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

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Some thoughts

Posted by Muthu on May 11, 2013

My heart felt thanks to all of you who have conveyed condolences through calls, mails, sms and comments in our blog. I’m very grateful to have received your support in the time of grief. I never expected couple of hundred kind hearts to reach out through all the medium mentioned above. Thanks again.

I see many high rise apartments coming up across the city. Even in our street corner, an 18 floor apartment is being built. Chennai itself has become so large in the last one decade. I feel that supply is increasing more than the demand. FSI in India is low compared to many other countries. Any increase in FSI would further increase the supply. I read an article written by Ajay Shah in Economic Times. He says that if we place 1.2 billion people (population of India) in 4 person homes of 1000 square feet each and 2 workers of the above family in office or factory space of 400 square feet, it would occupy only 1% of land area of the country. Just 1% of land in India! FSI assumed of the above calculation is one.

So when you hear god does not produce any more lands, tell them the above data. Japan is a much smaller country with a high density of population. Three decades ago, during the real estate mania, the land around imperial palace alone was valued more than all the lands put together in California. As always, the bubble burst.

Any asset class is good or bad depending upon the price. In late sixties, there was a logic prevailing in the US market that good companies (Nifty 50) can be bought irrespective of the price. As growth rate for these companies were good, no price was considered high. These stocks went up to 80 to 90 times the earnings. When the bubble burst, they were back to 20 time earnings or less. Despite investing in blue chips, investors lost 75% to 80% of their capital. The same asset or stock can be a good or a bad buy depending on the price we pay. Price is the key. Nothing whatsoever can be termed as good at any price.

There are experts and blogs which say that a good advisor is rare to get and if you get one, he’ll be very expensive to the point of being unaffordable. Nothing is farther from the truth. I’ve been on both side of the table and know what I’m talking about. Ceteris paribus, you should go for an advisor who is cheap. Being a good advisor is a mix of common sense and expertise. It is not difficult to gain expertise. Common sense is less common. But that holds good for any profession. The value you get from an advisor is not proportionate to the price you pay. In fact complex the advice is, less useful it becomes.

Likewise many magazine and blogs talk about not falling to free information available in other blogs but claim that only there’s is superior. With so much free and conflicting info available across the web, it is for the individual to decide what is appropriate and good for him. There is no only way to make money or only truth in personal finance. There are and there will be always many approaches and ways which may be inconsistent with each other. The key is to adapt any one investment and personal finance (PF) philosophy and stick to it consistently.

Living a frugal life is glorified by many PF blogs. Reading these, some of us feel guilty to spend even if we have money. Living within means is always preferable. But the point is that ‘means’ vary from person to person. A friend of mine who earns very well and saves not less than USD 4000 every month, enjoys latest gadgets and keep changing his smart phone frequently. He has built decent assets and continues to save regularly. So I don’t see anything wrong in his splurging on phones and other gadgets. I’ve no fancy for gadgets but that doesn’t mean every one should be like me.

Narayana Murthy was glorified for flying economy class and cleaning his own toilet. When you are worth hundreds or thousands of crores, what is the harm in flying business class or having a servant to clean the toilet? I’m not saying that living frugal is wrong. It depends on one’s taste and life preferences. But that doesn’t mean we should vilify the spender or people who enjoy luxury.

One of the reason why frugality may be glorified because most people do not save enough, get into unmanageable debt, make shopping their religion and may become bankrupt if they don’t have salary for few months. In that perspective, I appreciate when frugality is promoted. But being frugal for the sake of it or feeling guilty to have normal luxuries despite having abundant money is also not a very healthy sign. There has to be a balance and each one of us has to find out for himself that balance.

I would write in a day or two for rescheduling the meetings which got cancelled in the last 2 weeks.

Happy weekend.

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