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

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Archive for the ‘Stock Market’ 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 »

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 »

Extreme patience

Posted by Muthu on February 12, 2019

To make money from equities, not just patience, but extreme patience is required.

Even last piece I wrote on patience. I’m continuing with the same. Why?

Patience is the most difficult virtue to develop. As I’ve said before, the origin of the word patience means suffering. To be patient is to suffer.

By nature, we try to avoid pain. But nothing worthwhile is ever achieved without going through pain.

Markets may not give any returns for three years and give three year returns in the fourth year.

Gains are never linear but always lumpy.

Markets can test our patience to the extreme. Only those who are able to bear the same are rewarded well.

Investors who are impatient seldom make money from markets.

Those who are with us for long are still seeing good returns.

Those who have become clients in the last few years are staring at bad returns.

Things will definitely change. Over a ten year period, the results would be good.

I cannot predict when markets would start going up. All I know is, in a decade, you would have more good years than bad years and the overall results would meet your expectations.

I can motivate and handhold you. But it is you who need to develop the required virtues.

Stay the course with faith. You would be amply rewarded.

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

Need of the hour is patience

Posted by Muthu on February 4, 2019

“The biggest thing about making money is time. You don’t have to be particularly smart; you just have to be patient.”- Warren Buffett

Though broader indices may not say so, for all practical purposes, for majority of stocks we’ve been in a bear market.I saw a fund manager presentation. Only 21% of BSE 500 stocks ended positively in 2018. The rest 79% have given negative returns.

Debt market has also not been doing well for more than a year.

So be it equity funds or hybrid one like balanced and MIP, returns have been abysmal.

We know that 70% of the years, it is bull markets and only the balance 30% is bear markets. Still time moves very slowly in bear markets. Our patience and discipline are severely tested.

It is normal to be impulsive and impatient. That’s why it’s very difficult to make money in the markets. Only the few who are disciplined and patient ultimately makes it big from the markets.

All you need to do now is to simply the stay the course. Looking at portfolios can be painful. So I would suggest not to look at them till market recovers. Rain or shine, good or bad, I send yearly reports with my comments in April every year. It is generally a good thing to look at your portfolio once a year. More so in the negative market conditions like this.

There are many people who predict what would happen before or after elections. It is simply their opinions. May or may not happen. You know that I don’t make short term predictions.

The government is aiming India to be a $10 trillion economy in 2030. We’ve lot of foundations already in place. India is definitely a structural long term growth story. When we move from $2000 per capita to say $8000 per capita over next twelve years or so, lot of companies would do very well. As an equity holder, you would be reaping those benefits.

Keeping bigger picture in mind is the only way to withstand the short term pain. You’ve invested in equities with belief in a better tomorrow for the country and corporate India. Stay with that belief. I don’t know what would market do based on pre-poll opinion polls and election results. It is both difficult to predict events and market reaction to those events. All I can tell you is, whenever you’re in a bear markets, a bull market is always around the corner.

Maintain discipline. Stay patient. All would be well.

Posted in Economy, General, Muthu's Musings, Stock Market | Leave a Comment »

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 »