Wise Wealth Advisors

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

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Archive for the ‘Stock Market’ Category

This is bear market

Posted by Muthu on October 5, 2018

I’ve been writing every week for last few weeks. Even if I miss writing in bull markets, it is fine because things are rosy. Bear markets are painful and I need to reinforce few basic tenets of good investing.

I was reading this piece last evening. There is no hard and fast rule for definition of bear markets. Generally it is said that a fall of 20% or more by index is bear market.

Index is yet to fall 20%. But a third of all stocks have fallen by more than 50%. Another one third of stocks have fallen in the range of 25% to 50%. The BSE smallcap index is down by more than 30% and BSE midcap index is down around 20%. If this is not bear market, then what is bear market? This is my understanding.

Your portfolio consists predominantly of multicap funds. Considering the above brutal carnage, the fall for you have been bearable. This is because we create a portfolio keeping in mind bear markets as well. We never suggest smallcaps. We don’t go overboard on midcaps. Our preference is always for multicap. Equity by nature is very volatile. Pure mid and smallcap are extremely volatile. Anyhow multicaps also have decent exposure to midcaps. We should not only focus on returns but what we undergo to earn that returns. Pain is inevitable. But we should not make it more painful than necessary.

Yields have hardened a lot resulting in hybrid like balanced and MIPs also not doing well. This year has been very rough both on equity and debt. It is difficult to predict how much more pain is left in the system. We’ve no ability to predict tops and bottoms. It is good that our memory is short. In your investing journey of more than a decade with us, you’ve faced similar situations but may not remember now because markets have always recovered.

In the long run markets only keep going up. It is never a linear movement. For two steps forward, market again a take a step backward before moving forward again. As we repeatedly mention, markets are up 70% of time (in years). There is no way to avoid the remaining 30%. Bear markets are painful and gut wrenching. Though we cannot avoid pain, we need not react to the same. We make temporary losses into permanent one if we react with panic.

We’ve not faced any redemption or SIP stoppage due to current fall. This shows your maturity. Our aim is to ensure you stay the course despite ups and downs and earn the good long term returns which markets offer. I would like to repeat again that try to avoid looking at your portfolio now because it would be very painful and pain sometimes bring undesirable reaction.

What we are going through is very normal. This is how markets behave. No pain no gain is applicable to investing as well.

In nutshell, avoid looking at portfolio, don’t panic and stay the course remembering this too shall pass.

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

Focus on progress not on crisis

Posted by Muthu on August 15, 2018

Happy Independence Day.

There has been no year without any domestic or global crisis. We focus only on crisis and not on progress. This is because, as Morgan Housel says, progress happens too slowly to notice and setbacks happen too quickly to ignore.

In the last 7 decades, how many problems we’ve faced as a nation? Innumerable. At the same time, see how we’ve also progressed on various fronts.

Investors who focus on progress create abundant wealth. Those who focus only on crisis, gets jittery and lose the precious wealth creation opportunity.

You need to always keep only bigger picture in mind. If day to day headlines, amplified by media, scare you, you won’t go very far in investing.

Consumption, entertainment, travel, leisure, buying home, borrowing, saving, investing, insuring, healthcare, industrial activities, agriculture, working in office, improvements in technology, infrastructure development…. the list can fill pages; all continue to happen irrespective of any crisis.

If there is a problem in Turkey, you don’t stop brushing with Colgate, stop taking bath with Hamam or not paint your house with Asian Paints. Commerce is the back bone of civilisation and never stops.

By investing in stocks or equity funds, you’re participating in commerce and its progress.

India over next two decades is capable of becoming a middle income country.

By investing in equity, you also become part of this growth and create wealth.

If you focus only on crisis, you’ll miss the underlying progress.

One crisis or another would always be there but so is progress.

Keep the focus right and just stay the course.

Posted in General, Stock Market, Wealth | 4 Comments »

Simple that’s why

Posted by Muthu on August 5, 2018

Last month I wrote how failure is the norm, be it investing or business. The success rate is very less.

In an article, New York Times mentions that out of 3481 listed companies in US, 200 companies accounted for all profits. The rest 3281 companies lost money. The success rate is just 6%.

We’ve also seen many times in past, how investors earn less than fund returns, as they chase performance. The average holding period of mutual fund investors is around 18 to 24 months. Once Prashant Jain mentioned, hardly 2% of investors stay invested for more than 10 years in a fund. Only small percentage of investors create wealth through equity, be it mutual funds or direct stocks.

Many of you are now among this tiny group of successful investors. How majority of our clients ended up in this successful tiny minority?

We’ve no special expertise but strongly believe in certain process and discipline. We accept investments only for a minimum tenure of 10 years. We don’t frequently churn portfolio. We rarely make changes that too only when we are convinced it is required. We use all opportunities to educate how ups and downs are very nature of markets and why staying invested for long run matters. By not tinkering, we interfere less in your wealth creation journey. More importantly, we don’t let you become your own enemy, through your behaviour.

When I started as an advisor 12 years ago, I decided to implement these principles in my own investment journey and that of our clients. It was easier to implement for clients from day one. It took few years for me to implement for my own investments.

To make money, one needs to be in right place at the right time. India is in such a sweet spot. Unless we mess things up by our own behaviour, discipline and patience would continue to create good wealth. All I ensure is you do few right things, avoid many wrong things and don’t mess it up by negative behaviour.

Teaching is easy. Following the teaching is very difficult. We did the easy part and you the difficult one. Glad that we are able to attract clients matching our philosophy.

We did not do anything extra ordinary. We’ve very limited expertise. You’re successful because you did ordinary things extra ordinary well. Nothing new in the wisdom we shared. It’s all learning from legends, freely available in the internet.

Charlie Munger once said “More investors don’t copy our model because our model is too simple. Most people believe you can’t be an expert if it’s too simple.”

You did simple things very well ending up in tiny successful minority.

The thing is anyone can copy this and be successful, but most won’t do.

That’s why it is being repeatedly said that investing is simple but not easy.

Posted in Stock Market, Wealth | 2 Comments »

Rise and fall

Posted by Muthu on July 7, 2018

Broader markets have been going through deep correction in 2018. This has impacted the equity funds return. Rising bond yields have impacted the debt funds return. Both combined have impacted hybrid (balanced, MIP) funds return.

For those of you who have been investing for long time, portfolio still shows decent returns.

For those of you who started last year, the returns are either marginally positive and in many cases negative.

Markets are always cyclical. It never keeps going in one direction. During good periods, we think bad periods would never come and vice versa.

Rise is always followed by fall and fall is always followed by rise. The long term returns we earn are after going through these repeated cycles.

There is no way to time these cycles. Understanding cycles does not lead to timing the same.

If we expect 15% annualised returns from equity funds over next 10 years; 80% of the returns would happen in 20% of time. Need to stay for entire 10 years to ensure that we don’t miss this 20%.

Long term returns are obtained after years of high returns, low returns, no returns and negative returns.  We cannot focus on one and avoid others. If we need to participate in years of high returns, need to stay invested in years of negative returns as well.

We always ask you to take a minimum 10 year outlook for equity funds, not less than 6 years for hybrid equity (balanced) funds and at least 3 years for hybrid debt (MIP) funds.  Only liquid funds can be held for short term without any prescribed minimum period.

By our regular interactions, you are aware of all these points. Still it is my duty to keep reinforcing the same periodically.

Bull markets would be followed by bear markets would again be followed by bull markets ad infinitum. The cycle continues to keep happening. Need to go through both bull and bear markets for good long term returns. One positive aspect is there are more good years than bad years. Markets are up generally 70% of the time and down 30% of time (in years).

If looking at portfolio pains you, stop looking at the same.

Investors who review portfolio only once a year has better chance of staying the course. If you panic and redeem in bear markets, you would not be able to enjoy the returns of bull markets.

Only those who own investments in bear markets are those who are rewarded in bull markets.

Investing legend Andre Kostolany said beautifully “Who does not own shares, when their prices drop, will not own shares when prices soar.”

Be intelligent and stay the course.

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

How a teacher couple turned $50,000 to $800 million?

Posted by Muthu on May 7, 2018

However rare the occurrence may be, we are able to connect well with real life examples. These examples motivate us to work towards financial independence and create sizeable wealth.

Donald and Mildred Othmer was born in the first decade of last century and lived well into their nineties before passing away in the last decade of the same century.

Donald and Mildred Othmer both belonged to Omaha, where Warren Buffett has been living from his childhood.

Donald worked as a professor in a polytechnic. He had scores of patent to his name. He was a good teacher, researcher and consultant. Mildred worked as a teacher.

They knew Buffett’s family well and trusted in his investment ability.

In 1960’s, when Buffett was running an investment partnership, they invested each $25,000 into the same.

When Buffett closed the partnership and gave the option of either taking the corpus back or converting into Berkshire Hathaway stock, they opted for latter. They got around 14,500 shares at $42 a share. This implies Buffett partnership has multiplied their wealth by over 12 times in a decade.

At the time of their passing away, the $50,000 investment has become whopping $800 million.

The couple did not have children and passed on their wealth to charitable causes.

Donald’s bequest of $190 million to the polytechnic where he worked for nearly 6 decades was about four times the institute’s entire endowment there by lifting the institute to a different league.

Donald and Mildred also provided well for Long Island College hospital in Brooklyn and University of Nebraska-Lincoln, from where both of them graduated.

They also contributed for other causes.

Their example again reinforces the need for buying right, sitting tight and staying the course. They held on to their investments for close to four decades without interrupting the compounding.

Had they not known Buffett and instead invested the same capital in index, it would have still become few million dollars.

As on date, had that $50,000 investment continued in Berkshire, it would be worth more than $4 billion.

Be it index or actively managed funds or portfolio of quality companies what is important is not to get swayed by short term movements, hold for long term and staying the course with patience and discipline.

In my view, we don’t need much brain to make money in a high growth economy with a long run way like India. What is required is capital, which needs to be created out of employment or business or profession, investing the same prudently and then simply staying the course.

Stay the course for next one to two decades and see the results

Posted in Stock Market, Warren Buffett, Wealth | 2 Comments »