Category Archives: Personal Finance

Greed prevails over Common Sense

Posted on by

Greetings from PenguWIN,

                           More than a decade back, Jewellers including Balu, Shanthi and a bunch of others were giving high interest rates of about 15 to 20% for deposits collected by them – one time FD with post-dated interest payment cheques. These are not jewellery plans that are run even today (Lalitha, NAC), where you deposit money on monthly basis like RD and after a period of time investors get 1 or 2 instalments of bonus plus discounts in making charges. The money was supposed to be used for the jewellers working capital and expansion plans. Retail investors, including a few close relatives of mine invested looking at the shop’s infrastructure and the amount of gold stock held by them only to be fooled by disappearing business owners. 

Next came the game of Benefit Funds – Alwarpet benefit fund, Royapettah benefit fund and investors were conned by them – again by promise of high returns and they were lending to high risk businesses including movie finance. I have seen interest warrants being held by elderly people even after 5 years of shutting down of these benefit funds thinking they will be able to salvage some money.

This game continued (variants of similar promises) with growing Teak Farming (profits by growing sapling to fully grown trees that can be sold at high price commanded by Teak wood), Emu Farming  (feeding the birds with food supplied and harvesting the meat of full grown birds, which was a few months of home keeping) only to see the rampage of birds not being fed properly, running on roads similar to the dinosaurs that we have seen in movies.

In none of the above scenarios, investors were promised of 100% returns but was well above market returns and for the incremental return, risk taken by gullible investors were high. In the latest story of Vellore based LNS International Financial Services (IFS) that seemed to have collected thousands of crores, returns of Rs. 8,000 per month or Rs.96,000 per annum, close to 100% per year has been promised. They have used 10,000 agents to mobilize money/deposits and one of the agents who mobilized deposits and also invested his money by selling lands has committed suicide. I was told that the mastermind behind this initiative gets exclusive coverage in the first page of a popular Tamil magazine

It’s very unfortunate to hear the pitiable narration of investors in some news channels. Is it that the common man can never think rationally and can get conned easily as this is a different game and not like the earlier one or so called better articulated story.

As long as there are gullible investors Greed will prevail over common sense and it’s different this time. 

People come up with new attractive narratives and take common man for another ride, like promising a rocket ride directly to heaven!

<Blog # PenguWIN 1081 – Greed prevails over common sense>

Category: Personal Finance

Retirement Planning – 2019

Posted on by

Retirement Planning

My Learnings from Stock Market

Posted on by

Greetings from PenguWIN,

I am sure every investor, especially those who have been investing for more than 3 years, would have their equity returns at all-time high. The compounded annual growth rate, CAGR, has risen to enviable levels, something which I haven’t seen in the past 18 years, since I have been investing.

From a long term perspective we can expect this number to be 11-14% which is Inflation plus our GDP(India’s Gross Domestic Product or aggregate value of goods and services at market price).

I wanted to share a few observations in this scenario:

  • Don’t get anchored on the fancy numbers that you see in your portfolio now and the reality in the long run, atleast the next decade would be 11-14%. No other asset class can come even closer to this, unless you are counting on black money

 

  • Interest rates are expected to be low. So, you can bid adieu fixed income returns, including Bank FD, Post Office NSC, PPF of more than 8% (8% itself is a little high). Post taxes and inflation this would be negative or close to zero. So, it would be difficult to almost impossible for investors, not to take any equity exposure. In the past there were planners who advised investors to move totally out of equity once they retire and survive with Bank FDs, Post Office MIS, SCSS, Annuities and so on. Those days are gone and unless you build a huge net-worth or corpus or would be receiving inflation adjusted pension from Government, chances are you will not have a peaceful retirement, without exposure to equity 

 

  • Financial Assets are relatively safe and have high liquidity. You don’t need to run behind your tenants, usurpers, courts or wait for years to monetize your assets. The trend that I see over the past few years is that the youngsters or many in my generation don’t have a liking for Real Estate as an asset class. Women in the same age group are not excited about huge amount of Jewelry or Silk sarees. Sleek and simple is the order of the day. If you leave an asset like golden belt (not sure what it’s called) that is worn by ladies around the hips with silk sarees, the chances are it will never come out of the locker or going to get traded for something of better use.

 

  • A few of our investors could not take the volatility that the equity markets provide. I normally say that equity investments are for over 5 years’ time horizon and blended or hybrid products can be looked at for 3 years. They listen to it, feel convinced and start the journey. However they keep losing patience whenever there are dips and need to be reinforced.  Nothing comes free and you need to be prepared for the roller coaster ride. 2 of our customers missed the current run, big time, though one has already started again in the last quarter. I wish I could have counselled them better and asked them to hold. The opportunity loss for them was huge. I had a similar situation in 2008-9 crisis when my wealth erosion was significantly high. But, I persisted and stayed quietly. No mentors or anyone to look up to during that period and it was DIY. I have never been let down since then and comfortably rode the numerous falls since then.

 

  • I keep reading that there are lot of youngsters who take inputs from various sites, applications and there are plenty out there. I have seen atleast 12 people giving market tips, teach stock market basis, defend a few stocks or say they are the next Infosys or HUL or Amazon or Google. Where is DSQ, Pentafour, Satyam, BaaN, Microland now? Where is Anil DAG now, who was given equal or close to (MDAG) that in 2007, the worst corporate story that I have come across in the entire world. How many people know that for a Flipkart or Zomato or Oyo there were dozens of companies that never saw the limelight. Without understanding our markets, people have started chasing Amazon, Google, Facebook FAANG and what not with websites enabling to buy international stocks

 

           Euphoria of New Fund Offers – 

                                                                                                          …..To be continued