Wise Wealth Advisors

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

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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 »

Sharing Tweets

Posted by Muthu on July 16, 2017

It’s three weeks since I last wrote to you. I try to write at least twice a month.

Looks like my brain has suddenly gone dry. It happens once in a while.

I’m active on Twitter. I share thoughts, quotes and articles almost everyday.

Today I want to share with you some of my recent tweets.

1) 80% of gains come in 20% of time. So an investor needs enormous patience and conviction to hold stocks for 10 or 20 years.

2) Why not all investors get rich? They like to get rich without going through many years of discipline & patience. Process leads to outcome.

3) An inferior strategy you can stick with is likely to produce better results than a superior strategy you cannot stick with.

4) Prices change frequently. Value change over a period of time. There lies the opportunity.

5) Compounding is back loaded. It works well only over a long period of time. There is no substitute for time in compounding.

6) 99% of the time, doing nothing is the best thing to do in the market. It is good to be a Rip Van Winkle investor. Activity hurts. Sit still.

7) You cannot predict or control markets. What you can control is how much you save, investment process and behaviour. Focus only on that.

8)Random outcome doesn’t invalidate the need for a process. Sound process and consistently sticking to the same increases the chance of luck.

9) Investors are human. That’s why markets would never be fully efficient.

10) Markets usually run ahead or fall behind. Rarely in equilibrium. Over or under valuation can last for long time. Don’t time the market.

11) Buying and selling is easy. It is holding on through ups and downs is difficult but ultimately most rewarding.

12) Shelby Davis started investing only at age 38 with $50,000. Died at age 85 with $900 million. 23.2% annual return for nearly 5 decades.

13) Shelby Davis is considered the second greatest (5 decades of successful investing is very rare) stock investor after Warren Buffett.

14) Shelby Davis story shows starting late is not a big liability, provided you live long.

15) Tiny drops of water make the mighty ocean. Invest regularly. Invest for long term. You can create huge wealth.

16) Not investing in equity is more risky than investing in it. Remember, you need to beat the inflation and retain your purchasing power.

17) We see past bear markets as missed opportunities. However thinking of future bear markets is gut wrenching. Strange investor psyche.

18) If someone keeps reviewing value of his house every day, we may suspect his mental health. But that’s what we keep doing with our equities.

19) Equity investments are subject to behaviour risks. Always keep a check on your emotions while investing.

20) If I’ve not been an advisor, I’ll still be reading and doing things what I do now. Luck has ensured that my profession is same as my interest.

Posted in Tweets | 3 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 »

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 »