Wise Wealth Advisors

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

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Archive for the ‘Wealth’ Category

Pain is inevitable

Posted by Muthu on February 6, 2018

We’ve always told you that 10% corrections once a year, 20% fall once in few years and 30% fall once in a decade is very common. There is no way to avoid the same. The 15% expected returns from equity over a decade includes the periods of high returns, low returns, no returns and negative returns.

Globally markets have been falling for last one week. Looks like India would not be immune to this in the short term. In the short run, markets are affected by so many factors. In the long run, it is the earnings and earnings alone which matters.

All our regular sharing and mentoring is to help you face periods of negative returns. Pain is inevitable in the roller coaster ride of stock markets. If we can understand that this pain is part and parcel of journey towards superior returns, we would suffer less.

Nobody would happy to see their portfolio going down by 20%. At the same time need to remember that these are notional losses. We should not make it a permanent loss by selling in panic.

Though I’ve no ability to predict markets, looks like near term may be bad. It would be better if you can avoid looking at your portfolio during such turbulent times. Corporate earnings have started picking up well from last quarter, and the businesses are expected to do well in future. If businesses do well, earnings go up and the same gets reflected in stock prices.

When the market falls, the business does not fall. Colgate would not sell lesser toothpastes due to fall in stock prices. Focusing on business instead of stock price is always a good thing, more so in bear markets.

It is in these times, we need to keep in mind the bigger picture. Good Indian companies have long run way of growth ahead of them which would create tremendous wealth for shareholders. To earn this wealth, we need to go through periods of pain, such as what is happening now.

No pain no gain is definitely true for wealth creation through equities.

Brace yourself to face short term pain for long term gains.

Posted in Stock Market, Wealth | 2 Comments »

Barber and Odean

Posted by Muthu on January 26, 2018

Happy Republic Day.

Google for Barber and Odean, you’ll get articles and studies based on the work conducted by two Professors Brad M.Barber and Terrance Odean. They have studied in detail about the behaviour of individual investors in the market.

Their study has also been cited in the book ‘Simple but not easy’ by Richard Oldfield.

I’ve extracted the following details from the above book.

These professors studied in details performance of 78,000 individual investors for the period 1991 to 1996.

They classified people on the frequency of their trading. Higher the trading higher would be the turn over. A 100% turnover means a portfolio was completely changed every year. 50% turnover means half the portfolio was changed in a year and so on.

The most active (in term of trading) 15,000 investors had a turnover of more than 100% and made average annual return of 10%

The least active 15,000 investors had a turnover of just 1% and made average annual return of 17.5%

There is an excess annual return of 7.5% for buying right and staying the course patiently.

This is one more example to reinforce why we always insist staying the course not only during ups and downs of market but also during the periods of underperformance of funds.

We’ve explained to you in the past why our churn would be less and most of the time it would simply be staying the course. Chaser is a loser. Studies shows even the best of the investors or fund managers underperform 30% of the time.

As I’ve often repeated, our main job is to make you stay the course at all times.

You’re all similar to the above investors who got more returns because of a very less churn and being patient.

This is your strength. Always focus on the same.

Posted in Basics, Muthu's Musings, Stock Market, Wealth | 2 Comments »

This is your edge

Posted by Muthu on January 17, 2018

You’ve been our clients for many years and by now know what your edge is. Still, as always, let us keep revisiting and reinforcing our investment philosophy.

Let us take last 2 years, 2016 and 2017. Markets corrected by more than 20% in the beginning of 2016. In June, Brexit happened. Markets corrected. November 8th, two events; demonetisation was announced and Donald Trump got elected as President. Markets corrected.

Coming to 2017, in February UP elections happened. Market was worried whether BJP will win. GST, another structural shift and hence disruption happened in July. Market stumbled. Every other week in 2017, there was a worry about nuclear standoff between US and North Korea. In December, Gujarat elections became a point of worry.

I don’t know what will happen in 2018. But markets always keep finding a new reason to worry. Despite all the imaginary and real fears in 2016 and 2017, your portfolio is doing very well. This is because you are staying invested through ups and downs over last very many years.

I wrote a piece in 2015. During the previous 20 years, many equity funds have multiplied between over 40 to 100 times. Based on a HDFC mutual fund presentation, I wrote how scary those 20 years were. I would like to revisit the same again.

In 1996, Congress lost the general elections. This resulted in communist supported and participating third front government coming to power. A hardcore communist, Indrajit Gupta, was India’s home minister from 1996 to 1998.

You would also remember that BJP first came to power in 1996 and could survive only for 13 days. So between 1996 and 1998, there was huge political uncertainty and we had three governments in 3 years.

In 1997, Asian financial crisis happened. Much of East Asia went through severe currency crisis raising fears of serious economic meltdown.

In 1998, BJP again formed government, which only lasted for 13 months and was in constant turmoil due to tantrums of coalition partners.

In 1998, India conducted nuclear tests. Western sanctions were imposed crippling the country’s financial situation.

In 1999, we had a fight with our neighbour Pakistan. Kargil war brought both the nations to brink of a major confrontation.

In 2000, tech bubble burst. Technology stocks world over crashed eroding investors’ wealth.

In 2001, 9/11 attacks happened, creating a huge geo-political crisis. Markets tanked.

In 2001, Ketan Parekh scam happened. UTI crisis happened. IT stocks in India lost value as much as 90%.

In 2001, Indian parliament was attacked by terrorists.

In 2004 general elections BJP lost. Congress government dependant on left support for survival came to power. There was common minimum program and weekly breakfast meetings. Government has to keep on yielding to the left tantrums to stay in power.

After 2004, the global commodities prices started rising. Oil prices also started rising sharply.

In 2008, global financial crisis, considered as worst financial crisis after great depression happened. World markets collapsed, Sensex dropping more than 50%.

In 2008, Mumbai terrorist attack happened.

From 2010-13, corruptions, scams and scandals started hitting the government. 2G, Common Wealth Games and Coal gate are some of the major scams. UPA-2 was most part immobilised and was fighting one corruption scandal after another.

In 2013, markets panicked due to QE tapering worry. GDP growth slowed down. Current Account Deficit (CAD) and Fiscal Deficit (FD) worsened threatening ratings downgrade. Inflation was very high and the currency weakened.

In 2014, rise of ISIS.

Despite all the above, investors wealth multiplied multi-fold.

As Morgan Housel says, “Progress happens too slowly to notice. Setbacks happen too quickly to ignore.”

As a nation, we would continue to progress. Media will keep amplifying fears and anxieties. What you need to do is continue to stay invested. What can be simpler than this?

You’re able to follow the conviction of staying the course by doing nothing. There are very few long term investors in the market as many find it difficult to adhere to this. Markets would create wealth for you as long as you don’t keep tinkering.

Being a long term buy and hold investor and staying the course through ups and downs is your greatest edge.

Keep up the edge.

Posted in Stock Market, Wealth | 5 Comments »

Bad News and Good News

Posted by Muthu on January 2, 2018

Bad News: Inflation destroys wealth

Good News: Compounding builds wealth


Bad News: Discipline is painful

Good News: Outcome is enjoyable


Bad News: Equities are extremely volatile

Good News: Equities create immense wealth


Bad News: Media amplifies greed and fear

Good News: Good books and blogs impart wisdom


Bad News: Short term is unpredictable

Good News: Long term is reasonably predictable


Bad News: Bad things can happen any time

Good News: Proper planning & risk covers can reduce negative impact


Bad News: Life is ephemeral

Good News: Most of us would live to reach old age


Bad News: Cannot control returns

Good News: Can control savings


Bad News: Markets are not under our control

Good News: Behaviour is under our control


Bad News: Disruptions can happen anytime anywhere

Good News: Continuous learning is the available antidote

Posted in General, Muthu's Musings, Wealth | 5 Comments »

Hard and Harder

Posted by Muthu on December 23, 2017

Hard: Making money

Harder: Keeping money


Hard: Start investing

Harder: Stay invested


Hard: Saving

Harder: Properly investing the savings


Hard: Avoiding fads

Harder: Sticking to a portfolio for 10 years


Hard: Controlling greed in bull markets

Harder: Controlling fear in bear markets


Hard: Saying no to easy money

Harder: Sitting tight for long term compounding


Hard: Not looking at daily prices

Harder: Not reacting to price fluctuations


Hard: Looking at opportunities in bear market

Harder: Looking at risk in bull market


Hard: Analytical skills

Harder: Discipline and Patience


Hard: Not chasing multi-baggers

Harder: Contentment with modest returns

Posted in General, Wealth | 1 Comment »