of the buy-and-hold investors by 5.57%/year over the period that I studied.

(Note: in my graph, the initial value on 11/30/2003 and the final value on 5/31/2014 are the amounts in the fund at those times, as if it had been bought and sold then — that was the time period I studied, and it was all of the data that I had.  Also, shareholder money flows were assumed to occur mid-period.)

Lessons to Learn

1. Good managers who have ideas that will work out eventually need to be bought-and-held, if you buy them at all.
2. Be wary of managers who are so concentrated, that when they receive a lot of new cash after good performance, that the new cash forces the prices of the underlying stocks up.  Why be wary?  Doesn’t that sound like a good thing if new money forces up the price of the mutual fund?  No, because the fund has “become the market” to its stocks.  When the time comes to sell, it will be ugly.  If you are in a fund like this, where the fund’s trading has a major effect on all of the stocks that it holds, the time to sell is now.
3. There is a cost to raw volatility in large concentrated funds.  The manager may have the guts to see it through, but that doesn’t mean that the fundholders share his courage.  In general, the more volatile the fund, the less well average investors do in buying and selling the fund.  (As an aside, this is a reason for those that oversee 401(k) plans to limit the volatility of the choices offered.
4. Even for the buy-and-hold investor, there is a risk investing alongside those who get greedy and panic, if the cash flow movements are large enough to influence the behavior of the fund manager at the wrong times.  (I.e., forced buying high, and forced selling low.)
5. The forced buying high should be avoidable — the manager should come up with new ideas.  But if he doesn’t, and flows are high relative to the size of the fund, and the market caps of investments held, it is probably time to move on.
6. When you approach adding a new mutual fund to your portfolio, ask the following questions: Am I late to this party?  Does the manager have ample room to expand his positions?  Is this guy so famous now that the underlying investors may affect his performance materially?
7. Finally, ask yourself if you understand the investment well enough that you will know when to buy and/or sell it, given you investing time horizon.  This applies to all investments, and if you don’t know that, you probably should steer clear of investing in it, and learn more, until you are comfortable with the investments in question.

One final note: I am *not* a fan of AIG at the current price (I think reserves are understated, among other things), so I am not a fan of the Fairholme Fund here, which has 40%+ of its assets in AIG.  But that is a different issue than why average investors have underperformed buy-and-hold investors in the Fairholme Fund.

I was having a discussion with my friend about the fact that if a mobile app is successful, then it earns billions of dollars. While Instagram and WhatsApp may be very good examples of how much big a success could be , it is often not the only definition of entrepreneurship.

That gives little comfort to about five hundred thousand or so developers whose app remain in the “not acquired” territory. They are still struggling to make the app seen by people.

The hype given about venture capitalist funding an app or an idea sometimes hides the fact that a business is here to make money. Whether it gets funded or not , it needs to develop cash flow for its existence. When you earn 1 million or $1 , it still is some percentage of the investment that has been made.

Side note : There is a stereotyping of entrepreneurs because of this kind of activity http://www.entrepreneur.com/article/232631

A main difference is in between profit and profitability. Of course with bigger money one can advertise better and get known but still one day one needs to show the profits on the income statement. The better measure of strength of a company is its profitability.

From this article http://financenmoney.in/profit-vs-profitability/, one can easily differentiate between profit and profitability. The profitability is often more important than actual profit because it indicates that business is doing well and it is providing a high return on the invested capital.

That takes me to the original argument that 500000 app developers are waiting for someone to fund them or acquire them so that they can reap in the riches.

A smart business on the other hand concentrates on the cash flow. If there is no cash today, the business shuts down. Period. A smart business waits long time to turn not only profits but also become profitable. A smart business shows its investors that their money is being put in stable long term business which will reap great rewards in future.

It is a good idea to pitch to the money lenders but then without a business model that brings in the right amount of cash, its going to burn up money fast. The dotcom boom ( now almost a memory ) served us good lessons.

Great businesses are those that can set up solid cash flow and get repeat customers. If investing was the only criteria a solid business could be built , we would see thousands of apps listing on public stock exchanges.

Photo Credit: Beto Vilaboim || No, you are not crazy — it *is* hopeless

I thought of structuring this post like a fictional story, but I couldn’t figure out how to make it good enough for publication.  Well, truth is often stranger than fiction, so have a look at this Bloomberg article pointing at a 37% loss in the ProShares UltraShort 20+ Year Treasury (TBT).

A few points to start with: shorting is hard.  Leveraged shorting is harder.  I think I have reasonable expertise in much though not all of investing, and I put most shorts in the “too hard pile.”

That said, I have taken issue with the “interest rates can only go up” trade for 8-9 years now.  It is not a major theme of mine, but I remember a disagreement that I had with Cramer over it back when I was writing for RealMoney.  (I would point to it now, but almost all content at RealMoney prior to 2008 is lost.)

Many bright investors (usually not professional bond investors) have taken up the “interest rates can only go up” view because of the loose monetary policy that we have experienced, and thanks to Milton Friedman, we know that “Inflation is always and everywhere a monetary phenomenon,” or something like that.

Friedman may or may not be right, but when banks do not turn the proceeds of deposits into loans, inflation doesn’t do much.  As it is, monetary velocity is low, with no signs of imminent pickup.

At least take time to read the views of those who are long a lot of long Treasuries, and have been that way for a long time — Gary Shilling and Hoisington Management.  Current economic policies are not encouraging growth, and that is true over most of the world.  We have too much debt, and the necessary deleveraging inhibits growth.

Think of this a different way: we have a lot of people thinking that they will retire over the next 10-30 years.  To the extent that you can live with the long-run volatility, I accept the idea that you can earn 6-8%/year in stocks over that period, so long as there isn’t war on your home soil, or a massive increase in socialism.

But what if you are running a defined-benefit plan, investing to back long-dated insurance products, or just saying that you need some degree of nominal certainty for some of your assets.  The answer would be debt claims against institutions that you know will be around to pay 10-30 years from now.

In an era of change, how many institutions are you almost certain will be here 10-30 years from now?  Personally, I would be comfortable with most government, industrial and utility bonds rated single-A or better.  I would also be comfortable with some municipal and financial company bonds with similar ratings.

If followed, and this has been followed by many institutional bond investors, this would result in falling long-term yields, particularly now when economic growth is weak globally.

Now, rates have fallen a great deal over 2014.  Can they fall further from here?  Yes, they can.  Is it likely?  I don’t know; they have fallen a lot faster than I would have expected.

I would encourage that you watch bank lending, and to a lesser extent, inflation reports.  The time will come to end the high quality long bond trade, but at present, who knows?  Honor the momentum for now.

Full Disclosure: Long TLT for my fixed income clients and me (it’s a moderate part of a diversified portfolio with a market-like duration)

Over half of American startups are gone within five years. Most of the survivors barely stumble along. Shikhar Ghosh of Harvard Business School (HBS) found that three-quarters of startups backed by venture capital—the crème de la crème—failed to return the capital invested in them, let alone generate a positive return. In 2000 Barton Hamilton of Washington University in St Louis compared the income distributions of American employees and entrepreneurs, and concluded that the latter earned 35% less over a ten-year period than those in paid jobs.

John Gartner, who teaches psychiatry at Johns Hopkins University medical school, suggests that a disproportionate number of entrepreneurs may suffer from hypomania, a psychological state characterised by energy and self-confidence but also restlessness and risk-taking. Numerous studies confirm, at the least, that they are prone to over-optimism.

“To sell high-quality cell phones at so low a price, Xiaomi keeps each model on the market far longer than Apple does. On average, a new version of a phone is launched every 265 days in the industry – down from 345 days in 2009. But Xiaomi doesn’t renew its product for two years. Then, rather than charge high prices to cover the high cost of state-of-the-art components, Xiaomi prices the phone just a little higher than the total cost of all its components.

As component costs drop over the two-year period by more than 90%, Xiaomi maintains its original price, and pockets the difference. So essentially its profit formula is the opposite of Apple’s, which collects its highest profits with the introduction of each model and needs to come up with new model after new model to keep those margins up.” [Via : HBR]

[Curated By NextBigWhat]

The post Understanding Xiaomi Business Model : It’s Not About the Phone. appeared first on NextBigWhat.com

A brilliant move by Sebi to remove the upfront commission in the mutual fund industry. Awesome.

What is the implication of this?

1. Will the Investor get a better NAV? NO. he was anyway not paying any load.

2. Will the big distributor be hit? I mean somebody who has say Rs. 50 crores Aum and has been around for say 15 years? NO. Not at all.

3. Will it hurt the amc with say more than Rs. 50,000 crores aum? No. Not at all.

4. Specifically will it hurt Templeton? No, not at all, they have been paying trail for a very long time.

5. Who gains by doing this? Difficult to say.

6. Why has this been done? Difficult to say.

7. Will it benefit the Asset management Companies? Yes the big ones – because if the small ones are rendered ineffective, more money will flow to them.

8. Is it a deliberate ploy to get rid of the small mutual fund houses? Come on do not be so blunt. None of us are so brave to say that.

9. Will banks stop getting paid for doing business? Upfront commissions, yes, surely.

10. You mean banks will not be paid ANYTHING  for bringing business? No, not exactly.

11. Are you not contradicting in points no. 9 and 10. Well no. Banks will be reimbursed for conducting training, travel, bank employees will be sent to Goa, Egypt, West Indies, US or Europe depending on how well they do. Of course the AMC what these guys do in these foreign locales. Y

12. Subra you mean the regulator does not know this?

I do not know. Will the regulator allow such things to happen? Of course not.

13. Unlucky number!!

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DLF and six of its directors have been banned from accessing the securities markets for three years. Because they lied during the IPO.

The details are fascinating. This SEBI report has phenomenal investigative details, and let me try and decode this for you:

• DLF owned some companies as subsidiaries
• Just before the IPO they moved the holding of these companies to the wives of key executives
• so that these companies weren’t shown as subsidiaries
• But DLF still controlled them (an employee was even the cheque signatory!)
• And DLF had rights to develop the land owned by these companies
• So much land that it was 38% of the company’s total land reserves
• And the wives of key executives had no other sources of income (in this context, housewives)
• So how did they pay for their stake?
• Their husbands took personal loans. And put the money into joint accounts with their wives.
• The wives paid for their stake.

Have been in the RE market for the past 5 months trying to buy a house. Obviously unsuccessfully. However in this period I have met about 5 brokers and they are all SIMILAR in what they say. Mostly they take me to a fellow broker (funny?) who represents the seller.

Here are some of the things that they say….along with what I understand.

1. It is a very quiet location.

What I hear: Even at 6 pm you will not be able to get a rick or a taxi anywhere near!

2. Better to buy here without a bank loan.

What I hear: It is a 20 year old building and the finance companies will not touch it.

3. It is a well managed society.

What I hear: they do not throw chairs at each other at the meeting, only blows are traded.

4. It has a sea view

What I hear: Yes, if you have a 3 foot neck.

5. It has a covered garage.

What I see: Closed only at the top. All the sides are open.

6. The client just rejected an offer for Rs. X

What I hear: We were not sure if he had the ability to pay X Rs.

7. The client is not in a hurry to sell.

What I hear: the client has not been able to sell it for 6 months.

8. The client has reasonable expectation on the price.

My view: about 30% over the last done deal.

9. This location is at a premium

What I hear: Look the house has to be redone completely. All we have is location.

10. You will have to spend some money on the interiors.

What I see/ hear: the internals of the house is so damn bad that you will spend 30% of the cost just to make it livable.

11. The client is going abroad next week, and needs to close asap.

What I hear: he needs the bloody cash, and you can squeeze for a 20% discount even without asking!

12. It has excellent potential for a nice rental income

What I hear: If you are in your right mind, you will not live here.

13. The doctor has asked the client not to live in a house with 3 levels.

What I hear: We are trying to move to a same level house, but it is damn expensive.

14. The previous tenant left without completing the term.

What I hear: You want to sell because you cannot get a tenant!

15. We do not mind renting it out if we cannot sell it.

What I hear: Exactly why it has been on rent for the past 5 years?

16. It is partly furnished.

What I hear: His wife did not want the old sofa and cupboard with peeled doors.

17. The society may not allow your workers to work in the afternoon.

What I hear: your workers will come at 11am and have tea. At 1pm the building manager will ask you to stop work till 4pm. At 6 pm your workers will leave. I dare you to get your work done.

Will you please add your favorites in the comments section?

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