What's Wrong With Mistakes, Learn from Them!

From about 2003 till early 2008, there was a feeling of invincibility for all investors. No matter what the investors did, they made lots of money. No mistake seemed to matter. Whether it was a the wrong fund, a heavy sector concentration, or a disfigured asset allocation, it all worked out.

But times have changed now. Errors in financial judgement can carry a heavy cost today. While what was done in the past cannot be undone fully, some of the ill-effects of financial mistakes can be corrected.

So it's time to ask yourself the following questions?

• Is my Fund selection aligned to my financial goals?
• Am I properly diversified?
• Do I have an asset allocation strategy in place?

Very basic questions. But once you have figured out the questions, the solution is on the way.

Every problem has a solution has been heard so many times. How about the following:

Solutions are fun, but to get one, you need a problem. So what's wrong with problems?

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Investing in India: A CNBC Perspective

Lee Brodie says that India might not compare to China in its Olympic fortunes but the tiger of Asia’s economy certainly rivals China it its ferociousness.

Growing at least 7% annually since 1996 India secret weapon is its workforce. The world's most populous democracy is filled with well-educated professionals who export IT and other technology related services.

However, Inflation over the last 12 months surged 12 percent which, in turn, sent India's stock market down 26 percent.In recent weeks, Indian government officials have lowered gross domestic product growth forecasts. And a $15 billion debt relief package for poor farmers and a pay hike for civil servants have added to budgetary strain.

Read his recommendations on CNBC

Western Traveller Guide's Financial Wisdom from India

There is an interesting perspective by a Western traveller to South India on Indian financial habits. He says,

The majority of Indian people have never been too rich but seem to manage living a healthy and happy life.
The lifestyle of people in India may or may not fully suit you but nevertheless you can learn from them to manage a simpler life with less stress, less consumption and, it seems that, more joy.

Read his full post.

I feel that we are generally strong on our savings habit while the westerners live on credit. But living frugally is only one part of doing it right. The other part is to maximise your wealth. We can learn from westerners on that count.

Questions to ask your financial planner

I wonder when we will have financial planners in large numbers in India. More often than not, we are accosted by Insurance agents, Mutual Funds advisors, Brokers, etc. Very few holistic planners, really How do you unearth the hidden identity behind your "Friendly Financial Advisor" ? We are not used to asking direct and uncomfortable questions. But if you are one who could ask, here are the questions. To other soft people, they can try to ask through some indirect questions. The direct questions could be:

What experience do you have?How long you have been doing this? What are your qualifications? What licenses do you hold? Are you registered as an investment adviser? What services do you offer? What is your approach to financial planning? Will you be the only person working with me? How will I pay for your services? Is it fee based or commission based? How much do you typically charge? Do you get additional compensation or financial incentives for selling particular products? Could anyone besides me benefit from your recommendations? Do you have an affiliation with a broker/dealer? Do you insist on managing client assets, or are you willing to give advice to clients who wish to maintain control over their own brokerage account(s)? Do you have a written client agreement? Can you ask? What other things you would ask? Let me know!

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Gold should be a significant chunk of one’s portfolio

V. Anantha Nageswaran is head, Investment Research, Bank Julius Baer & Co. Ltd in Singapore and writes a weekly column in Mint , which I love.

Today's article recommending Gold as an important asset for investment is a very insightful read.

Excerpts:

...the return of inflation is the biggest scourge of paper money and the biggest argument in favour of gold. Therefore, to look back at history and discredit gold is not very rigorous since, I believe, inflation resurgence makes the case now for gold, if it did not do so earlier.

Equities are denominated in paper money and when paper money loses its sheen, so would paper-backed assets. At least partially, that anxiety drives the campaign to discredit gold as a potential alternative asset for investors.

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Warren Buffett: Some Interesting Aspects

This is a popular presentation doing the rounds on the internet. I do not know the source but have received it in my mail box a number of times.

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What is the difference between Investing & Speculating?

The Equity Desk has a page where the difference is explained.

For stock speculation is largely a matter of A trying to decide what B, C and D are likely to think – with B, C and D trying to do the same”. – Warren Buffet

“An Investment operation is one which upon, thorough analysis promises safety of principal and an adequate return. Operations not meeting these requirements are speculative” – Benjamin Graham

“Investment is an activity of forecasting the yield on assets over the life of the assets… speculation is the activity of forecasting the psychology of the market” – John Maynard Keynes

Whenever you rely on knowledge and know what you are doing it is termed as investing but Speculation is when you rely on luck and do not know what you are doing.

What do you do? Invest or speculate or do nothing? :)

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Invest in a Company serious about CSR & Corporate Governance

CRISIL launched a 50 scrip index which tracks the top Indian companies on the basis of Corporate Governance, Ethics and Social responsibility. It's called the ESG Index. (Environment, Social, Governance)

This is what I was looking for when I am looking around for stocks to invest. Infosys, ITC was already in my radar and I am glad to see that they rank right on the top of the 50 scrips. The top ten companies by weight in the index are:

1. Infosys
2. ITC
3. Aditya Birla Nuvo
4. Dr.Reddy Labs
5. Wipro
6. Jubilant Organosys
7. Axis Bank
8. GTL
9. RIL
10. HUL

See Crisil website for all the details

Mint reports that the first sustainability index that was launched in Brazil in 2005 has given returns of 26%, higher than the 18% offered by the benchmark index of Brazil.

So investors would be rewarded and you also have the satisfaction of investing in a company aware of its social responsibility and scores high on corporate governance.

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Question on Entry Load in Direct MF Investments

Rakesh, a reader, sent me the following doubt on entry loads in direct Mutual Fund investments by email:

[I] had a question on the entry load. Recently SEBI(or RBI, i dont remember which) instructed all fund houses not to accept entry loads on direct investment in their mutual funds. While I am very happy with this decision, I am not sure if the investors have a choice in investing directly with the fund houses.
I am particularly looking at DSP ML, Franklin Templeton, Fidelity, Principal and HDFC and wanted to check with you if they have options for investing online. If not would investors get the benefit of no entry load even when we invest in these funds through their franchise outlets.

My response to him was :

• SEBI is the regulator of securities markets and RBI regulates the banks as well as looks after the national monetary policy. So in Mutual Funds, SEBI is the regulator involved.
• SEBI's circular on waiver of load for direct application is applicable from Januray 4, 2008 and you can see their circular here. http://www.sebi.gov.in/circulars/2007/mfdcir1007.html
• Ajay Shah has written about the practical implications in his blog and I quote him, " the practical implication of this effort has been greatly undermined by the requirement that the physical PAN card has to be verified before an online transaction takes place. In other words, the canonical online transaction - the ability for a stranger to be able to come up to the website of a financial firm and put in money - is infeasible. SEBI strongly needs to switch the sequencing around: Require the physical verification of the PAN card after the online transaction and not before." You can see the full post here.

To my knowledge, Quantum MF was the only AMC providing online load free applications even earlier. But now all AMC have to provide a link for online applications on their sites.

Webpage for buying from Franklin Templeton

Any information or experience to share? Do comment or write.

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Retail investors have the power

Nesil Staney has a report on "Retail Money can steer markets soon" in Mint

He reports,

Small investors could soon call the shots in India’s equity markets say some analysts, who expect up to $32 billion (Rs1.26 trillion) of household savings to have flowed into the market in the 12 months to March 2008. This could insulate India’s markets from global shocks, much like China’s and South Korea’s.

This amount is almost double the record $17 billion purchases of Indian equities by foreign institutional investors (FIIs) this year, till mid-December.

I believe in the power of retail investors and reinforces my belief that better financial decisions of individuals can impact the economy in a big way.

The asset allocation thumb rule says that the amount of your investments in equity should be 100- your age. Now the average age of Indians is believed to be around 26. So our equity investment should be 74% while it is actually 6-7%.

Can you imagine what happens if we increase it to 20%? Rs 240,000 crore ($60 billion) will flow into the stock markets!!

Updates on personal finance web portal

Updates on my website on personal finance.

• What is the Cost of your Investments
• How to select Tax Saving mutual Fund
  

• Smart Traders make Rs 1000 crore in a month; Under SEBI scanner
• What to do when you lose financial focus
• Comparison Chart of Exchange Traded Funds
• What are the charges of a ULIP
• Top Mutual Fund schemes based on 5 year returns

Let me know where I can improve.

Do financial experts really help you to take an informed decision?

ABC* is on a roll since the beginning of the second quarter of the current fiscal year. The stock witnessed sharp volatility in the last few days, though it gave up most of its gains. Technically, the stock is showing signs of good movement in the short term, but I think with a long term perspective, there are better bets available in the market.

I thought I understood that. But did I? Please help me what did the "expert" mean by those simple sentences. Let me try to deconstruct those simple lines.....

1. On a roll: I think this stock is rocking, buy!
2. since the beginning of the second quarter of the current fiscal year: Oh, it is a recent phenomena and what happened before that, we don't know. Doubt!
3. sharp volatility: looks scary.
4. gave up most of its gains: Bad, I have to rethink whether the stock is rocking!
5. showing signs of good movement: Good, after all it's a Buy recommendation after all.
6. with a long term, there are better bets: Doubt again about the stock.

The expert has done his job. He has told me nothing and still is called an "expert". Moreover the leading daily also warns you that they are not responsible for your decisions.

There is a bigger issue of the subprime mess. Is there some accountability for the top dogs of financial services industry, the highly rated experts, who are responsible for the crisis?

*ABC is a stock which is real and the recommendation as above is verbatim.

What they teach you is to "Take responsibility for your own financial decisions"

India's first online weekly onpersonal finance

Comparison Chart of ETFs in India

The Scott Adams unified theory says that invest 70% of your money in a stock index fund and 30% in a bond fund through any discount broker and never touch it until retirement. Let's check out some important data on expenses and return for the ETFs available in India

ETF Report as on November 24, 2007
Scheme Name	NAV (23-Nov-2007)	Expense Ratio (30-09-07)	Simple Annualised Return (%)
			1 Year	3 Years	Since Inception
Bank BeES	899.50	0.55	44.5	69.2	72.9
Gold BeES	1043.49	1	--	--	14.5
ICICI SENSEX Prudential ETF	192.92	0.8	37.4	71.2	97.4
Junior BeES	111.39	1	54.8	63.1	110.2
Kotak Gold ETF	1046.57	--	--	--	53.1
Liquid BeES	1000.00	0.7	0.0	0.0	0.0
Nifty BeES	567.06	0.8	40.8	64.5	75.0
PSU Bank BeES	293.74	--	--	--	34522.1
Reliance Gold ETF - Dividend	1039.70	--	--	--	15590.5
Reliance Gold ETF - Growth	--	--	--	--	--
UTI's SUNDER	575.53	0.5	43.5	66.3	108.5
UTI Gold ETF	1045.28	--	--	--	6.6
Indices
S&P Nifty	5608.60		42.1	64.9
BSE Sensex	18852.87		37.7	70.8
Crisil Liquid Fund Index	1348.40		7.3	6.3
BSE PSU	9502.09		51.2	48.2
CNX Nifty Junior	10949.10		55.0	62.5

Source and thanks to Sunita Pawar, Customer Care Manager, Bench Mark Mutual Funds for the immediate response to our email

The Real Story of Expert Fund Managers and Advisors

Here is a profile of a successful American Stock Broker

Some excerpts, but you must see the full article

For Blaine Lourd, the mere fact that he landed in the middle of this industry and became a success was reason enough to hate himself.

Blaine twisted himself into ever more intricate knots to disguise his inability to pick winning stocks or money managers, his antithesis was rising.

............. founded in 1981 on a simple idea: Nobody knows. Nobody knows which stock is going to go up. Nobody knows what the market as a whole is going to do, not even Warren Buffett. A handful of people with amazing track records isn’t evidence that people can game the market. Nobody knows which company will prove a good long-term investment.

Even Buffett’s genius lies more in running businesses than in picking stocks. But in the investing world, that is ignored. Wall Street, with its army of brokers, analysts, and advisers funneling trillions of dollars into mutual funds, hedge funds, and private equity funds, is an elaborate fraud.

Got the link from Ajay Shah's Blog
India's first online weekly onpersonal finance

Top ten Mutual Funds on a 5 year return basis

Top Mutual Fund schemes in Equity Diversified category based on 5 year returns as on 20^th November, 2007

Scheme Name	Launch date	5 year return (%)
Reliance Growth	Oct 07, 1995	72.57
Magnum Contra	Jul 03, 1999	71.08
Magnum Global	Sep 22, 1994	69.66
Sundaram BNP Paribas Select Midcap	Jul 19, 2002	68.93
Magnum Multiplier Plus	Feb 20, 1993	64.97
Birla Sun Life Equity	Aug 27, 1998	64.63
Taurus Starshare	Jan 29, 1994	64.29
DSPML Equity Fund	Apr 15, 1997	63.60
Birla Sun Life Basic Industries	Jan 15, 2000	62.22
Reliance Vision	Oct 07, 1995	61.68
DSPML Opportunities	Apr 10, 2000	61.08

Source: ValueResearchOnline