Tag Archives: Mutual Funds Distributor

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>

PenguWIN Turns 5!

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Greetings from PenguWIN:

Today, we are completing 5 years of business and stepping into 6th year. It was on 4th July 2014 that we started this journey and we have made good progress so far; thanks to our clients, friends and well-wishers. Businesses like us thrive on references and the experience that we are able to offer to clients. I sincerely request you to provide your support on this.

PenguWIN Turns 5!

There are a couple of observations that I wanted to share. It might not be new but given the importance, reinforcement would definitely help:

Equity as an asset class is proven to give the maximum returns over a long-term period, longer the better. That does not mean that 50 or 75% of our investments needs to be in equity and the allocation to equity required varies from person to person. However, I come across 2 types of investors:

  • Investors who continue to believe that they don’t want to take any risk and invest only in guaranteed return instruments like Bank and Postal FDs, Provident Funds, Bonds. However, even pension money and provident fund money gets invested in Equity and Corporate bonds (Mutual Funds) as guaranteed returns of 8.5% is too high a number to sustain. Risk is there in all aspects of life. Rather than avoid risks, we should be able to manage it effectively. Is it possible to stop driving saying accidents are increasing or avoid a bypass surgery as there could be a negative outcome?
  • While the first type of investors are totally risk averse (though changing slowly) the second type of investors think that small investments in equity will take care of their corpus requirement. For an investor who takes home a salary of 1 lakh/month, having a 10 L sedan car, living in an apartment valued 75 Lakhs with a home loan of 60L, a SIP of 10k/month will not make a difference. Assuming a return of 12%, 5 years investment totalling 6L will result in a corpus of approx. 8 lakhs, which is too small a number to make an impact. In 5 years, the person’s salary would have doubled but instead of a proportional increase in SIP, they continue with the same number of 10k/month.

Retirement is one of the most critical goals for us and given the increasing lifespan, lifestyle related diseases that is affecting people at an early age, shortened career span of people in certain industries, this is an area where meticulous planning and tracking needs to be done to ensure a sufficient corpus.

Consistency in returns from equity increases with time. While the initial years will have wild swings of corpus returns, they will stabilize over time. When we say that 5+ years is the time horizon for equity investments, it is based on business cycles and historic return pattern. Rather than looking at the returns from equity funds on a continuous basis and trying to change the fund, time in the market or duration of investment is important. That does not mean that we have to stick with funds with below average performance for a long time but allow that decision to the financial advisor

Once again, we thank you for your support and will continue to conduct business with utmost sincerity, keeping clients interest first.

Games are won by players who focus on the playing field — not by those whose eyes are glued to the scoreboard. – Warren Buffett

<Blog # PenguWIN 1068 – PenguWIN turns 5!>

Have you accounted for Lifestyle Inflation?

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Greetings from PenguWIN:

On analysing the portfolios of large number of investors, I find that that once they start their Systematic Investments (SIPs, STPs) to build a corpus, with or without specific goals, there is a tendency to feel that their personal finance is in place. Specifically, when SIPs are started in equity funds, investors feel that it’s the universal panacea for all their financial needs.

Let me explain it further with an anecdote. Vikram, aged 25, is a fresher in software field, with a monthly salary of Rs. 35,000. He is keen to buy a Maruti Swift that costs about 7 lakhs. He does not want to take a car loan and wants to fund it by accumulating a corpus through equity funds, with a 5-year time period in mind. He shortlists 2 funds to start SIPs worth 6000/- using an online SIP planner (there is no dearth of such tools today). Vikram pursues this goal meticulously and accumulates the money required in 4.5 years (thanks to the favourable market condition), 6 months ahead of his planned date.

His salary has grown over a period of time to over a lakh/month and he manages a team in his organization. He is happy that he has achieved his first milestone of buying a big-ticket item. When he shares this news with his peers and friends, they don’t seem to be excited like him and few tell him candidly that he should to buying a 10 lakhs+ Car (Honda City, Verna,  Vento) or atleast a compact sedan (Amaze, Ameo, Dzire), if he is not comfortable with a 10L+ car. Vikram is upset that his first major accomplishment has become insipid. 

Another person Veda, buys a 2BHK apartment, without sizing it properly or not thinking atleast 10 years ahead (happens to many of us). He repents later that his house is a atleast a room short, as he had planned it based on his financial situation (affordability), early in his career. When he can afford, the prices have already skyrocketed and you can’t just pay an incremental amount for the 3rd bedroom, unless you own an independent house, which is becoming rarity

So, what went wrong in Vikram and Veda’s case?

Both Vikram and Veda did not factor in Lifestyle Inflation or what becomes necessities at a later point in time.

<Blog # PenguWIN 1067– Have you Accounted for LifeStyle Inflation>