Category Archives: Mutual Funds

Covid-19 Shakeup

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Greetings from PenguWIN,

The continuous fall in the equity markets has spooked almost every investor. While 2008 was a major crash in value terms, the Corona Virus impact has caused one of the fastest crashes that the stock markets have witnessed – i.e. about 33% down in less than 2 months (Sensex reached 42,273 on 20th Jan 2020) and 31.3% down from 20th Feb which is less than a month.

The question that everyone has in their mind and some people have asked me is when will we reach a bottom and turnaround. While no one can give a correct answer, which is how the stock market works, I wanted to share my opinion as an investor in the Indian Equity market for over 18 years now.

Whenever markets have gone down it has always come back strongly and breached the previous high. It’s a question of time and that could happen in a matter of few weeks or months.

The big impact to markets in the past were factors including scams, dotcom, financial crisis and the impact of SARS, Swine Flu, Ebola which are considered more dangerous than Covid 19 was negligible. However, with the power of social media, today, the spread of news and events is extremely high and gets exaggerated. The moment the Virus gets controlled like what we hear about China, markets will turnaround extremely fast. So, please do not keep looking at market information which is the best thing to do in situations like this

The number and volume of investments in Indian Equity markets by Indian investors has become significantly high including provident fund investments, insurance companies and the steady flow of SIPs which was not the case earlier, where retail investors were very limited.

The one-year FD rate offered by SBI is 5.9%. Assuming the investor has an income of 10L plus the post-tax return will work out to about 3.9%. Equities on a long term will definitely be able to provide about 11-12% and post-tax return would be about 10%. Even if we assume that the post-tax return is only 9%, the differential return will definitely be 5%+ and hence equity markets that shakes us like this, at times, cannot be ignored.

While no one can deny the fact that the experience we are undergoing is unpleasant, without pain there is no gain. Please remember that we are in a situation today were bank depositors are put in moratorium (limits on operating the account) and other than sovereign instruments (Small savings, Provident fund), nothing is absolutely safe.

<Blog # PenguWIN 1075 – Covid-19 Shakeup>

Category: Mutual Funds

Stay the course, Equities will deliver

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Greetings from PenguWIN:

PenguWIN wishes you a wonderful Vinayagar Chaturthi !!!

Greetings

There is a sense of negativity in the market with investors doubting whether Indian Equities as an asset class has lost its mojo. Returns from lumpsum investments done 3 years ago, SIPs that are 4 to 5 years old are close to zero or even negative.

Will Indian Equities Deliver? The answer is a resounding “Yes”, Stay the course and Equities will deliver. As long as businesses thrive and make profits (Automobile sector woes are a passing phenomenon), you can be rest assured that equity investments will be able to deliver higher returns than any other asset class as picturised below.

Instead of being verbose I have attached charts based on actual data that will help increase your confidence level and conviction in equity. I have picked funds that have a minimum of 10 years history and not the best performers (to make the charts look better)

Highlights

  • 10 Jan 2008 was the all-time high reached by Sensex – 21206. Investment done at this point as Lumpsum is depicted. On 27 Oct 2008 Sensex reached a low of 7697. i.e. 64% down from high on 10 Jan 2008
  • Lumpsum investment of 1 Lakh on 4 Jul 2014 and 10,000/- SIP per month starting Jul 2014
  • Advancing the SIP start date (10K per month) from Jan 2013 instead of Jul 2014.

“When there’s nothing clever to do, it’s a mistake to try to be clever.” Howard Mark

<Blog # PenguWIN 1070 – Stay the course, Equities will deliver>

Navigating Tough Times in Stock Market

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Greetings from PenguWIN:

Most people dislike uncertainty and change. But resilience to these characteristics is what makes a successful investor in Stock Markets.

Reminiscing couple of Buffets Quotes

The most important quality for an investor is temperament, not intellect. You need a temperament that neither derives great pleasure from being with the crowd or against the crowd.

Successful investing takes time, discipline and patience. No matter how great the talent or effort, some things just take time: You can’t produce a baby in one month by getting nine women pregnant”

Yes, things are easier said than done. After seeing returns slowly move up and cross 10% and even close to 20% for investors in the past 5 years (depends on entry point), going down to less than 10% is difficult to digest.

So, what can we do?

  1. Don’t lose sleep by looking at returns on a continuous basis which is dependent on the market and fund manager. Even if we change the fund, there is every chance that the earlier fund manager will do a course correction as everyone makes mistakes, while the new fund might go into a bad phase.
  2. Markets are influenced by too many factors, some logical. Political changes, Foreign Portfolio Investor (FPI) flows, Finance and Commerce ministry policies, Budget and Taxation, GDP, Inflation, sectoral issues (Coal, NBFC) and the list goes on. Again, not in our control.
  3. Time in the market is what is in our control. It has been proven across all markets that consistency of returns increases by time “n”. Also, there is no other legally investable asset class that can match equity returns and it has been proven time and again. If equity returns move down to 12% then the other asset classes will be down further by 4-5%, i.e. 7 to 8% max.
  4. Look at pure equity investments only for financial goals that are 5 years plus in horizon. Once we do that checking whether it has gone down or up in year 3 or 4 does not make sense. Also, given the criticality of a goal, whether negotiable or non-negotiable, do proper planning so that a correction in the last year of the goal erodes your corpus making the goal unviable. If it’s negotiable, then you have the luxury of postponing the goal until you reach the desired corpus
  5. Conviction in equity investing. Every time when the market tanks if you start doubting whether you made a wrong choice of asset class there is no end your misery. Typically one review per year is good enough. If your proportionate allocation to equity is significant, then once in 6 months is fine.

<Blog # PenguWIN 1069 – Navigating Tough Times in Stock Market>