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

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My Commitment

Posted by Muthu on April 29, 2012

I want to share in writing what I’ve been trying to do in my profession.

My approach is becoming clearer to me through the last few years of profession.

Firstly, I would never ever suggest you doing something with your money which I would not do with my own or my family’s money.

As always, I would try to educate you as much as possible as I do not want blind dependency or blind trust from any client.

Other than term insurance; I do not consider any insurance worth taking for life cover. So if you do not have insurance or under insured; my only suggestion would be term insurance. If you have already committed for some insurance; my suggestion on whether to continue or discontinue would be individual specific and context specific.

I do not indulge in speculation nor encourage speculative activity in clients. So never ever I would suggest you to do trading- even in stocks. In terms of diversification in profession, advisors also get into commodity trading, currency trading, derivatives trading etc. I’ve no interest in any of the above. My knowledge on these is also limited. Not that I cannot learn how to do this; but I want to learn only what is worth learning.

I would prefer each one of you to have a life cover, medical cover and fire insurance for house, emergency fund and money set aside for short term goals, before you embark into the journey of investment. I’ve turned away people who came to start investing to clear their credit card and personal loans first. It is very difficult for any sound investment to provide returns equivalent to the interest they are paying on these kinds of loans.

By nature, I’m extremely debt averse. I do not prefer individuals and families to have loans. The only exception is home loan and depending upon the context, education loan. Borrowing by corporate and government is fine. At an individual level, I like to have no loans. So this debt aversion bias would be there, when I offer any advice to you.

Get rich quick schemes, MLM (Multi level marketing), latest hot trends, fads, momentums- I would like to stay away from all these. So you may find that what I suggest may not be exciting. Though it is boring for your mind, it is good for your money. Because of this nature of not going for momentums and fads, you may loose out on some opportunities as well. Since these themes work on ‘greater fool’ theory, I neither want me or my clients to end up becoming greater fool nor some one else becoming one at our profit and at his cost. I do not believe in zero sum game.

As for as equities (portfolio of stocks, not individual stocks), I don’t believe in timing nor I have ability to do so. ‘Timing’ is applicable only in 3 contexts – making lump sum investments when valuations are attractive, not making lump sum investments when valuations are expensive, planning for phased withdrawal two years before you reach your designated goal.

The very idea of investing a fixed amount monthly, for a long period of time is to avoid timing the market. We have been very vocal and repetitive in recommending this as the best strategy. So we would not suggest timing the SIPs like when you should stop, when you should continue again etc. depending on the market conditions. If I start this approach, then it shows I’ve ability to time the markets. Then there is no need for any systematic investment at all.

As I write above, I just checked the 10 years and 15 years annualized SIP returns one of the funds we suggest – it is 22.48% and 26.01% respectively (this is as of Feb.29 2012). I’m not even remotely suggesting that these are the kinds of return you would get in long term. As you are aware, these are not guaranteed products and past performance may or may not be repeated in future.

But what I want to point out was this return has been made possible by investing regularly with out worrying whether it is bull or bear of flat market, ignoring economic and financial forecasts emanating from media day by day, minute by minute. At this point, when we look at the above returns, we are not in a bull market, but in a stagnated market for the last 5 years. This shows the power of equity over long term, which in my opinion is not less than 10 years.

Even in debt products, I do not like to go for products which involve timing- like getting in and out of G-Sec funds based on forecast of interest rates etc. I only suggest debt or debt oriented products which can be an any time investment, provided you are willing to hold on to the tenure suggested.

We would never like to do any activity for the sake of it. Changes in portfolio would be made depending upon change in your life or financial situation. I do not mind temporary under performance if I’m convinced the fund management process is good. Even the best of investors have periods of under performance. So I would never suggest any change for the sake of it. If you want to, you need to measure me based on my approach, appropriateness of advice etc. but not based on activities. If you expect frequent activities from me, there is bound to be disappointment.

In bull markets, when every thing goes up, some may do very well by taking lot of risks which would not be visible then. Such risks can even result in permanent loss of capital. I’ve always avoided this approach after I learnt it very hard way by investing my own money, in 1999, in a technology fund. That fund manager was the darling of the market. Those who took measured risk, managed sensibly, though did well; were unable to provide the kind of returns this person provided. But in the subsequent fall, the funds managed by Mr. Darling got severely decimitated where as others were able to limit the loss and rebound better when markets rose again.

 Had I known Buffet’s writings in 1999, I would not have invested in the above fund, that too, by going for a personal loan; lethal combination.

Having learnt the lesson, I never invested my money or clients’ money in a star fund manager and fund house in last bull market. Some client’s were very unhappy with me that I’m not recommending those funds, which were giving fantastic returns. Gullible or greedy investors, who invested lot of money in those funds, lost very severely, permanent loss of capital.

I always work with an approach to avoid or minimize permanent loss of capital, provided you adhere to the holding period suggested.

The ‘personal’ component in ‘personal finance’ is very important, basically working on one’s behaviour and approach towards money, saving, spending, investing, risk etc. I focus more on this in our professional relationship.

Talking about behaviour, any advice I would provide would always be subjective and not objective. I cannot talk outside of my knowledge, learning and experience. So I do not know what ‘objectivity’ means. All I can tell you is I would be sincere and honest and as Drucker points out would never ‘knowingly do any harm’ to you. Errors in judgment or mistakes are unavoidable though I would try my best to reduce them. The only solace you may have is that those negatives would have equal impact on my money as that of yours as I would not do to you what I would not to do myself.

Though you’ve been very supportive (for which I’m grateful) and I’m doing well professionally as on date; I would not change my approach and above commitment in any situation, even if it means loosing clients or closing the shop.

I’m giving this in writing and posting it in my blog so that it would have positive reinforcement and you can always point out to me when you feel I’m deviating from my commitment.

One Response to “My Commitment”

  1. the time of the 80-90s for the US market and the late90s-early 2000s for the india market are long gone, when a monkey could throw a dart at a stock chart and pick huge winners and dollar cost averaging and buy and hold forever would work … and whts this weird deal of you guys in the indian fin-blog space constantly bringing up WBuffet as an exam[ple of an investor everyone should try and follow.. when buffet buys a stock he is able to influence the company’s direction, its vision, its board, he comes with a seat on the exceutive table and enough influence to steer critical company decisions in a deirection he feels is good, how the heck is a retail investor even comparable to this???

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