Wise Wealth Advisors

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

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Archive for the ‘Stock Market’ Category

Invest when you have money, redeem when you need money

Posted by Muthu on June 24, 2017

There is so much of confusion and discussion about whether markets would go higher or lower or stay flat from here.  I don’t know the answer. But so many experts have different answers; each according to how he sees it.

No one can get the answer correct. On each occasion, someone may get it right. But it would be different person on different occasions. No one consistently gets it right. Some people who have claimed to have seen 2008 crisis, was saying the same thing for very many years and one year they got it correct. Even the dead clock shows time correctly twice a day. If you keep saying regularly markets would correct by 20%, one day you would be proved correct. Likewise, if you keep saying regularly market would rise by 20%, one day you would be proved correct.

Market is an extremely complex mechanism. So many things affect it in the short term and it is very difficult to guess which way it will go. In the long run, only earnings and its growth impact a stock price.

The solution is owning an index or diversified equity funds or a portfolio of high quality companies for long run. Owning an index or diversified equity funds is a more passive activity and one has to be relatively more active in holding a portfolio of stocks.

Index has not been a great indicator of broader market movements in India. Index has given sub-optimal returns over last one decade whereas actively managed funds have delivered a better performance. So indexing is still some time away. As long as one avoids thematic and sectoral funds and invests in well diversified equity funds, there is no need to worry about timing.

Most of you are saving and investing for retirement. Retirement is usually spread over couple of decades. It is not a one time activity. Goals, which happens at a particular point of time, like daughter’s marriage need planning in advance in terms of withdrawal. Daughter’s higher education, which is usually spread over few years, also needs planning in advance for phased withdrawals.

Goals like retirement or building wealth which is spread over decades and even multiple generations needs no timing. It is better to be in equity over the accumulation phase. In distribution or retirement phase, one can have a mix of debt and equity. People who have built great wealth have done it through holding equities for decades without worrying about volatility. ‘Buy & Hold’ works well in a basket of stocks like index or diversified equity funds.

We always tend to extrapolate the present into future. In the beginning of 2016, when there was a bear market, experts were predicting further fall. But markets went up a lot post budget. Likewise when markets corrected during demonetisation, greater bear market and recession was predicted. But we’ve been in a bull market post demonetisation. Now everyone is predicting further heights. It may still rise or correct; we would only know in hindsight.

The markets are always volatile and would continue to be so. Every year, you can look forward to, may be two 10% corrections. One bear market (fall of above 20%) every few years is most likely to happen. This is how it has always been.

In a country like India, whose economy and corporates is expected to grow well over next one or two decades, stock market would also keep growing; but not without going through periodic cycles. If it takes 2 or 3 steps forward, you can definitely expect one step backward. It’s movement is going to be only like this. But every cycle would see new highs. But don’t look to time it. I cannot do it for you. Be skeptical about people who claim they can do it.

Once you invest in equity, simply stay the course.

But for few exceptions, the general rule is invest when you have money and redeem when you need money, ensuring at least there is a 10 year time period in between.

Posted in Wealth, Stock Market | Leave a Comment »

$1000 to $2 Million

Posted by Muthu on June 11, 2017

I always keep telling you not to time the market. Hopping in and out of the market leads only to wealth destruction or sub-optimal returns. Country like India is in a structural bull market. In the long run, markets only keep going up, with occasional corrections and bear markets. If you can stay the course, ignoring the pains of corrections and bear markets, you would definitely get rich. Accepting volatility is the price you pay for obtaining excellent returns.

We always emphasise that equities need to be held for multi-decades and even multi-generations. Considering that one has a career span of 3 decades and post retirement life of another 2 or 3 decades; we need to learn to hold equities for many decades. Since a part of our wealth goes to next generation, we also need to learn to hold it for multi-generations. Great wealth is made only this way.

If you can change your mindset towards equity and be a ‘buy & hold’ investor, financial independence and significant wealth is definitely yours.

I keep sharing data and real life examples to reinforce the need to hold equities for long run without timing the market.

I was reading this article.

Russ Gremel of Chicago is 98 years old. Due to his love for nature, he is donating $2 million to establish a 400 acre wild life refuge, which is also being named after him.

Seventy years ago, when he was in his twenties, he saw Chicago based Walgreens, apharmacy chain, growing well. He invested $1000 in the stock of Walgreens. He held it through bull and bear markets, recessions and booms, good and bad news and various business cycles. He was just monitoring the company, without selling a single share. Though it is not mentioned, he might have received excellent dividends over all these years. No one in his neighbourhood was aware that he is a rich man.

Now that $1000 has become $2 million. Power of buying right and sitting tight.

Whether it is stocks or equity funds, staying the course for long run is the way to create huge wealth even with relatively modest investments. Churning should be very minimal. Chasing performance and timing the market invariably brings only wealth destruction.

Our biggest value addition as an advisor is making you stay the course. Example such as Russ Gremel is to provide you positive reinforcement.

Wishing you a great week ahead.

Posted in Stock Market, Wealth | 3 Comments »

Don’t fear

Posted by Muthu on April 25, 2017

The title of this piece should have normally come during corrections or bear markets.

Why I’m saying this when the indices are rising?

This is for those of us who may fear when market makes new highs.

First understand that 29,000 or 30,000 is only a mere number to measure the journey of Sensex.  Thirty eight years ago, it started at 100 and has multiplied 300 times over 4 decades.

At 100 or 1000, investors then would have had difficulty in imagining a level of 30,000. Now we may find 100,000 unimaginable. Sensex would touch this and much more in the course of its journey.  None of us know when.

All we know is that it would continue to keep going up in line with earnings with occasional corrections and gut wrenching bear markets.

To quote Nick Murray, declines are temporary and uptrend is permanent.

From the time it started, Sensex has made innumerable ‘new highs’ and ‘all time highs’. So there is no need to fear these terms. These are very common words in markets, more so in bull markets.

Also no need to keep anchoring to Sensex levels. There are broader markets, small cap, mid cap, sectoral indices and so on.

Sensex might have delivered hardly around 4% to 5% during last 10 years. But so many good mutual funds have delivered double digit returns. Many of you who are our clients for last 9 or 10 years can vouch for this. The return we get is based on the results of the companies we own, either directly or through mutual funds. Sensex return has nothing to do with the same. Sensex is still at the same level it was around 2 years ago. But your portfolio has delivered decent returns during the same period.

So stop anchoring to Sensex. It is only a very broad indicator. Many a times it has got nothing to do with your portfolio performance. So as much as you ignore bear markets, learn to ignore bull markets as well.

I’ve no ability to time the market. I don’t believe anyone else has the ability though many claim so. To me, you may buy when you have money and you may sell when you need money; at least holding for a period of 10 years in between. A bull or bear market can last for many years. There is no timeline for the same. Even in a long term bull market, it would be a roller coaster ride. Bear markets can happen suddenly as it happened early last year, only to be followed by a bull market subsequently.

Visualise a continuous uptrend in line with earnings over a long period of time (10 years+), with many rise and fall in between. This is the nature of journey and this is how wealth is made.

You’ve often heard me asking you not to fear bear markets.

The same holds good for bull markets as well.

Don’t  fear.

Posted in Stock Market, Wealth | Leave a Comment »

Treat it the same way

Posted by Muthu on April 14, 2017

Wishing you and your family a very happy Tamil New Year.

We are generally good at holding on to assets. The house we own might have been bought by our father and our daughter may continue to own it. It is not uncommon for gold being passed on to many generations in a family. Despite being low return assets, we have positive experience with house and gold because we rarely make loss in the same.

The reason for not making loss is because we hold them long; from decades to generations. Volatility and corrections get smoothened over such long stretches resulting in secular uptrend. I know many who bought home 5 or 7 years ago and there has been no appreciation. They are fine with it. Gold’s price is lesser than what it was some years ago and people are ok with the same. Culturally we’ve a natural inclination to hold on to those assets. That’s a big blessing resulting in positive experience from these asset classes.

Other than a small number of families, who are exposed to equity in early age and taught about its nature or first generation investors who are able to get this understanding, most investors find it difficult to hold on to equities. Unlike real estate, equity is extremely transparent and liquid. A price quote is available every day. You find both buyers and sellers also every other day. This coupled with every day volatility and periodic corrections make people not to hold on to this high return asset.

Advisors like us help you to understand equity. The key understanding is that in short run the prices move due to sentiment and liquidity and in the long run, prices move only due to earnings. Companies and portfolio which continue to keep growing earnings will only move in one direction, which is upwards, in the long run. There are many stocks, why stocks even mutual funds, which have grown by 40 times to 100 times in last 20 years.

We believe at 15% expected returns, we can hope to multiply capital by 4 times in next 10 years and 16 times in 20 years. This would be possible if you treat equity in the same way as you treat house and gold; holding it for decades and for generations.

If you can apply your learning from house and gold to equity, it would give returns much higher than what these conventional assets have given. World over, equity is considered as the highest compounding asset class. All it is needed to get it’s benefits is to apply your learning and start treating it in the same way as you treat other assets.

Fair and equal treatment is a very legitimate demand.

Grant it and grow rich.

Posted in Stock Market, Wealth | 3 Comments »

Stephen Jarislowsky and a Janitor

Posted by Muthu on March 26, 2017

I’ve been looking for and reading about investors who made it big through ‘buy & hold’ investing of quality companies.

Reading about them reinforces the required conviction to stay the course.

One such investor is Canadian billionaire Stephen Jarislowsky.

To make it really big, these investors started very early (usually in their twenties) and lived beyond eighties. This gave them the crucial variable of ‘time’ which is essential for compounding.

We neither started in twenties nor do not know how long we would live. If someone has investible surplus of Rs.10 crores at the age of 50, at 15% compounding, he would end up with Rs.160 crores  at the age of 70. Such is the power of compounding. We are not aiming for billions but may be few million dollars. We can achieve this despite starting late and not knowing about our longevity.

Stephen looks for high quality large cap companies which are non cyclical and can keep doubling their earnings every 5 to 7 years. He simply buys these companies and hold them forever.  He is now 91 years and started investing when he was in his twenties. He holds the stocks he bought as early as 1948. In fact his secret his ‘buy stocks you never plan to sell’. He believes the one thing investors need to learn is virtue of patience.  He shuns cyclical stocks and looks for industries like consumer staples, alcohol and healthcare which are stable and growing businesses.

He says that shares produce an average real return of 5% to 6% a year (after inflation). The earlier that you can start, the more miraculous will be the effects of compounding over a working life.

While I was reading about Stephen Jarislowsky, I stumbled upon the story of Ronald Read. Last year Ronald Read passed away at the age of 92. He was working as a janitor (door man) at JC Penney. Before that, for many decades, he worked as an attendant in a gas station. When he died, it was found that he has left $8 million in charities for local library and hospital. Nobody was aware that the door man at the local shop was a multi millionaire. He has also bought and has been holding high quality companies for many decades. He never went to college and was a high school dropout. He regularly used to read Wall Street Journal which should have aroused the curiosity of people around him. They completely missed this aspect of his life.

We may not become a Stephen Jarislowsky. But we all earn more and capable of investing much more than Ronald Read. Whether it is Stephen or Ronald, they held on to equities for decades completely ignoring news and noise. They never aspired for quick money and rated patience as the highest virtue in investing.

Without compromising current consumption and present life style, we all are capable of saving more, which we do. Where we occasionally fail is losing our patience and getting carried away by noise.

As I mentioned about stocks, let me give an example of equity fund as well. I was going through a brochure of HDFC Tax Saver. Rs.1 lakh invested in it twenty years ago has become Rs.1.04 crores now. Money multiplied by 104 times in 20 years. Rs.1 lakh invested systematically in it every year for last 20 years is now worth Rs.4.75 crores. An annualised return of more than 25%. Past has been wonderful and we expect future to be more modest but still provide a decent return of 15%.

Last 20 years there have been many negative news and events both in India and across the world. Those who stayed the course with tremendous patience would have built excellent wealth.

Have patience, give time and stay the course. Wealth is all yours.

Posted in Mutual Funds, Stock Market, Wealth | 2 Comments »