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

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Akshaya Tritiya – What you are going to do?

Posted by Muthu on May 4, 2011

In the current (May’11) issue of ‘Gokulam Kadhir’, my article on money required for providing the freebies, subsidies and promises made to the people of Tamilnadu by the both ruling and opposition parties has appeared. The issue has hit the stands on Sunday.

The journalist who worked on this article called me yesterday and said that the editorial board of ‘Dina Thanthi’ group (which publishes ‘Gokulam Kadhir’) was happy with the way the article has come out. It seems that there are already words of appreciation from many quarters including political parties!

If it has come out well, it is because of the good ground work done by the above journalist before coming and meeting me.

Arriving at data points like how many women become pregnant in a year in Tamilnadu, how many would get married in a given year, how many cattle are required were pretty interesting. I wouldn’t say these are very accurate but a good guesstimate.

It’s not that I look good; still my photo appeared on the above story is quite scary. Keep it out of the reach of children.

In my last 3 years of contributions to media (print or visual and latest is digital), my implicit understanding is something like this; I contribute to the media as it provides me a platform to share my thoughts and also help me get visibility. As a professional, getting visibility definitely helps. It’s a fair deal.

However ‘Moneylife’ surprised me by being more than fair. I’ve received a cheque from them for the contributions made last month. This is the first time I’m getting paid for writing!

Akshaya Tritiya is going to be there in next few days. Are you getting ready to buy gold? I understand that you may end up doing what you want to do. So I’m not writing anything with a hope that it may change your mind but just to share my thoughts with you.

The concept of buying gold on Akshaya Tritiya is only around one and half decades old. Some clever jewellers who understand our emotions pertaining to auspicious days and gold has invented this and even they would not have expected it to be such a super hit.

People are telling me that Rs.17,000/- per sovereign is nothing when compared to Rs.70,000/- per sovereign it is going to reach in next few years!

I’ve written recently about long term cyclical nature of gold. It keeps rising for long and then keeps on falling for long.

Timing is always difficult and tricky in any investments.

The perception for bullishness is that as dollar gets weakened, gold would get further strengthened and would become the global currency.

In my opinion, this idea is far fetched.

There are countries which have already started trading in currencies other than dollar. So other currencies may replace dollar, if dollar gets weakened a lot.

The GDP of the world is fast expanding. Especially BRICS & parts of Africa are expected to grow strongly in the decades to come.

If dollar fails, there may be short term panic resulting in appreciation of gold but I do not see gold becoming medium of exchange.

There is not enough gold in this earth which can be circulated as coins for it match to the global GDP and its growth. The entire gold available in the world can be put into a 67 feet cube.

 As Buffett says, this gold does not produce anything, has no intrinsic value, does not generate any income and has zero utility.

He also points out that this 67 feet cube of gold can buy all farmlands in U.S.A, 10 companies the size of Exxon Mobil and still leave $1trillion of cash (which is roughlyIndia’s GDP!). But gold cannot produce what these can produce. Given an option, would you want to own all farmlands or companies like Exxon or simply sit on top of the 67 feet cube and keep fondling it!

Some more pointers from Warren Buffett on gold from what he shared with Shefali Anand of Wall Street Journal:

Investors who buy gold are counting on them becoming more attractive to other people in the future. That’s a whole different game, compared to investing.

When you buy gold, you’re betting on the price of the asset not on the productivity of the asset.

You can’t get excited because other people are excited. So, every now and then, there’s a craze to buy something even at very high, irrational prices. Then all of a sudden, the music stops, and the investment comes crashing down.

It is better to invest in productive assets like equities and farmlands.

Inflation is a very cruel tax because it lowers the worth of paper money.

If an investor wants to beat the inflation and to maintain the purchasing power, it is better to invest in good businesses and companies (equities) which keep growing. “

As per some bullish predictions, even if gold would appreciate 5 times from now, my opinion remains the same. Gold is a speculative asset because it is a pure price play with no productive or intrinsic value. Gold has no other value than what we attribute to it.

That is why even in equities, we advice investing, which is a growth and productive play and not trading or speculation which is a pure price play. We neither understand speculation nor intend to.

Some one told me about a gentleman who is supposed to be earning Rs.50 lakhs per month through a MLM scheme.  Even if these claims are true, I’m least attracted because this is not a productive or a growth way but mere transfer of money to one’s pocket from those who are at the bottom of the chain.

I’m not greedy about wealth and am fine with what comes through fair means.

We’ve always been advising investors to hold not more than 10% of their assets in gold. This is for diversification, a hedge against inflation and as something which would come handy at the times of global catastrophe.

If you’ve any immediate social need like marriage in the family, then buy gold. Price is immaterial because anyhow you would be needing gold.

If the social occasion is not in the near future or if you want to invest (as I said not more than 10% of your total assets), then I would suggest you to not to buy at one go but invest regularly through SIPs in gold funds. Please refer to my previous articles on advantages of investing in gold funds through SIP route.

I’ve a personal conviction that an investor would do well if he invests regularly and for long term in Indian equities. I do not share the same conviction with gold. I’m unable to have any visibility on long term price movement of gold, say for next 10 years. So please be open to the possibility that even in long term, despite averaging cost, you might end up in having a lower value.

If some of you feel that you understand gold market well and can enter it, make good gains and come out before, if and when burst happens, then try your luck.

Who knows? If some of these bullish predictions are true, you may end up even in a making a big kill!

But just be aware that what you are doing is very risky.

For an average investor, investing regularly and not committing more than 10% of one’s assets, would help him. If there is long term bullishness, he too stands to gain. If there is a burst, he would be able to minimize the losses due to averaging out of cost and appropriate asset allocation. 

Happy Akshaya Tritiya.

One Response to “Akshaya Tritiya – What you are going to do?”

  1. Akash said

    sir you’re the best!

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