Wise Wealth Advisors

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

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Archive for the ‘Wealth’ Category

What happened when he forgot?

Posted by Muthu on August 14, 2017

My colleague Partha went to a client’s place last week.

The client while searching for something stumbled upon a very old investment he made and completely forgot about it.

In 1995, he has invested Rs.5000 in initial allotment of Reliance Vision Fund.

He wanted us to check the value.

When we checked the same on August 10th (NAV as on August 9th), the value was Rs.2,76,166.

His initial investment has multiplied by 55 times over 22 years. It works out to an annualised return of 20%.

He acknowledged that but for his forgetting, he would not have kept the investment this long.

He also said that after becoming our client and seeing an example from his own life, he is convinced about the benefit of holding equity for long term.

Reliance Vision Fund has been one of the average performers. In the last many years, it has never been a chart topper.

As we always say, as long as we avoid certain kind of funds and some fund houses, any diversified equity fund would do well over long term. What we avoid is more important than what we choose. All that is required to have 4 or 5 diversified equity funds in a portfolio.

Though we select good funds, that’s not our main job. We want to ensure that you hold equity funds for a minimum of 10 years and preferably couple of decades.

If only you can do that, I don’t see why you cannot be very wealthy.

Luckily for him, he forgot. He may even wonder why he invested only a small sum instead of committing few lakhs, which he was capable of even two decades ago.

You’ve heard this John Bogle’s quote from me many times. Please listen now for one more time.

“Stay the course. No matter what happens, stick to your program. I’ve said ‘stay the course’ a thousand times, and I meant it every time. It is the most important single piece of investment wisdom I can give to you.”

Posted in Mutual Funds, Wealth | 1 Comment »

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 »

Being smart may not help

Posted by Muthu on July 23, 2017

Mensa is an organisation founded in 1946. You can become a member if your IQ is within top 2% of the population. Higher IQ would be of advantage in many aspects of life. When it comes to investing, higher IQ is often counterproductive.

Eleanor Laise evaluated the performance of Mensa investment club for a 15 year period, from 1986 to 2001. When top notch intelligent people manage money, you would expect extraordinary results. During the above period, S&P 500 index provided an annualised return of 15.3% whereas Mensa investment club was able to generate a paltry return of 2.5%. Mensa underperformed index by a whopping 84%.

What contributed to Mensa’s failure? They did not have a coherent investment strategy. They kept changing their strategy almost every quarter. They repeatedly tried to time the market, chased performance, focused more on the fads and fashions, was over confident, lacked discipline and long term orientation.

That’s why Warren Buffett said, “If you are in the investment business and have an IQ of 150, sell 30 points to someone else. You do have to have an emotional stability and an inner peace about your decisions. It is a game where you are bombarded by minute-by-minute opinions. It’s not a complicated game. It’s simple, but it’s not easy. You have to have an emotional stability.”

I don’t know what my IQ is. It should either be average or below average. But I’m able to reasonably do well at investing (after a decade of painful learning) because I’ve evolved an investment strategy and stick to the same through ups and downs. Long term orientation, patience and discipline are the only edge I possess. We do our best in nurturing and sustaining the same traits in you.

Once you have a proper investment strategy, what is required is emotional intelligence. Ignore noise, ride the ups and downs, stay the course, have long term orientation, stick to the investment discipline with extreme patience. If you are able to do this, you’re most likely to end up rich.

The idea is not to criticise people with higher IQ but to highlight it is emotional stability and not higher IQ which would make you a successful investor.

Posted in Muthu's Musings, Wealth | 4 Comments »

Tin-Can-Curt

Posted by Muthu on June 26, 2017

I keep sharing some real life instances of how people from humble background made it big in wealth through investing.

Curt Degerman who was called as ‘Tin-Can-Curt’ by people of his home town Skelleftea, in North Sweden, was a rag picker.

Curt used to travel every day in cycle across the town to pick up bottles and cans from the trash bins. He sold them for a small price to a nearby recycling plant.

He owned a house and used to eat leftover food provided by restaurants.

He did not complete school, never married and was a loner.

He used to visit the public library in town and read all the financial newspapers.

That was his favourite pass time in an otherwise mundane life.

He was a rag picker from the age of 20 to 60, when he died of heart attack.

He had only one relative, his cousin visiting him occasionally to enquire his welfare.

On his death, it was found he has written a will. The will contained assets of his home, 8 million kronor in stocks and mutual funds, 124 gold bars worth 2.6 million kronor,  47000 kronor in bank account and 3000 kronor as cash at home. So other than his home, he had 12 million kronor worth of assets. This was equivalent to around $1.5 million.

He has left his home and the $1.5 million worth of assets to his cousin, the only soul who used to visit him.

He died as one of the richest person in the town.

There is no need for us to lead a life of rag picker or be extremely frugal.

What we can learn from Curt is that even with small income, if substantial portion of it is saved and invested in equities, it can compound to huge wealth over decades.

You’re all earning very well in your employment and business. If you can cut down on unnecessary lavish expenditures and save not less than 30% of your income, invest it in equities and give it at least two decades to compound, you can definitely become very rich.

What is the use of high income if we can never become financially independent in our life?

Also if a rag picker who never completed school can understand power of compounding and potential of equity, shouldn’t we who have access to much better resources gain similar insight?

Think over.

Posted in General, Muthu's Musings, Wealth | 4 Comments »