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D.Muthukrishnan (Muthu), Certified Financial Planner- Personal Financial Advisor

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Weekend Jottings

Posted by Muthu on January 17, 2011

Had severe migraine during the weekend. Hence the ‘weekend’ jottings are appearing on Monday. 

We’ve purchased the software and are in the process of getting last 4 years data and testing the output.

Once we get it operational by some time next month, we can not only bring in single sheet all the investments details and portfolio performance of a client but also group various family members or entities coming under a client. This single snap shot would be very helpful at the time of review.

Though we strongly advise our clients to ignore market, some are influenced by the non stop information pouring in and the noises created by the media.

Our general advice is NOT to review portfolio regularly. Still there are some who check everyday. I know people dealing in shares checking it many times a day.

People keep checking their portfolios through mobile phone even when they travel.

Faster… Instant… these are the mantras offered by today’s technology. It may be useful elsewhere but not when it comes to investing. Investing takes time and is actually a boring process.

If you want something interesting, try stock trading. Though you would loose money, it would be faster, instant and exciting.

Broker makes money through activity and the investor makes money through inactivity.

The more you review your portfolio and listen to daily noises; it is easier for you to get lost.

Fear raises its head whenever there is a correction in the market.

I’ve started getting queries from some clients who are concerned with the fall in markets since the beginning of this month.

Seeing a negative value in the portfolio statement may be very painful for some. The only way out is to accept this pain and overcome it.

If we cannot master this negative emotion, we would be taking impulsive decisions which would be injurious to long term wealth creation. We would end up making the loss which we precisely want to avoid.

Markets are cyclical. This sounds acceptable when the going is good but is difficult to follow when the markets are tumbling.

For people who are investing through SIPs, please note that the wealth is created mainly due to this cyclical nature.

Why get into doubt mode after few months of investing, when your investment tenure is 20 years+.

Let the market go through its cycles and review after 5 years. That would give you conviction.

For people who invest lump sum in equities, it is no good to make a meaningful inference about the portfolio performance before completion of 5 years.

For MIPs, we discourage investments if the holding period is less than 3 years. We position MIP only as a 5 year product capable of delivering returns superior to fixed deposits.  MIPs are impacted mainly by interest rates and to some extent by equity markets.

When the interest rates are hardening and stock markets going down, MIPs would temporarily under perform. The fund manager actively manages the debt portfolio too based on the interest rate scenario. Still when the tide is strong, the fund manager also needs to wait for a while.

Do not get distracted by short term impact on MIPs. Review the performance of MIPs only after completion of 3 years.

Having a long term perspective would ensure that we do not end up making impulsive decisions out of fear.

My wealth now would have been atleast 5 times more, had I developed long term perspective initially. I learned this only by experimenting with my own money and also getting the opportunity to learn from wisdom of investment legends like Warren Buffett.

Having a long term perspective helps me avoid many investment mistakes.

I believe in sharing what I know.

I also know that I cannot control the emotions of investors. That is something which each one has to do it for himself.

I can help you in the process by sharing some pointers and what I’ve learnt from observing capital markets for last 17 years. Ultimately the conviction has to come from within.

That’s why the ultimate credit of building and managing wealth goes to the investor and not the advisor. A good advisor can only provide the right advice and recommendations but he cannot control the investor’s emotions.

It is in the investor’s hand not to get panicked or greedy.

If notional loss in your portfolio disturbs you seriously, you may not do well in markets. You would end up precisely taking wrong decisions.

The alternate is NOT non-investing as time keeps eroding the value of your capital.

Sounds tough?

It is, as long as you are unable to detach yourself.

Once you develop detachment, wealth grows.

Sound Paradoxical?

It is.

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