Oeuvre, Value Research

Financial Resolutions for 2016

(This column was first published on Value Research Online.)

Someone you know has surely made the New Year’s resolution to work out more regularly. Most of you would probably know more than one person to has made this resolution, almost as many as those who would have resolved to eat healthier. The first few weeks of any new year are the best times for people in the business of fitness. Most of us do all we can to take care of our health in the new year, for the first couple of weeks at least. After that, it’s back the same old story of waking up late, eating out more and generally procrastinating on our resolutions. The gym membership stays unused, the green tea gets ignored and the resolutions are forgotten till another new year approaches us.

But, to a certain extent, health-related resolutions getting broken is almost a given. We’ll make them again next year, and the year after that as well. Unfortunately, we treat health-related resolutions the same way we treat their financial counterparts, which can have a detrimental effect on our finances. This, we shouldn’t do, because following financial resolutions is easier than any other resolutions.

With that said, when it comes to finance-related resolutions, the only thing one needs to do is go back to the basics. You don’t need any complicated resolutions to ensure good financial health. You can easily get by by resolving to do a few basic things:

  • Save more by monitoring and controlling your expenses
  • Don’t let the market movements govern your investments
  • Start investing to save taxes at the beginning of the financial year itself
  • Make sure your long-term investments are in equity to help you beat inflation
  • Don’t mix insurance with investment, keep things simple

These are the only five financial resolutions you need to follow in 2016. You can follow them every year, year after year. These resolutions never get old. They’re simple investment tenets that have held many investors in good stead.

Follow these finance-related resolutions because they’re easier to implement, they will give you quantifiable results and the best part is that you don’t even need to wake up early in the morning to follow them.

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Oeuvre, Value Research

2015: A Dull Year, but a Good One

(This column was first published on Value Research Online.)

The trailer was exceptional. It showed promise of everything—action, drama, even a happy ending. It promised the world, but alas, the movie turned out to be dud when compared to the standards that were set by the trailer. Fear not, this is not a review of any recent Bollywood release. The trailer that I talk about here was the year 2014 and the movie, the year 2015.

2015 has been a largely disappointing year from a financial and economic point-of-view, especially after how 2014 picked up steam in the middle and ended on a high. A lot was expected from 2015—businesses were supposed to rake in big profits, our GDP was supposed to touch the sky, the equity markets were supposed to breach new heights. Of course, none of that happened. The only positive that has come has been from the fixed income side, interest rates have come down and that is expected to bring inflation down further. But apart from that, 2015 didn’t turn out to be the blockbuster it was touted to be.

And that is not a bad thing. Why? Because 2015 has given us a reality check. 2014 was allowing us, even encouraging us, to run away with our expectations. We had taken the Acche Din slogan for granted. In fact, we had estimated 2015 to be Acche Din se bhi Beheter Din. It was almost as if we were counting our chickens before they had hatched, and it is good that we have been made to understand that we have to focus on laying the eggs properly first.

In that sense, 2015 has been a very good year. Surely, things are going to be good for India in the coming years, but 2015 has made us realise that it is going to be insidious, with its fair share of ups and downs. What it will require from investors is utmost patience and perseverance. It has now become more necessary than ever to have a long-term view. Even the punters are unable to make money in the short-term, we investors are better off not even trying.

Of course, it is easy to get drawn into political-driven euphoria. When everyone is heading for the sea, it is hard to stay put on the beach. But it just might be required to avoid getting drowned. You have to make your decisions pragmatically, not emotionally. And this is what we should be thankful to 2015 for; it has shown us the importance of not getting ahead of ourselves.

Oeuvre, Value Research

Better to Be Safe than Sorry

(This column was first published on Value Research Online.)

In life, there are a number of risky things you’ll do. Some will be planned, some ad hoc. Driving at a high speed is risky, quitting a job to start a business is risky, not having adequate insurance is risky, investing in equities is risky, not paying attention to what your wife is saying is risky. There are some acts of risk that you’ll do for the thrill, some you’ll for the lack of knowledge or awareness. I’m not someone who takes a lot of undue risk, but there are times when I feel like doing something just for the heck of it—no matter what risk is involved in it. For example, going to a new place for a haircut.

Don’t scoff; this is a legit risk. Too many of us are all too often plagued by bad-hair days even when we’ve had a decent haircut. Having a genuinely bad haircut, on the other hand, has the potential of easily ruining a week or two. The truth is that there is hardly anyone, apart from yourself, who notices your hair as much as you do. But even knowing that doesn’t stop us from thinking that the focus of the universe is entirely on our bad haircut. We think we look funny, maybe even stupid. It makes us conscious enough to welcome a sudden illness that’d allow us to stay home for a few days.

To avoid all of these problems, I don’t change the salon I visit or the hairdresser I sit down in front of. I’m fine if the chair is a different one from last time, but the dude wielding the scissor has to be the same. I’ve chosen my hairdresser as carefully as I choose my mutual funds. Experience, on both fronts, matters to me. I want a guy who has been a hairdresser for many years and a fund that has a decent track record for a long time. In both cases, I look for what I know is going to behave in an expected manner. The last thing I want is a surprise that can easily turn into a shock.

This is why it’s always best to go with what you’re aware about. Let’s say you’re a conservative investor, then it makes more sense to invest in a large-cap fund than an multi-cap fund. The former may not earn blockbuster returns, but you know that it won’t tumble horribly either. Similarly, investing in an older fund is better than a newbie because you know that the veteran has the experience of coming through all kinds of market conditions.

The risk-takers, the ones who live on the edge, might not adhere to this. They might invest in thematic funds or trending funds to earn more in a short period, they might even try a new place to get their hair cut every month. But for the conservative ones, it’s better to be safe than sorry, in both situations.

Oeuvre, Value Research

A Lesson in Disaster Management

(This column was first published on Value Research Online.)

The past couple of weeks have been entirely about Chennai. If there ever was a time for the world to restore its faith in humanity, it is now. And the unlikely source turned out to be social media—particularly Twitter—during the Chennai floods. Those days, when Chennai was receiving incessant rains and parts of the city were getting deeply submerged, the people of Twitter woke up to the crisis in an unprecedented manner. The rescue and relief operations that were carried out in the city were more than ably supported online. Twitter hashtags were used to direct volunteers and officials to people in need, who were cut off from the rest of the world and didn’t have any other means to raise awareness of their plight. There were pregnant women, school children and senior citizens among the ones who were rescued to drier quarters thanks to the heroes on Twitter. The entire operation, and modus operandi (if I may), was simply remarkable.

The cause of the excessive (an understatement, I know) flooding was put on unplanned and greedy urban development. Chennai is only limping back to normalcy, and I’m sure there will be a lot of blame-game in the coming days. But irrespective of what led to the flooding, one thing that is clear to the naked eye is that this was another case that highlighted our severe lack of disaster management capabilities. I’m not going to launch a tirade on this, because I’m in no way qualified to do so. But what I will write about is what the Chennai floods can teach us investors.

Disaster management is important for investors as well because there are certain things that are entirely out of our control. The stock market often crashes for reasons that don’t even directly affect our country. We have no way of knowing, let alone controlling, the stocks that go up or go down. We don’t know how the interest rates will be governed; even the experts can only make an educated guess. These are things that are out of our control. Any of them can hijack our investments. But we can cushion ourselves from any disaster by making sure that the things that are in our control are taken care of in an apt manner.

We can make sure we have diversified our equity investments, so that the underperformance of any one sector doesn’t have a major effect on our portfolio. We can make sure that we don’t let our decisions get influenced by short-term movements of the equity or debt markets. We can make sure we have selected the right kind of investments for the right kind of goals. So on and so forth.

Disaster management is not only about cure, it is about prevention as well. And to prevent a disaster from happening, we can put the things in our control in place so that we don’t have to be worried about the things that aren’t in our hands. Prevention, after all, is better than cure.

Oeuvre, Value Research

3 Reasons why No One should Leave India

(This column was first published on Value Research Online.)

At the time of writing this, the Aamir Khan controversy is a hot topic. It’s in the newspapers, it’s all over social media—it’s given Twitter something to do for a couple of days. The political landscape is awash with this issue; everyone’s got something to say. Some people are standing with Aamir Khan—figuratively, of course—while others are wondering which movie of his is up for release next. But whatever might be the case, I know that the controversy has spread its wings far and wide because even my granny, who lives in a peaceful world that has no place for social media, asked me about it.

However, I do hope that the dust would have settled by the time you read this. Politicians should have found new issues to one-up each other about; Twitter should have found a new topic to crack jokes about. And Aamir Khan should have found reasons to not move out of India. Hopefully. But, if he hasn’t, I have three reasons that should compel him—and anyone else—to stay put in this country.

Economy and culture

Despite what some naysayers might like you to believe, the Indian economy is poised to do really well over the coming decade. Things might not look rosy right now, but the variables are in place for an economic turnaround. To top that off, we boast of a diverse culture that allows us to not only have numerous occasions to celebrate and rejoice, but gives us a good number of public holidays as well. Where else would we get so many reasons to spend time with family and friends, enjoying delicacies and traditions that encompass an entire country.

Movies and cricket

With the exception of a couple of countries, most of the first-world doesn’t even play cricket. Haw! For any Indian, it is nearly impossible to comprehend that there are people in this world who don’t consider cricket to be a religion. And then there are movies—another religion of sorts. Cricketers and movie stars are treated as demi-gods in India and there’s nothing wrong in that because most of them are rags-to-riches stories that inspire and motivate us. Sure, other countries have movies and other sports, but Bollywood is Bollywood and cricket is cricket.

Indian funds

Most Indian mutual funds have stopped accepting investments from NRIs, particularly American and Canadian citizens. This is because of an act—Foreign Account Tax Compliant Act—that makes it mandatory for financial institutions to report investment details to authorities of those countries. Our AMCs don’t seem to want to do that. And since Indian funds have historically done well, will continue to do well, you don’t want to move away and miss out on this investment avenue, do you?

Oeuvre, Value Research

Investing with Negative Visualisation

(This column was first published on Value Research Online.)

The ‘glass half empty or glass half full’ way of looking at life is now an age-old, almost clichéd philosophy. We all know that pessimists look at the glass as half empty, but we have been told often times that we shouldn’t be that way, we should be looking at it optimistically. We should be looking at what is left, not what has gone. It’s the power of positive thinking, you see. Look at the bright side of things, there is always a light at the end of even the darkest tunnel, so on and so forth.

But recent, newer studies suggest that positive thinking might be not as effective as we’d like to believe. These studies suggest that there’s a bigger case for negative visualisation, wherein you envision what could and what will go wrong before you begin something. This method has gained ground because there are numerous examples of ambitious undertakings falling flat due to the lack of adequate preparedness.

Negative visualisation helps you stay prepared for things that could go wrong; it keeps your expectations in check and guards you against disappointments. When you’re prepared for the worst, you increase your chances of being happy with what you eventually achieve. It, in fact, helps you work with a clearer focus to make sure you don’t end up at the worst case scenario. Once you’ve envisioned that situation, you will naturally do your best to avoid it.

The power of negative visualisation is used largely by businesses, but it can be used fruitfully by investors as well. With your hard-earned money on the line, it makes even more sense to not jump into an investment decision without first properly analysing the pitfalls. Blind enthusiasm doesn’t have much of a place in investing.

It goes without saying that an investor should be aware of the pros and cons of the investment he’s getting into. More so, the cons. In an attempt to get high returns, you obviously don’t want to end up at the wrong end of the stick. A careful assessment of the risks of an investment can help you make a better decision.

This is where negative visualisation helps. If the worst case scenario of an investment is the plausibility of losing a large chunk of money, you’d be better off with something less risky. Makes sense, doesn’t it? Ironically, it positively does.

Oeuvre, Value Research

Investing for Long-term is No Joke

(This column was first published on Value Research Online.)

Some jokes never get old. For example:

Q: When does a person decide to become a stock broker?

A: When he doesn’t have the charisma to become an undertaker.

I read this joke in a Reader’s Digest edition some years back, and it never fails to get laughs when I tell it to a group of friends. Until last week, that is, when I told this joke to a group of friends and one of the scowled really hard at me. Probably because he’s a stock broker. He didn’t find it funny and I can understand why. But that’s the thing about humour—one man’s food is another man’s poison. Not everyone finds the same things to be humourous. And the problem for someone like me, who likes to be funny, is that we never know which joke will bomb or which will fizz out.

Sometimes, what happens is that you get the biggest guffaws from things that are not even meant to be funny. To cite an example, at this very gathering where I told the aforementioned joke, I got more laughs from my friends when I told them that my investment horizon for mutual funds is of 10 years and more. Imagine that! There I was, telling them something important in all seriousness and they act as if I’ve upstaged Louis CK as the funniest man alive.

But of course, therein is where the problem with most investors lies. They just can’t seem to understand the benefits of longevity of their investments. Most people think of themselves as investors, but end up behaving like punters. They can’t stay put in their investments for a long period of time. They see a market crash and they panic. They see a market rise and they get giddy with excitement. They try to sell in a crash and they try to buy on a rise, when what they should be doing is exactly the opposite. What they ideally should be doing is nothing; they should just continue with their SIPs, ignoring whatever’s happening with the markets.

But as we all know, we’re not living ideal lives in ideal worlds. In an ideal world, we wouldn’t need money or each one of us would have more than enough to live comfortably with. But since we don’t, we have to invest our money logically to make sure we save and allow our savings to grow. And I don’t need to tell you that the best way to do that is by thinking long, by staying put and by not laughing at me when I try to tell you about the benefits of saving and compounding.

Oeuvre, Value Research

No Country for Old Men

(This column was first published on Value Research Online.)

The title of this column is also the title of a 2007 Hollywood movie. Of course, it is also the title of a 2005 Cormac McCarthy novel on which the movie is based. I haven’t read the novel, but the movie is widely regarded as one of the finest book adaptations of contemporary cinema. It is also said to be one of the best to come from the director-duo of Coen brothers.

No Country for Old Men is an exceptional film. It has won all major awards that there are to be won. The title is itself taken from a William Butler Yeats poem and it refers to a strong regret of the modern times where the increasingly young population of countries is neglecting not only the needs and requirements of the old, but also the wisdom that their years of experience has to pass down to the newer generations.

This seems to be what is happening in India of late, at least in the financial sphere. We seldom tend to listen to what our elderly have to say about managing our finances. Sure, their preferred investment avenues are fixed income options, which are not going to hold us in good stead if we want to beat inflation. But the idea behind them is something perfectly adaptable by the young—the idea to begin saving from an early age. Very few youngsters, probably a negligible number, do that these days. Blame it on consumerism or materialism or any other aftermath of the modern lifestyle, the fact is that the young generation prefers to spend not only what it earns, but even what it hasn’t earned as yet. The “credit card swiping” generation has no desire to save even a bit of what they make, even though they witness the older generations reap the benefits of saving and accumulating and compounding.

Apart from the ignoring the wisdom of the elderly, the unfortunate fact is that we are also ignoring their needs. Case in point—the recent interest rate cuts that have come from the RBI. The younger generation is rejoicing, because it means home lending rates have come down. But what about the old? A cut in interest rates also leads to a cut in the interest generated by fixed income avenues like bank fixed deposits, public provident fund, senior citizen savings scheme, and such schemes that are widely used by people in retirement or for retirement. The interest they have been earning till now as it is hasn’t been enough to beat inflation and protect the worth of their capital, and now it is only going to get worse. This leaves our senior citizens with no other option but to have a higher allocation to equity than what they’d be comfortable with.

Yeats, in his poem, depicts the importance of balance in the society. Coherence and harmony are pillars of an ideal society. The poem and the movie make a strong point on that. And it’s something we need in our modern world as well.

Oeuvre, Value Research

Five Finance Lessons from Mahatma Gandhi

(This column was first published on Value Research Online.)

The thing about writing about Mahatma Gandhi is that I won’t be able to say anything that already hasn’t been said. He’s inarguably India’s most revered icon. His contributions to the nation are exemplary; having single-handedly done more than an ordinary thousand of us can get together and do.

We’ve grown up reading about Mahatma Gandhi in our history textbooks, we read about him every year on his birth anniversary, and it is seldom enough. There’s so much that we can learn from him. There are things that he has said that hold true not only for our life, but the same can be applied to our investments as well.

We think what we become

Mahatma Gandhi has shown us the importance of embracing positive thoughts and eliminating negative ones. We can use this with respect to our finances by not letting our decisions get affected by negative events that take place around us. We’ve to plan our long-term finances with a positive view of the future.

Never give up and be consistent

It pays to stick out the rough weather, no matter what situation you’re facing in life. Things aren’t always going to be hunky-dory, but they will be in the end if you can brave the bad times. The same can be said for our long-term investments. Investing systematically through all kinds of market conditions has proven to be most rewarding.

Don’t say yes out of compulsion

Many times, we take decisions to make someone else feel good. We can’t say no to some people, out of respect, out of love or out of obligations. Saying yes for the first two is fair, not for the third. More so when the decision has to do with our finances. Don’t say yes to putting your money into harmful financial products. I’m sure you know what I’m talking about here. Say a decisive no to them.

Mental strength is more important than physical

It is said that when the going gets tough, the tough get going. And what pulls them through? Their mental fortitude. A strong mind is more important than a powerful body to tackle most tricky situations. Ditto for financial adversities. Maybe you’re having trouble earning money or maybe you’re getting anxious about how your investments are faring. Stay strong and stay put. That’s the most important thing you could do to get through.

Quality of life matters more than speed

Focus on the journey, not the destination. Oftentimes, in an attempt to get more and more out of life, we don’t cherish what we already have. Achieving one’s goals is important, but so is making sure every step you take towards the goal is something you’d like to remember. When it comes to your investments, don’t strive for big returns in a short time. Try to build a portfolio of quality investments, the returns will come naturally.

Oeuvre, Value Research

Four Banning Ideas for the Government

(This column was first published on Value Research Online.)

A more apt name for this government that we elected in last year’s LS elections would be govern-ban, wouldn’t it? It seems like banning things is the government’s favourite pastime. It began with banning regular movies and documentaries, then pornography, then Maggi, then beef. In between, the Gujarat government has also banned mobile internet services a couple of times. The central government recently also proposed banning deleting messages and emails before 90 days. They didn’t go through with that, but I’m sure like someone who can’t get rid of a bad habit, they will try to ban something new next week as well. And probably, even the week after that. And the week after that too.

Since the government likes to ban things so much, I thought I’d give them some banning ideas that would actually prove to be useful for its citizens:

Capital gains tax

I know that long-term capital gains from equity are tax-free. Then, why not apply the same to short–term gains from equity and all gains from other asset classes as well? We already pay income tax, which is why it seems unfair to me that we also have to pay taxes on what we earn by investing our savings. So, dear government, ban capital gains tax.

Horns

I’m sure all of us have cringed in disbelief at someone honking incessantly, as if the other people stuck in traffic are going to start setting up picnics in the middle of the road. No one likes being stuck in traffic, and things only get worse when someone keeps honking. Apart from the fact that honking increase stress levels, it exacerbates noise pollution as well. So, dear government, please ban horns for a peaceful environment.

ULIPs

The insurance industry might cry foul, but the fact of the matter is that ULIPs are more harmful than beneficial to an individual’s finances. They’re mis-sold rampantly because they turn in big commissions. An ordinary individual would do well enough by buying simple term insurance and investing in transparent avenues like mutual funds. But very few actually know enough to not get influenced by a ULIP distributor’s rhetoric. Hence, dear government, please step in and ban ULIPs.

Bans

We might have stopped noticing, but we still do live in a democratic country. We live in a country where the government’s job isn’t to decide what’s right or wrong for its citizens. In a developing country like ours, the government has a ton of important things to be concerned about instead of telling people what to do and what not to do. So, dear government, focus on what’s important and ban bans.

You’re welcome.