Wise Wealth Advisors

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

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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 »

Failure is the norm

Posted by Muthu on July 15, 2018

Many businesses die within first three years of starting. Even among those who survive, very few thrive. Most simply survive. I read that only around 25% of listed companies create wealth. Only a single digit percentage of companies create huge or mega wealth.

It looks like failure is the norm and success is an exception. But we always think otherwise.

Be it sports or movies or politics, the same thing holds good.

Only 1% of us can be in the top 1%. Not all of us can create wealth in stock markets. Most of us would end up average in investing.

Traits are labelled based on outcomes. If successful, we call it perseverance. If failure, we call it stubbornness.

When we realise failure is the norm in many aspects of life, we would be compassionate towards both ourselves and others.

Setting aside for the moment role of luck, we either need to do things differently or do ordinary things extra ordinarily for success.

Impulsiveness and impatience are very common among investors. That why most of them never make any money in markets. Not only that many lose as well.

Discipline and patience would help you do ordinary things extra ordinarily. Though success is never assured, this increases the probability.

All our effort is towards making you do ordinary things well and be different from most of the investors.

If you realise failure is the norm and success is rare, you would understand why we ask you to do what we ask you to do.

Many think stock markets or trading is easy. This is the only field where we take outcome for granted without adequate outer and inner preparation. As Buffett says, in every market cycle, a new set of investors learn some very old lessons.

It is better to have some self doubt, appreciate uncertainty, prepare adequately, do things differently from an average investor and most important do ordinary things extraordinarily. This increases our chance of success and hopefully we won’t fail.

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

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 »

Our India is not big

Posted by Muthu on June 17, 2018

I was reading this piece recently.

India has been classified into three as India 1, India 2 and India 3 based on per capita income.

There are 280 million households in India with a population of 1340 million, averaging 4.8 persons per household.

We all belong to India 1 for which details are given below.

India 1 has 23 million households containing 110 million people. The working members of these households are 31 million. So an average a household has 1.3 working people.

The annual per capita income of India 1 is US$8,800 (Rs.0.6 million).

Only 8% of India, 110 million people are upwardly mobile.

10 million iPhone users, 32 million car owners, 37 million credit card holders, 50 million post paid mobile users, 59 million tax payers, 65 million domestic flyers, 24 million international flyers and 20 million ecommerce shoppers; all belong to this top 8% of population categorised as India 1.

India 2 with 104 million people spread among 22 million households has per capita income of US$3000 (Rs.0.2 million). This is another 8% of India which is aspiring to move up to India 1.

India 3 with 1126 million people spread among 235 million households has per capita income of US$1200 (Rs.80 thousand). This 84% is poor of India struggling to survive.

India moving from low income to middle income over next 2 decades would increase upwardly mobile and aspirers.

Only 8% of India can even dream of achieving financial independence. Like many countries, only 1% of population may actually achieve it. We need to keep this in mind.

Also giving needs to be part of everyone’s financial planning. Focus on giving should be on par with consuming and saving. We definitely owe that to the less fortunate.

Posted in Economy, General | 4 Comments »

Nothing is the best thing

Posted by Muthu on June 16, 2018

In personal finance and investing, we’ve to do few right things and avoid many wrong things. Once we do few right things, doing nothing is rest of the course. We never get tired of repeating this. The key value we bring into the relationship is ensuring that you do nothing after the course is set.

There are many approaches to investing and personal finance. We follow what we’ve internalised through our learning, experience and inspiration. We can only advice what we follow. That’s why we always focus on buy and hold.

Our strategy has evolved based on our faith in the future of our country. Over next two decades, there is a strong possibility of India moving into middle income from low income. Many sectors and companies would benefit from this growth. For stock pickers, they need to find few quality companies where they can sit on their ass for one to two decades.

For you all, mutual fund investors, need to stick to chosen equity funds and keep investing regularly in a systematic way. Need to tolerate periodic under performance of funds. Even legends underperform close to one third of time. So there is no way the fund managers can avoid this. Though choosing good funds are important; it is still a hygiene factor. What really matters is your discipline in staying the course.

We neither believe in short term wealth nor have knowledge of creating it. You’ve self selected to be our clients since you see merit in the philosophy and the strategy we follow. In our view, it takes not less than 2 decades of high saving and prudent investing to gain financial independence and create sizeable wealth.

Doing nothing was easy last year as markets gave excellent returns. It is a year like current one which shakes the faith. Markets have always behaved like this and future would be no different from the past. Need to accept this bumpy ride with a conviction that we are moving towards a good destination.

Though you heard from me many times, it is difficult to do nothing. Our mind always sees action as a sign of progress. This is indeed true for various aspects of life but not to investing, especially for the strategy we’ve chosen to follow.

So continue to do nothing and stay the course.

Posted in Wealth | 2 Comments »