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

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Archive for the ‘Muthu’s Musings’ Category

13th Year

Posted by Muthu on January 1, 2019

Wishing you and your family a wonderful 2019.

I’ve made it a practice to write on the first day of every year.

After quitting employment in December 2006, I formally got into this profession on 1’st January 2007.

This is our 13th year into the profession. I’ve been evolving a lot both as an investor and an advisor. You’ve been part of this journey and I am proud to note that there are very few emotionally matured investors like you. Only a small percentage of investors can manage their behaviour and emotions well. Those who do that are the one who create wealth from markets. I’m glad that you’re all part of this tiny minority.

For the last two years, we’ve stopped taking new clients except if it comes as a strong referral from anyone of you. We’re fine with where we are now. We want quality time to be made available to you as and when required and I also enjoy the free time the current bandwidth offers.

I’m financially independent and contented with our present state. I don’t want to increase the quantity, there by affecting quality. Time is finite and there is no point in spending it by chasing more and more growth.

I want to be always of assistance to you in managing your financial affairs. I want all of you to build good wealth and also preserve the same. Getting rich is difficult and remaining rich is most difficult. We’re there to guide you both in creation and preservation of wealth.

2017 was a great year in terms of return and 2018 was bad on the same. There is no way to avoid bad years. I’ve no clue how 2019 would be. All I know is there are more good years than bad and staying invested for a decade or more creates good wealth.

It would have been a great pleasure to see the portfolio in 2017 and painful to see the same in 2018. Pain, even though temporary, is the price we have to pay for long term wealth creation.

Nothing worthwhile in life can be achieved without some amount of pain. It holds good for wealth creation from markets as well.

Focus on your life going through the pleasure and pain it offers. Leave the investment part to us. Avoid looking at portfolio frequently. The emotional roller coaster you would go through by constantly looking at markets is not worth it. There are better things to do in the finite time available on earth. We would continue to do yearly review for you, which is more than enough. Investors for whom market is not the profession, yearly portfolio review is good enough.

I wish that 2019 be good to you and your family. Once again best wishes for a wonderful year ahead.

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

Less pain and some gain

Posted by Muthu on December 16, 2018

I’m writing to you after 50 days. I wrote to you multiple times in September and October when markets had a steep fall.

After I wrote last piece, markets have been in recovery mode.

This is true for both equity and debt markets as well.

Overall this year has been a rough one.

As I repeatedly point out, 10% fall once a year, 20% fall once in couple of years and 30% fall atleast once a decade is unavoidable.

For many portfolios, this is a year of 20%+ correction.

Nobody loves to see the portfolio value going down. But this is the price which has to be paid for long term growth.

In most aspects of life, nothing worthwhile can be achieved without some amount of pain and sacrifice.

The very fact you set aside money today for investing shows that you sacrifice some part of today for a better tomorrow.

In equity investing, seeing your wealth going down, though it is temporary is the pain you’ve to go through for building long term wealth.

The only way to avoid pain is not to invest in equity at all.

By avoiding pain you would not have any gain as well.

You’ve all chosen equity fully understanding the pain and sacrifice that needs to be undergone on the journey towards achieving long term life goals.

Good advice never changes however repetitive and boring it sounds.

Just continue to stay the course remembering the long term results are always good for those willing to undergo short term pain.

Posted in General, Muthu's Musings, Stock Market | 1 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 »

Failure is the norm

Posted by Muthu on July 15, 2018

Many businesses die within first three years of starting. Even among those who survive, very few thrive. Most simply survive. I read that only around 25% of listed companies create wealth. Only a single digit percentage of companies create huge or mega wealth.

It looks like failure is the norm and success is an exception. But we always think otherwise.

Be it sports or movies or politics, the same thing holds good.

Only 1% of us can be in the top 1%. Not all of us can create wealth in stock markets. Most of us would end up average in investing.

Traits are labelled based on outcomes. If successful, we call it perseverance. If failure, we call it stubbornness.

When we realise failure is the norm in many aspects of life, we would be compassionate towards both ourselves and others.

Setting aside for the moment role of luck, we either need to do things differently or do ordinary things extra ordinarily for success.

Impulsiveness and impatience are very common among investors. That why most of them never make any money in markets. Not only that many lose as well.

Discipline and patience would help you do ordinary things extra ordinarily. Though success is never assured, this increases the probability.

All our effort is towards making you do ordinary things well and be different from most of the investors.

If you realise failure is the norm and success is rare, you would understand why we ask you to do what we ask you to do.

Many think stock markets or trading is easy. This is the only field where we take outcome for granted without adequate outer and inner preparation. As Buffett says, in every market cycle, a new set of investors learn some very old lessons.

It is better to have some self doubt, appreciate uncertainty, prepare adequately, do things differently from an average investor and most important do ordinary things extraordinarily. This increases our chance of success and hopefully we won’t fail.

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