Wise Wealth Advisors

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

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Archive for the ‘General’ Category

Pain continues

Posted by Muthu on October 27, 2018

Your portfolios are going through pain due to this bear market. There is no way to avoid this pain. In fact this is the unavoidable price you’ve to pay for getting good long term returns.

My continuous mentoring is to make you emotionally ready and bear with such pains as and when they occur. All good things in life never come without some pain. We’ve often heard that no pain no gain.

Though it is difficult to predict, some generalisations are possible. Bull markets are usually long and bear markets are short. Around 70% of years markets perform positively. This year is one of those 30%.

If returns are linear and predictable, everyone would get rich. But we know only 1% can be in the top 1%. If you want to build wealth through markets, need to accept this roller coaster ride and lumpy returns.

The question naturally comes to mind is how long this bear market would last. If we can predict that successfully, we can time the markets and completely avoid pain. By now, being our client for many years, you know this is not possible. Markets can recover in few months or may even take a year or more. We always advice not to time the market but invest when you’ve money and redeem when you need money ensuring a minimum time period of ten years in between.

Good advice rarely changes and so I’m repeating what I always keep repeating. How you behave in bear markets decides your investing fate. If you sell during bear phase, you’re converting notional loss into permanent one. If you stop SIPs, you lose the opportunity to acquire units at lower price which would actually boost your long term returns.

Only those who have control over their emotions get and stay rich. For others it is a loser’s game. We want you to be amongst successful tiny minority.

What you need to do for being successful? Just bear with the pain and stay the course. That is all you need to do and this one thing differentiates between success and failure.

Remember bear markets are always followed by bull markets. This is the time to accept and live with pain for long term gain.

Avoiding pain is avoiding growth.

Interestingly accepting pain actually reduces it.

This is time for you to experiment and see.

Experience coming out of experiment is wisdom.

And it is the wise who ends up successful.

Posted in General, Stock Market | 4 Comments »

This is bear market

Posted by Muthu on October 5, 2018

I’ve been writing every week for last few weeks. Even if I miss writing in bull markets, it is fine because things are rosy. Bear markets are painful and I need to reinforce few basic tenets of good investing.

I was reading this piece last evening. There is no hard and fast rule for definition of bear markets. Generally it is said that a fall of 20% or more by index is bear market.

Index is yet to fall 20%. But a third of all stocks have fallen by more than 50%. Another one third of stocks have fallen in the range of 25% to 50%. The BSE smallcap index is down by more than 30% and BSE midcap index is down around 20%. If this is not bear market, then what is bear market? This is my understanding.

Your portfolio consists predominantly of multicap funds. Considering the above brutal carnage, the fall for you have been bearable. This is because we create a portfolio keeping in mind bear markets as well. We never suggest smallcaps. We don’t go overboard on midcaps. Our preference is always for multicap. Equity by nature is very volatile. Pure mid and smallcap are extremely volatile. Anyhow multicaps also have decent exposure to midcaps. We should not only focus on returns but what we undergo to earn that returns. Pain is inevitable. But we should not make it more painful than necessary.

Yields have hardened a lot resulting in hybrid like balanced and MIPs also not doing well. This year has been very rough both on equity and debt. It is difficult to predict how much more pain is left in the system. We’ve no ability to predict tops and bottoms. It is good that our memory is short. In your investing journey of more than a decade with us, you’ve faced similar situations but may not remember now because markets have always recovered.

In the long run markets only keep going up. It is never a linear movement. For two steps forward, market again a take a step backward before moving forward again. As we repeatedly mention, markets are up 70% of time (in years). There is no way to avoid the remaining 30%. Bear markets are painful and gut wrenching. Though we cannot avoid pain, we need not react to the same. We make temporary losses into permanent one if we react with panic.

We’ve not faced any redemption or SIP stoppage due to current fall. This shows your maturity. Our aim is to ensure you stay the course despite ups and downs and earn the good long term returns which markets offer. I would like to repeat again that try to avoid looking at your portfolio now because it would be very painful and pain sometimes bring undesirable reaction.

What we are going through is very normal. This is how markets behave. No pain no gain is applicable to investing as well.

In nutshell, avoid looking at portfolio, don’t panic and stay the course remembering this too shall pass.

Posted in General, Mutual Funds, Stock Market | Leave a Comment »

Some more thoughts

Posted by Muthu on September 29, 2018

I got lot of responses to the piece I wrote last week. Thanks for your clarity and understanding.

September has been a very bad month for the markets. The indices do not adequately reflect the pain individual portfolios have gone through. Even good quality stocks have gone through brutal correction. Debt market has been no exception to this pain.

It is not possible to predict how long this fall would last and when markets would recover. But what we do know is that good years are more than bad years. Around 70% of time (in years) markets are positive and the balance 30% it is negative.

Markets, be it debt or equity, never produce linear returns. The returns are always lumpy. 80% of the returns happen in 20% of the time. There is no way to time this 20%. Staying invested all the time is best way to capture the market returns.

To avoid fear and prevent impulsive decisions, please don’t track your portfolio. Not looking at portfolio frequently is always a good habit more so at the times like these.

Going through roller coaster ride of volatility is the price we’ve to compulsorily pay for getting good long term returns. Markets have always been like this. This is very normal.

If we are sick of volatility, then we’ve opt for fixed return products like bank deposits. But the problem there is the returns hardly matches inflation and post tax returns can actually end up eroding our purchasing power.

If we want to have returns above inflation, build wealth, preserve and enhance our purchasing power; there is no way to avoid the pain resulting out of volatility.

Discipline and patience is the key. Patience has its origin in a French word meaning suffering. To be patient is to suffer.  No doubt, we find it very difficult to develop patience.

Patience is painful. But reward for the patience makes the suffering worthwhile.

10% fall once a year, 20% fall once in couple of years and 30% fall atleast once a decade is unavoidable. It is better to be prepared to face it.

Focus only on long term and stay the course.

Temporary fall in values are not losses unless we sell in panic.

Don’t panic.

This too shall definitely pass.

Posted in General, Muthu's Musings | 3 Comments »

Some thoughts

Posted by Muthu on September 22, 2018

It’s more than a month since I wrote my last piece. I try to write to you twice a month. Since good advice seldom change, sometimes I run out of ideas to write. What I’ve been doing all along is to keep conveying the same thing again and again in different words and examples. Good advice is repetitive and boring. But the rewards are exciting.

First some good news. SEBI has reduced the cost of investing in mutual funds. If cost goes down, your returns go up. This is the second such cost cutting in the last few months. Though it reduces our income, in the long run, what is good for you is definitely good for us as well. This change negatively affects those advisors who have been selling NFOs (New Fund Offer) and keep churning the portfolio to earn more commissions. As you are aware, we never ask you to invest in NFOs and rarely make changes to portfolio. As Warren Buffett says, integrity is the safest way to do business.

Markets have done horribly this year. Not only equity even debt has done very poorly. So be it equity or balanced or MIPs, all have performed negatively. Though I can give many reasons, what is important to note is this is the very nature of markets. It never progress linearly. Long term returns are made up years of high returns, low returns, no returns and negative returns. Last year was a year of high returns. This year is the year of negative returns.

Returns from mutual funds (mark to market products) are always lumpy. What matters to us is long term returns and not each year returns. There is nothing we can do to remove the volatility or lumpiness. This is the way market functions. You are rewarded with good long term returns only if you can accept and maintain calm during such volatile periods.

One advice I can give you this year is not to look at your portfolio frequently. We are all emotional creatures and negative returns triggers fear and create an impulse to quit. I’ll share each one of your portfolio in April 2019 along with my review. Though you all have online login facility, I would strongly suggest not looking at your portfolio. In bad times, we think good times would never come. In good times, we think it would last forever. The reality is market is cyclical. By going through multiple cycles, we get good long term returns which market provides us.

In a growing economy like India, progress is permanent and set backs are temporary. Don’t miss long term progress by getting bogged down with temporary setbacks.

Don’t look at portfolio and stay the course.

All would be well.

Posted in General, Muthu's Musings | 5 Comments »

Focus on progress not on crisis

Posted by Muthu on August 15, 2018

Happy Independence Day.

There has been no year without any domestic or global crisis. We focus only on crisis and not on progress. This is because, as Morgan Housel says, progress happens too slowly to notice and setbacks happen too quickly to ignore.

In the last 7 decades, how many problems we’ve faced as a nation? Innumerable. At the same time, see how we’ve also progressed on various fronts.

Investors who focus on progress create abundant wealth. Those who focus only on crisis, gets jittery and lose the precious wealth creation opportunity.

You need to always keep only bigger picture in mind. If day to day headlines, amplified by media, scare you, you won’t go very far in investing.

Consumption, entertainment, travel, leisure, buying home, borrowing, saving, investing, insuring, healthcare, industrial activities, agriculture, working in office, improvements in technology, infrastructure development…. the list can fill pages; all continue to happen irrespective of any crisis.

If there is a problem in Turkey, you don’t stop brushing with Colgate, stop taking bath with Hamam or not paint your house with Asian Paints. Commerce is the back bone of civilisation and never stops.

By investing in stocks or equity funds, you’re participating in commerce and its progress.

India over next two decades is capable of becoming a middle income country.

By investing in equity, you also become part of this growth and create wealth.

If you focus only on crisis, you’ll miss the underlying progress.

One crisis or another would always be there but so is progress.

Keep the focus right and just stay the course.

Posted in General, Stock Market, Wealth | 4 Comments »