Tag Archives: Wealth Adviser

Deepavali 2018 and SIP for My Retirement

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Deepavali is a special day for most of us. During my childhood days, Deepavali used be my favourite day in the entire year, more precious than my birthday, last day of school closing for annual leave or other festival days. Its not the new clothes, savouries, sweets, meet and greet family and friends that made the difference but the Crackers! Things have changed a lot in the past 2 decades, when the interest level for crackers has waned significantly, even among small children. Ironically, the courts decide when the crackers are to be burst, day, date and time and mostly, the entire family gets glued to the idiot box!

Retirement

Dhanteras is celebrated all over India on the 5th Nov, today and marks the beginning of Deepavali Celebrations! People pay respect to Lord Kubera and Goddess Lakshmi during this time. There is a long-standing custom of buying gold during Dhanteras. It is believed that a symbolic buying of gold, silver, jewellery, vehicles, property will act as a protection against ill will and bring good luck to every family member

“Goal based” investment has been gaining traction over a period of time. Among goals including buying a new house, medical corpus, world tour, kids’ higher education, retirement planning and creating a corpus for a trouble free (atleast w.r.t. to money) Golden age period is extremely critical. Various research studies show that Indians, relatively, attribute less importance to this when compared to people in other nations

We, typically give importance to our current needs like house, overseas vacations, kids education, marriage and tend to start thinking about retirement only in late forties or early fifties. In the current competitive world where disruption is the order of the day, unless we start thinking about retirement (I am referring to the cash flow part and not sitting in an easy chair and reading a newspaper free of work pressure!), early in our life, its not going to be a smooth ride. Unlike the government and public sector jobs, people working in private sector, professionals, business face the threat of stable jobs till 58 or 60 years. Retired people struggling with penury is becoming common now and more so since we have very little support from the government.

During this week from today to Friday, we are having a awareness drive to invest for retirement by initiating a SIP in Mutual Funds to emphasise the importance of Retirement goal and also use the auspicious period of Deepavali to protect us during the Retirement phase. I am anticipating every investor to contribute a new SIP this week (we have 8 already created even before publishing this note as and when I interacted with a few investors today) with the theme of “SIP for My Retirement”  

SIPs can be as low as 1000/- per month and I want to use the opportunity for everyone to participate. Whether its 1000/- or a 1 lakh SIP does not matter but inculcating the practice to start building the retirement corpus is. While a SIP of 1000/- rupees or 1 Lakh may not be sufficient for retirement depending on our lifestyle, needs among others and requires a separate retirement planning session to figure out the corpus, we can be sure that everyone of us have started thinking about retirement.

I am not initiating a business drive with this and the intent is to have maximum number of people to participate rather than the business volume. I will be publishing the number of Individuals who participated in this initiative, not names or volume, next week. The statistics will be interesting to see how many can be nudged to start thinking and investing using this opportunity. Please don’t worry about the size of instalment and the key is to participate for the cause of “My Retirement” Read it as your retirement (and not mine by creating new business 😊). Its probably a little late in the day but I was reading an article today morning which dwelled into challenges faced by retirees and took the cue from that.

Request you to send in a mail or message indicating the amount per month and we will work on setting up the plan with goal marked as “My Retirement”

<Blog # PenguWIN 1063 – Deepavali and SIP for My Retirement>

SENSEX See-Saw

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Greetings from PenguWIN:

I presume you are aware of the volatility and battering of stocks in the Indian Equity markets.

Experts attribute this carnage to a variety of reasons including Rupee depreciation, continuous increase of Crude oil price, build-up of Non-Performing Assets (NPAs), Global trade war, bank frauds, rise in bond yields, high valuation of Small and Mid-Cap stocks, Mutual Funds Recategorization and introduction of long-term capital gains tax.

Investors who started investing in Equity markets in the last couple of years and have seen their portfolio value go up significantly, have experienced the first shock of their Equity investment. Advising them on bringing in only the long-term money (5+ years for 100% equity exposure and 4 years for 65% equity exposure through MFs), align investment to financial goals, condition them to be prepared for 20%+ market falls (2008 is a different story altogether) will face the acid test now. Investors who started working with PenguWIN for over 3 years have witnessed couple of situations like this in the past and will be able to withstand the shock relatively better.

Though the key market Indices Sensex 30 and Nifty 50, have changed only a little (courtesy the weight of giant stocks like Reliance, TCS, HDFC, HDFC Bank) Small and Midcap stocks have taken a huge beating.

So, the question that comes to everyone’s mind is should we really need to worry whenever market takes huge hits?

  • First and foremost, stop looking at your portfolio on a daily, weekly or monthly basis. It’s like buying a house for 1 crore to live and keeping an eye on price movements. Please remember that whether the value goes up by 10% (1.1 Crore) or falls by 10% (90 Lakhs), it is of no consequence as you are not going to sell it (at a profit or loss) and start looking for another house. Similarly, the interim portfolio values are notional numbers and do not read too much into it. Disciplined and patient investment will be adequately rewarded by markets and I have personally experienced this. Some of you may think as “how do I know if my fund/portfolio is performing well?” Well, that is the reason why we exist and you can be assured that you are in safe hands.
  • Well, if the next question is “how can we expect PenguWIN to keep a track on all investors portfolio?” That’s true, but I have answered this in the past and reiterate it once again. My personal portfolio is extremely complex and I have kept it that way to ensure that almost all equity funds that we prescribe finds a place. Whenever I look at my portfolio, mostly once in 2 days, I keep a track on changes that a fund has undergone like stock or sector specific bet going wrong, change in fund manager, change in fundamental attributes, change in CIOs (chief investment officer).
  • Market falls happen all the time during the equity investment journey. It has happened in the past, it’s happening now and will happen in future too. This is the premium that we have to pay for the superior returns that equities generate. No pain, No gain.
  • Markets have been positive for about 75% of the time and negative for only the rest 25%. Equity market gains are never linear (like fixed deposits and other Fixed income instruments) and gains accrue in very short periods. Investment approach varies when you directly buy and sell shares vis-a-vis Mutual Fund based approach. Booking profits and trying to re-enter at attractive price points don’t work for Mutual Funds (Fund Manager has the responsibility). It has been proven many a times, when a fund manager attempts to cut the losses, hold cash and waits in side-lines trying to predict the market upturn to re-enter, has been a poor strategy and a few popular fund managers who tried to practice this approach have been exited from the MF Industry.
  • It might sound a little harsh for a few (that I am already sitting on losses), but the market provides excellent opportunities like this to deploy lump-sums. A few investors have had discussions with me on this. You could do this only if you have accumulated cash that is not required for the next 5 years. Else, stick to systematic investing. The worst thing that an investor can do in a downward market is trying to sell and move out. So, please refrain from that. If you think your risk appetite is less and can’t withstand 20 to 25% losses, then once the markets are up (no one knows when though), we can discuss and try to alter the asset allocation i.e. increasing fixed income proportion and reduce equity.
  • Lastly, financial goal definition and tracking is extremely critical. What happens when there is a market fall in the year of your goal? We need to categorize the financial goals into negotiable and non-negotiable.

If you have a goal of trying to buy a new house in 5 years and wanted to invest for that, you start moving funds from equity to fixed income before specific time horizons and not the week or month you need the corpus for buying. We need to balance the attractive returns that equities provide vs safety and below average returns (mostly negative net of taxes and retail Inflation) that fixed income instruments provide. In the case of a new house, if you can afford to wait a little more time (negotiable goal) then we could try to leverage the equity returns better. But for a goal like daughters or sons higher education or retirement (non-negotiable), we have no leeway and some gains need to be compromised

“Stock markets almost follow Pareto Principle:

20% of the efforts lead to 80% of results. In the past 18 years markets were down for 43 months (and up for 173 months) of the total time frame of 216 months i.s. 20% of the time. Fall is always faster due to negative news flows"

<Blog # PenguWIN 1062 – SENSEX See-Saw>

Carnage in Mid & SmallCap Stocks pulls down MF Returns

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Greetings from PenguWIN:

                                        Over the past few weeks, I received questions from half a dozen investors on the performance of the Equity funds and wanted to know whether their portfolio needs to be rejigged. My answer is “please hold” as it’s a phenomenon across different categories of funds, pronounced in Small and MidCap funds. The Sensex and Nifty are at all-time high with returns of 2.57% and 4.87% over the past 6 months while the mid and small caps have been battered with negative returns of (11.42%) and (16.46%). Over 50% of Mid and Small Cap stocks listed in NSE have lost more than 25% of their value.

            I am outlining some of the key reasons that has resulted in this poor performance.

  • Huge valuation of Mid and Small Cap stocks. Typically, in the past Mid and Small Cap stocks have traded at a discount to LargeCap. However, in the recent run till 2017 end, Mid and Small Cap stocks were trading at more than 200% of Price to Earnings of LargeCap (Nifty and Sensex)

 

  • SEBIs mandate on Categorization and Rationalization of MF Schemes in Oct 2017. Mutual Funds did not have clear definition of boundaries of Large, Mid and Small Caps and each fund house had its own definition. There were also multiple schemes of the same category, like 3 LargeCap funds in the same fund house. As a result of the SEBI mandate, fund houses have to merge/modify existing funds and also clean up the stocks that a scheme owns. Many funds, even Large Cap had sizeable allocation to Mid and SmallCap stocks forcing them to sell to adhere to SEBIs definition. When all fund houses tried to reduce their Mid and Small Cap stocks at the same time, there were not enough buyers resulting in steep valuation drop. Thus, MFs pressure to sell Mid and SmallCap stocks was a key driver

 

  • Surveillance Measures. Mid and SmallCap stocks are happy playgrounds for speculators and valuations go sky high without any change to the company fundamentals. SEBI in coordination with the BSE and NSE stock exchanges had been subjecting speculative stocks to surveillance measures since 2017. This covers both the changes not attributed to the fundamentals of stocks and also high volatility. Some of the highly traded stocks came under the scanner resulting in steep falls in price.

 

  • Governance Risks. Governance issues have surfaced among Mid and SmallCap companies where Auditors like Deloitte and PwC quit just before the results announcement citing inadequate disclosure. Auditors of over 30 listed companies have quit in 2018, till date, wherever they doubted the veracity of numbers. Both individual as well as institutional investors were caught unaware resulting in a selling spree bringing down the valuations to more than 50% in many stocks

 

Conclusion: While the Mid and Small Cap stocks correction might continue further, investors with higher risk appetite, investing systematically, will be rewarded handsomely. Just make sure that your asset allocation commensurate with your Risk Appetite and Risk Tolerance.

I believe the returns on investment in the poor are just as exciting as successes achieved in the business arena, and they are even more meaningful! - Bill Gates

<Blog # PenguWIN 1061 – Carnage in Mid & SmallCap Stocks pulls down MF Returns>