Wise Wealth Advisors

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

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Treat it the same way

Posted by Muthu on April 14, 2017

Wishing you and your family a very happy Tamil New Year.

We are generally good at holding on to assets. The house we own might have been bought by our father and our daughter may continue to own it. It is not uncommon for gold being passed on to many generations in a family. Despite being low return assets, we have positive experience with house and gold because we rarely make loss in the same.

The reason for not making loss is because we hold them long; from decades to generations. Volatility and corrections get smoothened over such long stretches resulting in secular uptrend. I know many who bought home 5 or 7 years ago and there has been no appreciation. They are fine with it. Gold’s price is lesser than what it was some years ago and people are ok with the same. Culturally we’ve a natural inclination to hold on to those assets. That’s a big blessing resulting in positive experience from these asset classes.

Other than a small number of families, who are exposed to equity in early age and taught about its nature or first generation investors who are able to get this understanding, most investors find it difficult to hold on to equities. Unlike real estate, equity is extremely transparent and liquid. A price quote is available every day. You find both buyers and sellers also every other day. This coupled with every day volatility and periodic corrections make people not to hold on to this high return asset.

Advisors like us help you to understand equity. The key understanding is that in short run the prices move due to sentiment and liquidity and in the long run, prices move only due to earnings. Companies and portfolio which continue to keep growing earnings will only move in one direction, which is upwards, in the long run. There are many stocks, why stocks even mutual funds, which have grown by 40 times to 100 times in last 20 years.

We believe at 15% expected returns, we can hope to multiply capital by 4 times in next 10 years and 16 times in 20 years. This would be possible if you treat equity in the same way as you treat house and gold; holding it for decades and for generations.

If you can apply your learning from house and gold to equity, it would give returns much higher than what these conventional assets have given. World over, equity is considered as the highest compounding asset class. All it is needed to get it’s benefits is to apply your learning and start treating it in the same way as you treat other assets.

Fair and equal treatment is a very legitimate demand.

Grant it and grow rich.

Posted in Stock Market, Wealth | 3 Comments »

We are our enemy

Posted by Muthu on April 9, 2017

The average holding period of a stock is around 10 months and that of mutual fund is around 18 months. We’ve been repeatedly highlighting this.

SEBI recently conducted a survey among investors. The results to me are not surprising. 38% of people hold mutual funds for less than 6 months. 19% hold only for a period of one year or less. 21% hold it between one to three years. Only 22% hold beyond 3 years.

There is no further drilling down. I believe that investors holding for more than 5 years may be less than 10% and those holding more than 7 or 10 years would be 2% or so.

The above data clearly indicates 57% of investors do not even hold mutual funds for a year.

In one of our piece we saw how S&P 500 has earned 10.4% over last 30 years while an average investor has earned only 3.7%.

The main reason for this is chasing performance and having a less holding period.

Even for a conservative debt oriented product like MIP, we suggest a minimum holding period of 5 years.

We don’t offer equity if the client is not willing to commit a holding period of 10 years.

Once good investments are chosen, what matters is holding period.

I’ve also mentioned why generally the holding period is less. I would like to repeat the same below:

We’ve written many times in the past how investor earns much lesser than what the investment provides by jumping the ship in bad times, not staying the course, chasing performance, frequently churning the portfolio, redeeming during corrections, stopping SIPs, chasing current fad or fashion ignoring long term consistency across market cycles, timing the market, not understanding the power of time and compounding, inability to develop long term perspective and so on. The list of behavioural errors investors make is indeed very long.

Many advisors, especially the institutional ones like banks, try to showcase their value by doing lot of activities on clients’ portfolio. This is the way to justify their role and earnings. But this only adds to client earning sub optimal returns. They are afraid to offer inactivity as value proposition.

For the last 11 years, we’ve chosen the tough path of adding value by doing less activity on your portfolio. Since investors generally equate activity with progress, it has not been an easy journey for us. Instead we chose to continuously focus on your behaviour which is what matters once a course is set.

I’m glad that those of you who are staying with us for long are earning good returns. I’m also grateful that you’ve understood our value proposition by continuing to stick with us by sharing our investment philosophy.

Remember if any one of us fail in investments in future, it would be due to our behaviour rather mis-behaviour. We are our own enemy when it comes to investments.

Let us avoid mis-behaviour and behave well, as always.

Posted in General, Wealth | 3 Comments »

Time for review

Posted by Muthu on April 1, 2017

April is always a busy month for us. This is the month we send your portfolio report with our note and inputs. This is in addition to our interactions and meetings during the year.

Sensex as on March 31’st 2016: 25,341

Sensex as on March 31’st 2017: 29,620

Sensex has delivered 17% returns over last one year. Mid cap, small cap and broader market have delivered a much higher returns.

Both equity and debt markets did very well last financial year resulting in excellent returns for equity, MIP and balanced funds.

Your portfolio’s good result is due to years of following discipline and sticking with the investment strategy recommended by us. Discipline, patience and time are extremely rewarded by markets.

Returns always come lumpy and it is never a linear growth. So you would continue to see corrections and bear markets. 10% correction may be expected twice a year and a 20% downfall may bound to happen once in two years.

As long as companies and their earnings continue to grow, declines are temporary and uptrend is permanent. Markets would reach new highs every cycle. The lows reached in a new cycle would be higher than the low of previous cycle.

We would start sending reports today and plan to finish it by this month end. As mentioned earlier this year, we’ll provide web access to your portfolio along with the report.

We’re providing web access as it has become a hygiene factor. We always try to minimise the triggers which can lead to impulsive decisions. So with some reluctance only, we’re offering this facility.

One of the reasons why people get good results from real estate holdings are it is difficult to sell and there is no daily or even yearly quotation. Also a property which is earmarked for your daughter is held for at least one generation.

Whereas mutual funds are easy to sell, you get daily price quotation and rarely earmarked for next generation with emotional attachment. What is actually a boon; easy liquidity and transparency becomes a bane for many investors. If you can hold equity as you would hold to your house, you are bound to get rich over a time.

My sincere and humble request is don’t check your portfolio frequently. It is only a facility offered to you and there is no compulsion to use the same. If it disturbs your discipline or emotions, please write to us. We would then deactivate your login. Once a year review is good enough and please stick to the same.

I take this opportunity to convey our gratitude for being our client. We would strive to add value to your investment journey and ensure that you get rich and more importantly stay rich.

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

Help us

Posted by Muthu on March 28, 2017

We’ve written many times in the past how investor earns much lesser than what the investment provides by jumping the ship in bad times, not staying the course, chasing performance, frequently churning the portfolio, redeeming during corrections, stopping SIPs, chasing current fad or fashion ignoring long term consistency across market cycles, timing the market, not understanding the power of time and compounding, inability to develop long term perspective and so on. The list of behavioural errors investors make is indeed very long.

In this piece, one of the well known financial advisor and popular blogger, Joshua Brown says:

“If a financial advisor could just accomplish one thing for clients – help them capture more of the returns that their own investments offer, then he or she has done something extremely worthy and valuable.

Minimizing these detractors from long-term returns is yeoman’s work and a mission that serious financial advisors are happy to undertake.”

He also points out that the index S&P 500 has provided 10.4% annualised return over last 30 years. During the same period, an average investor has earned only 3.7%.

This massive under performance is due to negative behavioural traits highlighted in the opening paragraph of this piece.

All our efforts are to ensure that you earn 100% of returns which your investment offers without any underperformance due to wrong behaviour.

I’ve taken it as a professional mission to make our clients earn 100% of investment returns.

It pains a lot, every time, when I see any one of you failing.

Help us to help yourself.

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

Stephen Jarislowsky and a Janitor

Posted by Muthu on March 26, 2017

I’ve been looking for and reading about investors who made it big through ‘buy & hold’ investing of quality companies.

Reading about them reinforces the required conviction to stay the course.

One such investor is Canadian billionaire Stephen Jarislowsky.

To make it really big, these investors started very early (usually in their twenties) and lived beyond eighties. This gave them the crucial variable of ‘time’ which is essential for compounding.

We neither started in twenties nor do not know how long we would live. If someone has investible surplus of Rs.10 crores at the age of 50, at 15% compounding, he would end up with Rs.160 crores  at the age of 70. Such is the power of compounding. We are not aiming for billions but may be few million dollars. We can achieve this despite starting late and not knowing about our longevity.

Stephen looks for high quality large cap companies which are non cyclical and can keep doubling their earnings every 5 to 7 years. He simply buys these companies and hold them forever.  He is now 91 years and started investing when he was in his twenties. He holds the stocks he bought as early as 1948. In fact his secret his ‘buy stocks you never plan to sell’. He believes the one thing investors need to learn is virtue of patience.  He shuns cyclical stocks and looks for industries like consumer staples, alcohol and healthcare which are stable and growing businesses.

He says that shares produce an average real return of 5% to 6% a year (after inflation). The earlier that you can start, the more miraculous will be the effects of compounding over a working life.

While I was reading about Stephen Jarislowsky, I stumbled upon the story of Ronald Read. Last year Ronald Read passed away at the age of 92. He was working as a janitor (door man) at JC Penney. Before that, for many decades, he worked as an attendant in a gas station. When he died, it was found that he has left $8 million in charities for local library and hospital. Nobody was aware that the door man at the local shop was a multi millionaire. He has also bought and has been holding high quality companies for many decades. He never went to college and was a high school dropout. He regularly used to read Wall Street Journal which should have aroused the curiosity of people around him. They completely missed this aspect of his life.

We may not become a Stephen Jarislowsky. But we all earn more and capable of investing much more than Ronald Read. Whether it is Stephen or Ronald, they held on to equities for decades completely ignoring news and noise. They never aspired for quick money and rated patience as the highest virtue in investing.

Without compromising current consumption and present life style, we all are capable of saving more, which we do. Where we occasionally fail is losing our patience and getting carried away by noise.

As I mentioned about stocks, let me give an example of equity fund as well. I was going through a brochure of HDFC Tax Saver. Rs.1 lakh invested in it twenty years ago has become Rs.1.04 crores now. Money multiplied by 104 times in 20 years. Rs.1 lakh invested systematically in it every year for last 20 years is now worth Rs.4.75 crores. An annualised return of more than 25%. Past has been wonderful and we expect future to be more modest but still provide a decent return of 15%.

Last 20 years there have been many negative news and events both in India and across the world. Those who stayed the course with tremendous patience would have built excellent wealth.

Have patience, give time and stay the course. Wealth is all yours.

Posted in Mutual Funds, Stock Market, Wealth | 2 Comments »