Wise Wealth Advisors

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

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Archive for the ‘General’ Category

You are rare

Posted by Muthu on October 6, 2017

It is common to have all kind of debts: mortgage, car loan, personal loan, credit card loan and consumer durables loan. Most part of the working life goes in servicing the loans. All the hard work goes towards making banks and their shareholders rich. Always keep slogging for money. Have no control over time.

It is rare to be debt free, financially independent, making money work for us and have time under our control.

It is common to be impulsive, impatient, think only short term, wanting instant gratification, panic during bear markets, chase fads in bull markets, keep swaying to headlines & nonstop noise from media and fail to build wealth.

It is rare to be patient, control fear and greed, have long term outlook, ignore short term bumps, ignore noisy media, stay the course and build sizeable wealth.

Always, 99% would be common and 1% would be rare.

Our learning and sharing is to ensure our clients, friends and family belong to this precious 1%

Our blog and tweets are read by thousands of people. If our sharing helps them too, we would be extremely happy.

I know how difficult it is to control one’s behaviour. I’ve learnt this from my own experience and keep seeing how most of the investors fail on this front.

We are aware that only 1% can be in 1%.

We are ambitious to see if those of you who are in our circle of influence can belong to this tiny minority.

As an advisor, I owe this to you.

We would continue to assist your financial journey so that you can always be the rare 1%

All the best.

Posted in General, Wealth | 2 Comments »

Underperformance is inevitable

Posted by Muthu on September 23, 2017

I always get queries as to why we rarely churn the portfolio. We could always keep changing portfolio based on recent performance and convince you how much we add value to your portfolio. That is an easy path. Why we have chosen the difficult path? Why we prefer inactivity? Why we discourage you from chasing performance?

Based on our experience, we tell you that all funds and fund managers go through periods of underperformance. What matters is the long term track record and not a specific period of underperformance.

I recently came across a study done by Davis Advisors. They have found that all good investors, funds and fund managers underperform around one third of the time. The funds which ends up in top quartile over a 10 year period spends not less than 3 years in bottom quartile. During one third of the time, all long term best performers become worst performers.

We’re committed to provide you long term superior performance and not to keep chasing performance and provide suboptimal returns. Vanguard studies have also shown that performance chasing hurts long term returns significantly where as buy and hold strategy offer good returns. I’ve shared this Vanguard study earlier.

I also shared with you a study came in ‘Mutual Fund Insight’. If you’ve invested in a large cap fund in 2007 and kept changing the same each year based on the previous year top performer, you would have got an annualised return of 3.93%. Whereas buying a fund in 2007 and holding it for 10 years would have delivered an annualised return of 12.84%

Not that we keep quiet during periods of underperformance. We speak to fund houses and regularly keep getting their inputs. Most of the time we feel the issues are temporary and were subsequently proven accordingly. In rare instances, where we believe the future may not pan out well, we recommend change.

So please look at overall portfolio performance and not each fund’s performance. Since you hold around five funds, it is most likely one of them would always be going through a period of underperformance.

Our idea of value creation is not through activities. It is easy for us to do some tinkering frequently and show you action. We’ll never do that. What matters to us is you should reach your financial goals, build wealth and attain financial independence. We would hand hold you through various business and market cycles and help you reach there. We’ll do only what is required. Many a times not tinkering with your portfolio and not allowing you to do so in itself is a big value addition.

Don’t equate activity with progress. Investing is one area where activities should be minimal. Neither you should chase performance nor ask us to do it.

Underperformance is inevitable. Keep this in mind when you look at your portfolio.

Posted in General, Mutual Funds | 1 Comment »

Good periods are more

Posted by Muthu on September 21, 2017

Many investors are afraid both when the market goes up and down. Markets are rarely in equilibrium.  Moving up and down is its very nature. During bear markets, media hype creates enough scare for people to exit investments. In bull markets, as markets keep making fresh highs, there is a strong fear of fall again hyped by the same media.

Markets do not follow any rules. Each market situation is unique. Every bull and bear markets occurs on different triggers. Over valuation or under valuation can last for long periods of time too. Our investment philosophy is not to time the market. We would go through periods of high returns, low returns, no returns and negative returns. We need to go through all these to get good long term returns.

In terms of years, markets are usually up 70% of time and down remaining 30%. There is no proven method or strategy to only capture good years. You need to go through bad years to get the reward of good years.

Also a 10% correction happens normally once a year. A 20% fall occurs once in few years. During a decade, we may even face a 30% fall too. These are only averages over a long period of time. Actual occurrences may significantly vary. Nobody has consistently timed all these profitably. Neither we nor anyone else can predict short term. Like seasons, long term is more predictable. Like weather, short term is unpredictable.

Because of my profession and interest, I read many good things and some nonsensical ones too, just to get a feel of what is happening around. You’ve no such requirements or compulsions. All of you have full time occupation. The best way to avoid noise is to completely shut it out.

Ignore any ups and downs. Just stay the course. Avoid or minimise use of online portfolio access. Our yearly review is more than enough.

Keep in mind that good periods are more than bad ones. It is easy to remember it now in a bull market. A 10% correction or 20% fall may always be around the corner. Don’t forget to remember it then.

Posted in General, Stock Market | Leave a Comment »

How investors lost 11% when CGM gained 18%?

Posted by Muthu on August 1, 2017

I was reading this article.

During the period 2000 to 2010, CGM focus fund delivered an 18% annualised returns while the benchmark S&P 500 was almost flat. This means $100,000 invested in 2000 would have become around $500,000 in 10 years. Capital multiplied by 5 times.

Morningstar, a mutual fund rating agency, studied the performance of the fund and how much an average investor made money on the same. The surprising finding was that while the fund delivered 18%, the average investor lost 11%. Why? Because of the same old behaviour problem which we keep highlighting. After good performance for few quarters, investors pour in money. After few quarters of bad performance, they redeem the money. They don’t stay the course through ups and downs, to capture the actual returns a fund provides.

Davis Advisors conducted a study of funds performance from 1991 to 2010. During these two decades, while equity funds on an average provided 9.9% returns, the average investor earned only 3.8%. They lost 6.1% because of bad behaviour; chasing performance.

Over a 10 year period, even the best investor or best fund, underperforms for a period of not less than three years. According to Davis Advisors, during one third of the time, all long term best performers become worst performers.

That’s why we never allow you to chase performance. Every single fund in your portfolio would go through periods of under performance during ten or twenty year holding period. There is not even one fund which does not go through periods of underperformance.

What is important in mutual fund investing is what we avoid; like NFOs, thematic and sectoral funds etc. Also what is important is the fund hose we work with. Some fund houses are notoriously known for long periods of underperformance, lack of process, poor fund management skills, taking excessive concentration risk etc. We only suggest funds which has a long history of performing consistently over a period of time; across bull and bear markets.

Once chosen, how much ever pressure, sometimes some of you put, we don’t change the portfolio. In your own interest, we don’t budge a bit. Because we know for sure no fund can avoid underperformance. What is important is that is it a routine phenomenon or something fundamentally had changed for bad. In the rare cases of something likely to go bad permanently, we then suggest change. Otherwise, it is sticking to the chosen portfolio with discipline.

What is our biggest value add? If a XYZ fund has delivered 15% annualised returns over last 10 years, our clients would have also got the same 15% returns. It looks very simple but extremely rare. You may not even be aware how difficult it is to do this. The fund’s performance and investors return seldom matches because they don’t stay the course and keep chasing the recent performers.

Fund selection is only a hygiene factor. More than what we choose, it is important that what all we avoid. Once that is taken care, what matters more is mentoring your behaviour to ensure you stay the course without chasing the performance.

As we always say, chaser is a loser.

Don’t be a loser.

Posted in General, Mutual Funds | 1 Comment »


Posted by Muthu on June 26, 2017

I keep sharing some real life instances of how people from humble background made it big in wealth through investing.

Curt Degerman who was called as ‘Tin-Can-Curt’ by people of his home town Skelleftea, in North Sweden, was a rag picker.

Curt used to travel every day in cycle across the town to pick up bottles and cans from the trash bins. He sold them for a small price to a nearby recycling plant.

He owned a house and used to eat leftover food provided by restaurants.

He did not complete school, never married and was a loner.

He used to visit the public library in town and read all the financial newspapers.

That was his favourite pass time in an otherwise mundane life.

He was a rag picker from the age of 20 to 60, when he died of heart attack.

He had only one relative, his cousin visiting him occasionally to enquire his welfare.

On his death, it was found he has written a will. The will contained assets of his home, 8 million kronor in stocks and mutual funds, 124 gold bars worth 2.6 million kronor,  47000 kronor in bank account and 3000 kronor as cash at home. So other than his home, he had 12 million kronor worth of assets. This was equivalent to around $1.5 million.

He has left his home and the $1.5 million worth of assets to his cousin, the only soul who used to visit him.

He died as one of the richest person in the town.

There is no need for us to lead a life of rag picker or be extremely frugal.

What we can learn from Curt is that even with small income, if substantial portion of it is saved and invested in equities, it can compound to huge wealth over decades.

You’re all earning very well in your employment and business. If you can cut down on unnecessary lavish expenditures and save not less than 30% of your income, invest it in equities and give it at least two decades to compound, you can definitely become very rich.

What is the use of high income if we can never become financially independent in our life?

Also if a rag picker who never completed school can understand power of compounding and potential of equity, shouldn’t we who have access to much better resources gain similar insight?

Think over.

Posted in General, Muthu's Musings, Wealth | 4 Comments »