Wise Wealth Advisors

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

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Archive for the ‘Stock Market’ Category

Peter Lynch on market timing

Posted by Muthu on November 19, 2017

Peter Lynch was one of the best fund managers. He managed a fund called Fidelity Magellan Fund for 13 years, between 1977 and 1990. $1000 invested in 1977 in his fund has become $28,000 in 1990. Money multiplied by 28 times in 13 years, annualised return of 29.21%

I was reading one of his interviews today. Thanks to @stocknladdr  for sharing the link. As you know, we are always against market timing. In our opinion, you should invest when you have money and redeem when you need money, ensuring at least there is a 10 year time period in between.

Peter Lynch has provided a study on market timing. Let us listen to him in his own words.

“People spend all this time trying to figure out “What time of the year should I make an investment? When should I invest?” And it’s such a waste of time. It’s so futile. I did a great study, it’s an amazing exercise.

In the 30 years, 1965 to 1995, if you had invested a thousand dollars, you had incredible good luck, you invested at the low of the year, you picked the low day of the year, you put your thousand dollars in, your return would have been 11.7% compounded.

Now some poor unlucky soul, the Jackie Gleason of the world, put in the high of the year. He or she picked the high of the year; put their thousand dollars in at the peak every single time, miserable record, 30 years in a row, picked the high of the year. Their return was 10.6%. That’s the only difference between the high of the year and the low of the year.

Some other person put in the first day of the year, their return was 11%. I mean the odds of that are very little, but people spend an unbelievable amount of mental energy trying to pick what the market’s going to do, what time of the year to buy it. It’s just not worth it.

Excellent timing returned 11.7%. Lousy timing gave 10.6% and disciplined investing provided 11%. Always keep this in mind and stay the course.

Wishing you a wonderful week ahead.

Posted in Mutual Funds, Stock Market, Wealth | 5 Comments »

How an ordinary businessman made $1.75 billion?

Posted by Muthu on November 5, 2017

$1.75 billion is Rs.11,375 crores. This conversion is to show the magnitude of this sum.

Whenever we hear illustration of if someone has held a fund or stock for 20 years how rich he would have become, we just yawn. We believe those are just illustrations and not a reflection of real life. No doubt it is not easy to hold a stock or fund for 20 years. But I keep giving examples to show, though rare this can be done. We may or may not make  hundreds of crores but tens of crores is possible for high income earners with right investment strategy, patience and discipline.

In 1980, Stewart Horejsi was a struggling business man. Warren Buffett was not well known 40 years ago as he is today. Horejsi heard about an upcoming businessman doing well in capital allocation and building wealth for shareholders. So he invested $10,600 of his family wealth in Buffett’s company, Berkshire Hathaway. He also started adding more shares regularly.

After 3 decades he nearly made a billion dollars out of his Berkshire holdings and got into Forbes list of billionaires. He subsequently diversified his wealth but still hold good number of Berkshire shares. As per Forbes, his current net worth is $1.75 billion.

Buying a good company itself is not an easy job. Keep on buying and holding on to the same for 30 years demands extreme conviction, patience and discipline.

Buy and hold may or may not work for a single stock. But for portfolios, mutual funds and index, selling rarely and holding on for most of the time would work wonders. The argument mainly against buy and hold is disruption. Disruption has always been there for businesses. It is not a new phenomenon. Good companies adapt and thrive. Weak companies fail and die. Buying & holding does not prevent us from tracking developments. Also it does not mean giving up our judgement and discrimination. Selling can be done but it has to be the last option. If we buy right, selling will be infrequent.

You’ve been following our guidance for more than a decade and have been rewarded for the same. Good principles would never go out of fashion though it may have periods of underperformance.

Stay the course and build fortune.

Posted in Stock Market, Warren Buffett, Wealth | 1 Comment »

How a retired executive built $70 million?

Posted by Muthu on October 31, 2017

Theodore Johnson was born in last century and died at the ripe age of 91 in 1993.

From 1923 to 1952, for 29 years, he worked in United Parcel Service (UPS).

He joined the company at $25 a week, rose through the ranks and retired in 1952. At the time of retirement he was making $270 a week, which is $14,000 per year. For ease of understanding, in today’s dollar, it is worth around $1,25,000.

He had a habit of saving around 25% of his income every month and he invested it in stock. When I say stock, he invested only in one stock, that of his employer UPS.

When he retired in 1952, he has accumulated UPS stock worth $7,00,000.

He never touched the corpus. He might have been living on his dividend income. Assuming a dividend yield of 2%, he would have lived very comfortably with dividends itself.

Thirty nine years after his retirement, in 1991, the stock has grown to the value of $70 million. Please note that he might have received a dividend of $1.4 million a year for that corpus.

He gave a sizeable portion of this wealth to his son and two grand children.

After the same, he donated $36 million for various charitable organisations supporting education for poor and disabled.

He passed away next year. His wife died few years before him. They had a long married life.

From what I read, he has lived a well balanced and good life.

No doubt he was a high earner of his times. Still building a corpus of $70 million is a huge achievement.

Many of you are high earners. You can also save 25% of your income. Instead of investing in only one stock (we would not advice that), you’re investing in equity funds. Shareholders would receive dividends and mutual fund unit holders can do SWP (Systematic Withdrawal Plan).

Five equity funds or a portfolio of 15 to 20 stocks can do wonders if you save with discipline during working years and withdraw only for your lifestyle needs in retirement years. Higher the corpus, even a small withdrawal would ensure an excellent life style.

You can pass on wealth to your children and grand children and also provide for underprivileged in the society.

Leading a good life style, passing on wealth to next generation and giving it back to society, what more a life well lived needs?

Aim big and work for it.

Posted in General, Giving, Stock Market, Wealth | 1 Comment »

It all boils down to patience

Posted by Muthu on October 1, 2017

Over a decade, I’ve been writing about the same few things again and again.

Each time, I try to write a little bit differently so that you don’t find it repetitive and boring.

Having been our clients for long, you now know gains are lumpy. It happens in spurts. There is no way to time the entry and exit and we stay invested for long to get the benefit.

There are years of high returns, low returns, zero returns and negative returns.

The expected returns of 15% from equity funds over a decade consist of all such periods.

I want to give you today two examples I came across in the book ‘The Thoughtful Investor’ by Basant Maheshwari.

From 1984 to 2013, Asian Paints has multiplied investor wealth by 1767 times, annualised return of 29.4%

Rs.1 lakh invested would have become Rs.17.67 crores over a 29 year period.

An investor would not have got 29.4% every year. As mentioned, he would have had many years of zero and negative returns as well. In fact though the business was growing, from 1992 to 2002, for 10 long years, Asian Paints went up only by 3 times. Someone who sold out of frustration would have lost this precious wealth creation opportunity.

From 1984 to 2013, Nestle has multiplied investor wealth by 322 times, annualised return of 22%.

Rs.1 lakh invested would have become Rs.3.22 crores over a 29 year period.

Here too an investor would not have got 22% every year.

In fact, for seven long years, from 1999 to 2005, the price did not move at all though the business was growing. If an investor would have sold out of frustration, he would have missed the share price multiplying 10 times in subsequent 8 years.

You’ve seen both bull and bear cycles. You’ve also seen periods where nothing seems to happen. But over a 10 year period, you’ve made decent returns.

This is how markets work and this is how it would continue to work.

In market linked products don’t look for yearly performance. Look for what happens over years.

Patience is your biggest edge. Markets would always reward you for the same.

Posted in Mutual Funds, Stock Market, Wealth | Leave a Comment »

Good periods are more

Posted by Muthu on September 21, 2017

Many investors are afraid both when the market goes up and down. Markets are rarely in equilibrium.  Moving up and down is its very nature. During bear markets, media hype creates enough scare for people to exit investments. In bull markets, as markets keep making fresh highs, there is a strong fear of fall again hyped by the same media.

Markets do not follow any rules. Each market situation is unique. Every bull and bear markets occurs on different triggers. Over valuation or under valuation can last for long periods of time too. Our investment philosophy is not to time the market. We would go through periods of high returns, low returns, no returns and negative returns. We need to go through all these to get good long term returns.

In terms of years, markets are usually up 70% of time and down remaining 30%. There is no proven method or strategy to only capture good years. You need to go through bad years to get the reward of good years.

Also a 10% correction happens normally once a year. A 20% fall occurs once in few years. During a decade, we may even face a 30% fall too. These are only averages over a long period of time. Actual occurrences may significantly vary. Nobody has consistently timed all these profitably. Neither we nor anyone else can predict short term. Like seasons, long term is more predictable. Like weather, short term is unpredictable.

Because of my profession and interest, I read many good things and some nonsensical ones too, just to get a feel of what is happening around. You’ve no such requirements or compulsions. All of you have full time occupation. The best way to avoid noise is to completely shut it out.

Ignore any ups and downs. Just stay the course. Avoid or minimise use of online portfolio access. Our yearly review is more than enough.

Keep in mind that good periods are more than bad ones. It is easy to remember it now in a bull market. A 10% correction or 20% fall may always be around the corner. Don’t forget to remember it then.

Posted in General, Stock Market | Leave a Comment »