Wise Wealth Advisors

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

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Archive for the ‘Muthu’s Musings’ Category

Being smart may not help

Posted by Muthu on July 23, 2017

Mensa is an organisation founded in 1946. You can become a member if your IQ is within top 2% of the population. Higher IQ would be of advantage in many aspects of life. When it comes to investing, higher IQ is often counterproductive.

Eleanor Laise evaluated the performance of Mensa investment club for a 15 year period, from 1986 to 2001. When top notch intelligent people manage money, you would expect extraordinary results. During the above period, S&P 500 index provided an annualised return of 15.3% whereas Mensa investment club was able to generate a paltry return of 2.5%. Mensa underperformed index by a whopping 84%.

What contributed to Mensa’s failure? They did not have a coherent investment strategy. They kept changing their strategy almost every quarter. They repeatedly tried to time the market, chased performance, focused more on the fads and fashions, was over confident, lacked discipline and long term orientation.

That’s why Warren Buffett said, “If you are in the investment business and have an IQ of 150, sell 30 points to someone else. You do have to have an emotional stability and an inner peace about your decisions. It is a game where you are bombarded by minute-by-minute opinions. It’s not a complicated game. It’s simple, but it’s not easy. You have to have an emotional stability.”

I don’t know what my IQ is. It should either be average or below average. But I’m able to reasonably do well at investing (after a decade of painful learning) because I’ve evolved an investment strategy and stick to the same through ups and downs. Long term orientation, patience and discipline are the only edge I possess. We do our best in nurturing and sustaining the same traits in you.

Once you have a proper investment strategy, what is required is emotional intelligence. Ignore noise, ride the ups and downs, stay the course, have long term orientation, stick to the investment discipline with extreme patience. If you are able to do this, you’re most likely to end up rich.

The idea is not to criticise people with higher IQ but to highlight it is emotional stability and not higher IQ which would make you a successful investor.

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

Tin-Can-Curt

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 »

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 »