Wise Wealth Advisors

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

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Archive for the ‘Muthu’s Musings’ Category

Simply ignore

Posted by Muthu on May 29, 2017

You would have recently seen an advertisement of Reliance Growth Fund multiplying money by 100 times over last 22 years. Reliance Growth is only an example. There are many good funds which have multiplied money between 40 to 100 times over last two decades.

Who would have got this kind of returns? It’s only someone who stayed the course without break, not worrying about corrections and bear markets, not feeling uneasy during roaring bull markets and not hopping in and out of the markets trying to time the tops and bottoms.

We’ve written many times in the past that investor returns and investment returns do not match due to the behaviour gap; trying to time the entry and exit and chasing performance by constant churning. I observe that not only investors but financial advisors too prone to this kind of behaviour. It’s only human to be so but the end result is that their clients do not get the benefit of staying the course.

In our case, over the years, we’ve shaped our behaviour and constantly keep nudging our clients towards right behaviour. Great wealth is built over long term only by completely shutting oneself from daily noise, in the form of various opinions and suggestions peddled by business channels and newspapers. I do watch business channels and read business papers; because they also provide certain useful stuff and is also entertaining. But I don’t let them affect my investment strategy. Since for many, it may be difficult not to be influenced by constant stream of ‘expert’ opinions, it is better to avoid them.

Corrections are way of life in the markets. Usually a fall of 10% or more is considered as correction. Markets normally go through at least one correction every year. If the fall is more than 20%, then it is called a bear market. I’ve read that less than one out of five corrections turn into bear market. Bear market usually happen at least once in 3 to 5 years. There are more positive years than negative years in the markets. But even in positive years, there would be intra year correction. Corrections and bear markets may or may not have reasons. Even when there are reasons, usually it is different one each time.

Though the reason for bear market may vary each time, economy and businesses always find a way to move on. That’s why bear markets are always followed by bull markets. This holds 100% true for countries like India which are in structural long term growth. Also bull markets can happen even when fundamentals are not good. This is because markets always keep trying to discount the future and not necessarily reflect the present.

The crux is that markets would continue to keep making new highs with periodical corrections and gut wrenching bear markets in between. We are optimistic that our economy and businesses would do very well over next one decade. What you need to do is to simply ignore all kind of noise and just stay the course. Do not get scared by bear markets or become uneasy by bull markets. Always remember the pendulum keeps swinging between optimism and pessimism and is rarely in equilibrium. This is the way to wealth.

Posted in General, Muthu's Musings | 1 Comment »

Time for review

Posted by Muthu on April 1, 2017

April is always a busy month for us. This is the month we send your portfolio report with our note and inputs. This is in addition to our interactions and meetings during the year.

Sensex as on March 31’st 2016: 25,341

Sensex as on March 31’st 2017: 29,620

Sensex has delivered 17% returns over last one year. Mid cap, small cap and broader market have delivered a much higher returns.

Both equity and debt markets did very well last financial year resulting in excellent returns for equity, MIP and balanced funds.

Your portfolio’s good result is due to years of following discipline and sticking with the investment strategy recommended by us. Discipline, patience and time are extremely rewarded by markets.

Returns always come lumpy and it is never a linear growth. So you would continue to see corrections and bear markets. 10% correction may be expected twice a year and a 20% downfall may bound to happen once in two years.

As long as companies and their earnings continue to grow, declines are temporary and uptrend is permanent. Markets would reach new highs every cycle. The lows reached in a new cycle would be higher than the low of previous cycle.

We would start sending reports today and plan to finish it by this month end. As mentioned earlier this year, we’ll provide web access to your portfolio along with the report.

We’re providing web access as it has become a hygiene factor. We always try to minimise the triggers which can lead to impulsive decisions. So with some reluctance only, we’re offering this facility.

One of the reasons why people get good results from real estate holdings are it is difficult to sell and there is no daily or even yearly quotation. Also a property which is earmarked for your daughter is held for at least one generation.

Whereas mutual funds are easy to sell, you get daily price quotation and rarely earmarked for next generation with emotional attachment. What is actually a boon; easy liquidity and transparency becomes a bane for many investors. If you can hold equity as you would hold to your house, you are bound to get rich over a time.

My sincere and humble request is don’t check your portfolio frequently. It is only a facility offered to you and there is no compulsion to use the same. If it disturbs your discipline or emotions, please write to us. We would then deactivate your login. Once a year review is good enough and please stick to the same.

I take this opportunity to convey our gratitude for being our client. We would strive to add value to your investment journey and ensure that you get rich and more importantly stay rich.

Posted in General, Muthu's Musings | Leave a Comment »

Help us

Posted by Muthu on March 28, 2017

We’ve written many times in the past how investor earns much lesser than what the investment provides by jumping the ship in bad times, not staying the course, chasing performance, frequently churning the portfolio, redeeming during corrections, stopping SIPs, chasing current fad or fashion ignoring long term consistency across market cycles, timing the market, not understanding the power of time and compounding, inability to develop long term perspective and so on. The list of behavioural errors investors make is indeed very long.

In this piece, one of the well known financial advisor and popular blogger, Joshua Brown says:

“If a financial advisor could just accomplish one thing for clients – help them capture more of the returns that their own investments offer, then he or she has done something extremely worthy and valuable.

Minimizing these detractors from long-term returns is yeoman’s work and a mission that serious financial advisors are happy to undertake.”

He also points out that the index S&P 500 has provided 10.4% annualised return over last 30 years. During the same period, an average investor has earned only 3.7%.

This massive under performance is due to negative behavioural traits highlighted in the opening paragraph of this piece.

All our efforts are to ensure that you earn 100% of returns which your investment offers without any underperformance due to wrong behaviour.

I’ve taken it as a professional mission to make our clients earn 100% of investment returns.

It pains a lot, every time, when I see any one of you failing.

Help us to help yourself.

Posted in General, Muthu's Musings | 1 Comment »

Stay away

Posted by Muthu on March 14, 2017

I was reading a book yesterday where it mentioned about average holding period of equity by geographical region. In Europe, it is 12 months, Asia-Pacific: 10 months and America: 8 months.

I’ve been sharing various data points of average holding period of shares and mutual funds in India. Many of you are holding on to equity investments for last 7 to 10 years. This is extremely rare. After selecting couple of good diversified equity funds or a dozen quality stocks, what is important is how long you hold. Only a very small percentage of investing population hold for 10 years or more.

Having chosen the right path and long term investment horizon, all you’ve to do is stay away from noise. Last year, if you see, noise of Brexit, Trump win and demonetisation nudged derailing the course and staying away from equity. Like this, every year, there are going to be events and noise from those events to move you away from the chosen course.

Though I very actively read news, magazines, blogs, social media etc., I just don’t react to these. If you feel that you are unable to avoid panic in such circumstances, consume less news, especially of the financial kind.

As a stock picker, I interact with few other investors. I’ve started staying away from those who are critical of my method or companies I hold. Neither my method nor my holdings are perfect. There is no such thing as the right method or the best companies in investing. What is important is evolving a reasonable investment strategy and sticking with it through thick and thin. Sticking to one’s strategy over long run itself is difficult as it would go out of fashion or may not produce results all the time. Over long time (10 years+), any good strategy should work.  The last thing I want is someone keep questioning me or negatively criticising me. If you want different views, there are sources to read about the same through books, blogs and social media. There you can get a different view without going through personal criticism or contempt.

Why I’m saying this? Despite being a full time investor and advisor, I find such negative people disturbing. You’re neither an advisor nor a full time investor. Hearing views from your friends, colleagues or relatives about your investment strategy would be mostly counterproductive. We are always there to keep reinforcing and nudging you to stay the course. Other than us, listen to only people who you feel would help you stick to the chosen strategy and stay the course. Stay away from others, at least as far as your investments are concerned.

What you are doing, having a really long holding period, is a very rare virtue in investing.  Ensure that it is not derailed by negative influence.

Stay away from such sources.

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

Patience

Posted by Muthu on March 5, 2017

“The biggest thing about making money is time. You don’t have to be particularly smart; you just have to be patient.”- Warren Buffett

Philip Carret was one of the great investor who was admired by Warren Buffett. Buffett once said that Phil has “the best long term investment record of anyone I know.”

He was an investor for eight decades and died in 1998 at the age of 101.

It is said that he has personally experienced 31 bull markets, 30 bear markets, 20 recessions and a great depression over the above 8 decades.

When he was at age 98, in an interview, he was asked:

“What’s the single most important thing you’ve learned about investing over the past three-quarters of a century?”

His answer: “Patience.”

He followed buy and hold philosophy and rarely sold his holdings.

He gave time for his investments to grow multi-fold. He was extremely patient and did not get disturbed by the market volatility.

He once said that investing genius consists of one part patience and one part compound interest.

So what is required for investment success is time and patience, as long we don’t do anything stupid. We need not be smart. But we should not be stupid as well.

If you stay invested in a 12 or 15 quality companies or few good diversified equity funds, you are bound to do well over next one or two decades. Minimum 10 years is required for compound interest to make meaningful impact to your net worth. More the years, better the result would be. Changes though cannot be completely avoided, have to be minimum. Frequent decisions lead to more errors. Fewer decisions, buying right and sitting tight works extremely well in investing.

Market cycles are a reality. A bear market is always around the corner. Every bear market has to be used as an opportunity to develop patience.

God willing, if we live long, we would be astonished as to what an impact time and patience can have on our equity investments.

Patience is not easy and is a rare trait in the markets.

Who said that making money is easy or common?

Develop patience and give time to your investments.

Be ready to get amazed with the outcome.

Posted in Muthu's Musings, Wealth | 2 Comments »