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

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Archive for the ‘Muthu’s Musings’ Category

Chinese virus and Indian markets

Posted by Muthu on March 26, 2020

In 1918, an influenza pandemic, popularly known as Spanish Flu (though it did not originate in Spain) infected 500 million people, equivalent to one third of global population then. Out of the 500 million people, it is estimated that at least 50 million died. So around 4% of global population was killed by the virus then.

It was the time of World war I. No social distancing was followed. Information flow was heavily curtailed due to war time. Compared to now, the medical advancement was abysmal and so was the necessary infrastructure.

The Coronavirus, COVID-19, should deservingly be called as Chinese virus, for the way China mishandled and lied about the crisis, especially in the initial months. This Coronavirus is the most serious epidemic, occurring after 100 years of last such epidemic in 1918.

The world though was complacent initially has now become aware of seriousness of the problem. India too is currently under 21 days lockdown. The world is better equipped and informed now to handle the problem. Though it may be some time before peaking out, various measures taken by all affected countries would yield fruits over a period of time.

When there is complete lockdown, economy and it’s growth suffer drastically. It wouldn’t be a surprise if our GDP growth, already low, can go down further in 2020-21. The poor who form major portion of our population are the first ones to go through maximum pain due to lockdown and also reduction in economic growth. To help the economy, many countries and their central banks have announced various relief measures and packages.

In the coming days, both the central government and RBI is expected to come out with such similar relief measures. This would alleviate the suffering of the economy.

When we make investments in markets, it is very difficult to anticipate and plan for very rare black swan events like this. In the matter of few weeks, markets fell by 40%, the fastest fall ever. Markets hate uncertainty. It can withstand any bad news provided it is able to anticipate when it would end. This uncertainty is what created huge fall and extreme volatility every day.

This is bound to continue for some more time, till markets get confident that the contagion is peaking out. With all countries taking lockdown measures seriously, this should hopefully happen sometime this year.

I feel by this time next year, things would be far better; in terms of epidemic control, improved economy and markets.

Though nothing prevents early recovery, I would like you to assume that the pain would last for a year. It is not wise to judge performance of any asset class, more so equity, when such unexpected catastrophe happens. These are rare exceptions.

All of you have online access to your portfolio. I would sincerely advise you to stop looking at your portfolio for months to come. For the first time, we are not going to do year end review. With many portfolios becoming deeply negative and the uncertainty expected to last some more time, there is no point in any review now. We would not be sending your portfolio reports as well, though you can access it any time online. When everything is deeply negative, the best protection you’ve against taking any impulsive decision is by not looking at portfolio. We should not end up converting temporary losses into permanent losses.

It is fine if you lack money or conviction to buy in these market conditions. But don’t ever sell anything. Don’t stop your SIPs. The very purpose of SIPs is to make you buy more units in bear markets. With the same amount of investments, you are now getting lot more units. The effect of which would be seen in subsequent bull market.

Both in good and bad times, we think it would last forever. The reality is that everything is cyclical. Good times would definitely come back. All you need is patience.

During last century, humanity has progressed a lot; despite Spanish flu, world wars, millions getting killed by tyrant dictators and so on. Trust that we would continue to grow and progress. What we are now going through is a temporary problem. Human resilience is more powerful than all these problems. Sooner or later, we would overcome this.

What you need to do is simply stay the course. Don’t panic sell and make notional losses into permanent ones. At any cost, don’t stop your SIPs. I humbly request to avoid looking at your portfolio for some more time to come.

Your temperament would decide your investing future. Keep calm. Trust me, this too shall pass.


Posted in Economy, General, Muthu's Musings, Stock Market | 4 Comments »

Good and bad

Posted by Muthu on September 1, 2019

Bad news, which started trickling in April, has reached its height on Friday, when GDP growth rate of Q1 was published as 5%

Will it get worse than this?

Yes, the current quarter (Q2) may be equal to or worse and than Q1.

There are two kind of voices always dominating the narrative; those who blindly believe and of those who blindly hate Modi.

Most of us are in the middle path, judging each action by its merit. Though we are many, our voice is not heard to the extent it should.

The government has failed big time in anticipating the economic trouble and also not using the budget opportunity to revive the economy. In fact, budget added some more woes.

The good part is that since second half of August, government has realised it’s mistakes and implicitly accepted that the economy is in a trouble.

They have been taking measures for the revival of the economy since then.

These are incremental measures and not any big bang reforms.

Assuming they would continue only with incremental measures; still this would result in better liquidity situation and lower the cost of capital.

Ample liquidity and low cost of capital would trigger economic revival.

Without any major reforms, I wouldn’t expect the growth rate to go beyond 7%.

We need 9%+ growth rate even to aim for $5 trillion economy by 2024.

Reasonable growth is possible but dream of $5 trillion may only remain as dream.

We can safely say that the economy has reached the bottom as the government has accepted the problem and have been actually working on it.

We may see the earliest sign of recovery only in Q3.

As I’ve explained many times, market reflects the future and not the present. Though I’ve no capability of market predictions, I’m aware that markets do not wait to till actual growth to manifest and start reflecting the same sometime before. This is true for both good and bad situations.

The bad news is that we have slowed down.

The good news is that this is the beginning of the recovery.

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

Positive development

Posted by Muthu on August 24, 2019

By this time, you would have heard about the various announcements made by finance minister last evening.

The budget she presented last month lacked focus to address the problems faced by various sectors in the economy. Not only there was nothing progressive but also there were regressive steps as well.

There has been lot of voices against the apathy showed by the government on economic front.

Finally government has taken series of positive measures. These measures include some progressive steps and withdrawal of some earlier regressive steps.

What this would do immediately is to build positive mind set in the business and investing community.

The beginning of all good things is positivity.

It may take probably six months or so to start seeing the impact of these measures on economy.

I’ve no clue about how markets work in the near term. Still it may start reflecting the development even before it happens. Markets rarely reflect the present but it’s opinion about the future. So I wouldn’t be surprised if markets start recovering from the last 20 months of bear run.

So it is only a matter of time for things to start looking better.

The finance minister has also promised more positive measures to be announced in the coming weeks. This also augurs well for the future.

Bull and bear markets keep following each other. There is no permanent bull or bear market.

In bull markets, the NAV goes up. In bear markets, the units you acquire goes up. In the long run, combination of both only creates good wealth.

Though some of you became very anxious recently, all of you stayed the course.

Ultimately staying the course is what matters and that alone creates wealth.

Be ready for positive things in the months to come.

A good beginning has been made yesterday.

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

Give time to get results

Posted by Muthu on June 20, 2019

For the last couple of years, we’ve stopped adding new clients unless referred strongly by any existing client. I don’t want to get into a situation where I’m unable to personally handle a client. Also I value my free time a lot. To be contented or grow further is an individual choice and I’ve opted for the former.

I’ve been interacting and sharing my thoughts for now close to one and half decades and some time get impatient if the core philosophy is still not understood.

Whether you invest in an equity or hybrid fund, it takes time to deliver. The expected returns of 15% or 12% happen only over a period. The returns would be uneven as well. There are years of positive returns, negative returns and no returns. If the funds you’ve invested are capable of producing 15% year or on year, the entire population would only opt for equity investing. You want the results of equity without paying the price for it. The price to be paid is accepting and undergoing volatility.

There is no way you’re going to enjoy the fruits without allowing the tree to grow. If it is going to take 10 years for a plant to become tree and yield fruits, no amount of frustration or anxiety is going to advance the yield. In fact, these negative emotions are capable of destroying the tree itself.

All our long term investors are seeing excellent results. Those who invested during the last few years are either seeing average or below average results. No amount of mental anguish is going to change the results. All that is required is patience. Every investment is prescribed with a minimum time frame for holding. Unless you give that time, you’re not going get the results.

If you cannot accept volatility and develop patience, equity investing is not for you. Those who want quick money end up making no money. Either you give time to get results or opt for assured return product like bank deposits. If you aspire for 15% kind of returns, you need to pay the price of accepting stomach churning volatility. Else you need to accept and live with 7% kind of assured returns.

Also came across few retired clients of ours taking up trading. Trading requires enormous knowledge, discipline and skills. It cannot be a hobby or time pass activity. If you want to trade, equip yourself first for the same. You cannot become a trader overnight. Be it investing or trading, it needs years of hard work and discipline. Also avoid intraday trading. It is not for you. There are very few winners there and it is extremely risky as well. Intraday trading is the easy way to lose hard earned money.

As you’ve become seasoned investors, when you refer a client next time, please see if they have basic emotional maturity to learn and follow long term investing. If not, request you not to send them to me. Without patience and discipline, it is impossible to create wealth from markets.

Posted in Muthu's Musings, Stock Market | 4 Comments »


Posted by Muthu on May 12, 2019

Many of our long term clients are building wealth which would last even beyond their life time. So I thought let me cover today about giving.

There are two kinds of giving. The first one is what we give to our own blood, the next generation and even grand children. The second one is what we give back to society, helping the needy. We cannot forget that society helped us in creating wealth.

If your wealth is limited to this life time of you and your spouse, you may not be able to leave your children anything other than primary residence. That is fine. As far as giving back to society, please see what best you can do, given your limited resources.

For those who have wealth that would last well beyond their life time, don’t wait to leave everything after your death. If you live well into your eighties, your children would then be in their fifties, way past their prime. They would not be in a position to meaningfully enjoy your wealth.

Don’t be tight fisted. Help your kids during occasions like setting up their family and buying primary residence. Take care of their education till post graduation so that they don’t start with student debt.

Also learn to help less privileged. While you may be doing something on and off during working years, this should start full-fledged latest by the age of 60. Giving while living and seeing how the money is useful to others is bliss. So don’t ear mark wealth for charity only after your life time. Give and enjoy giving at least during last two decades of your life.

In my view, not less than 10% of one’s wealth should be given back to society. If you find this less, do more. If you find this more, at least start with 5%. Charity should be significant. Having a wealth of Rs.100 crores and giving few lakhs a year to charity is sub optimal. Though philosophical, need to remember that you’re not going to take any money with you once you die.

Enjoy money in your life time. Give a part of it to your next generation while you live. Let them also enjoy your wealth. And don’t forget to give it to needy. This is a well balanced life and living this way is meaningful.

Kanchi Maha Periyava and Ramana Maharishi are the two Jnanis I respect most.

I end this note with what Sri Ramana said on giving:

“Giving to others is really giving to oneself. If one knows this truth, would one ever remain without giving?”

Posted in General, Giving, Muthu's Musings | 2 Comments »