Wise Wealth Advisors

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

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Archive for the ‘Stock Market’ Category

How Agnes Plumb made $98 million from Kellogg’s shares?

Posted by Muthu on August 13, 2017

ITC got listed in 1954. I’ve seen families holding this stock for two generations.  A small sum invested decades ago is now worth several crores for them, earning yearly dividends in lakhs of rupees. Likewise, I’ve met people who are holding diversified equity funds for last 2 decades. Thousand of rupees have become lakhs of rupees for them; money multiplied by 40 to 50 times.

In 1996, Agnes Plumb died at the age of 88. She was a single woman who lived with her mother till she passed away in 1960. During last four decades of her life, after her mother passed away, she led a simple life. As her mother was crippled due to an accident, she kept doing small charities for crippled and disabled people. She was also very fond of children and used to help the less privileged.

On her passing away, she left $90 million for hospitals and societies which work for the children with birth defects and are crippled. She also left $2 million each for four of the families who were close to her during her life time.

How come a normal middle class woman made $98 million fortune?

Her father, during his life time was a shareholder of Kellogg’s. She inherited it from her father after his death. Her father has been holding the shares for few decades. After his death, she held it for many decades until her death. The shares continuously got split, resplit and kept doubling. What was once a modest number of shares became 1.3 million shares over many decades and two generations, amounting to a fortune of $98 million. Agnes used to receive $2 million as dividend every year for a small sum invested many decades ago.

During many decades of holdings, there would have been instances when the stock price of Kellogg’s would have corrected 50% or more. There are many years when the price would not have moved at all, as returns are always lumpy in the stock market. There has been wars, booms and bursts, bull and bear markets, gut wrenching corrections, recessions etc. during the holding period. She kept on holding the Kellogg’s shares ignoring all these.

‘Buy & Hold’ works for companies which can survive and grow over many decades. This involves skill, knowledge, luck and huge control over one’s emotions. Some companies succeed and many fail. The long term survival rate is low. But buying and holding index or diversified equity funds is no brainer. Good companies come inside and bad companies keep exiting the index. In diversified equity funds, the fund manager takes care of buying and selling companies. All it needs is to hold on ignoring ups and downs for many decades.  It is very difficult to go wrong and not make wealth if you follow this.

As I always repeat, in fund selections, we focus on what to avoid. Once that is taken care, choice of funds is merely a hygiene factor. What is important is staying the course ignoring market cycles and negative news (most of the news is always negative). 90% of our work is shaping your behaviour and ensure you stay the course. All the other advice and services we do is only 10%.

In a country like India, we can make good wealth if we can start thinking in terms of decades as holding period. It doesn’t require a great brain but an excellent temperament.

I hope we all develop and sustain right temperament.

Agnes Plumb did it. We can also do it.

Posted in Stock Market, Wealth | Leave a Comment »

How Anne Scheiber built a fortune?

Posted by Muthu on July 30, 2017

Anne Scheiber was born in 1893.  Her father died when she was very young.

Due to poverty, she began to work in her teen years, saved money and graduated from law school. She joined IRS. IRS is ‘Internal Revenue Service’. It is the income tax department of US government.

Being a Jew and a woman in the early part of last century, she faced lot of discrimination. She excelled in her work. But during her 23 year career she never got a promotion due to discrimination. She retired in 1944 with a retirement corpus of $5000.

Though she retired at the age of 50, she lived till the age of 101; passing away in 1995.

Her experience as an IRS auditor, scanning numerous income tax returns, showed her how rich some people became by investing in stocks. So at the age of 51, she became an investor and remained so for next 50 years.

When she died, the five thousand dollars has become $22 million. Inflation adjusted, it is roughly $34 million now. She donated the money to establish scholarship at Yeshiva University and Albert Einstein School of Medicine to help deserving poor women’s education.

Except her stockbroker and lawyer, no one knew she was that rich. She led an obscure life. Her entire fortune was built through investing in equity.

This article says:

Her investment strategies were simple, if not old-fashioned. Forget about market highs and lows on any given day, month or year. Reinvest your dividends. Hang tough and seldom sell.

“She was never looking for a quick buck,” said William Fay, her broker at Merrill Lynch. “Her whole idea was to get performance on a long-term basis. She felt over the long run the value would grow.”

This is how she turned $5000 to $22 million.

There were many times over her investing career her stocks declined even 30% or 50%. She stayed invested through many ups and downs, booms and burst of markets. Many a times, the economy went into recession and came back. There were war and peace, change of governments, economic and political turmoil; through all these she stayed with her chosen portfolio. She rarely sold. She bought companies whose business she can understand.

Once in a while, I keep giving such examples to motivate you to stay invested in equities for long term with patience and discipline; without being carried away by the gyrations of the market and the noise of media.

As Jesse Livermore said, once you buy right, all you need to do is to sit tight. This is very uncommon and difficult. Nobody said it is simple. But by focusing on our behaviour, it is very much possible.

Some of the personalities I write about had some serious flaws as well. In Anne Scheiber case, she was extremely frugal.

I only share with you their investment traits which helped to build fortune. There is no need for us to worry about other aspects of their life.

If a retired lady can do it in the last century, we can also do, not necessarily building a fortune but attaining worthy goal of financial independence

Posted in Stock Market, Wealth | 2 Comments »

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 Stock Market, Wealth | 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 »