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

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Giving

Posted by Muthu on May 12, 2019

Many of our long term clients are building wealth which would last even beyond their life time. So I thought let me cover today about giving.

There are two kinds of giving. The first one is what we give to our own blood, the next generation and even grand children. The second one is what we give back to society, helping the needy. We cannot forget that society helped us in creating wealth.

If your wealth is limited to this life time of you and your spouse, you may not be able to leave your children anything other than primary residence. That is fine. As far as giving back to society, please see what best you can do, given your limited resources.

For those who have wealth that would last well beyond their life time, don’t wait to leave everything after your death. If you live well into your eighties, your children would then be in their fifties, way past their prime. They would not be in a position to meaningfully enjoy your wealth.

Don’t be tight fisted. Help your kids during occasions like setting up their family and buying primary residence. Take care of their education till post graduation so that they don’t start with student debt.

Also learn to help less privileged. While you may be doing something on and off during working years, this should start full-fledged latest by the age of 60. Giving while living and seeing how the money is useful to others is bliss. So don’t ear mark wealth for charity only after your life time. Give and enjoy giving at least during last two decades of your life.

In my view, not less than 10% of one’s wealth should be given back to society. If you find this less, do more. If you find this more, at least start with 5%. Charity should be significant. Having a wealth of Rs.100 crores and giving few lakhs a year to charity is sub optimal. Though philosophical, need to remember that you’re not going to take any money with you once you die.

Enjoy money in your life time. Give a part of it to your next generation while you live. Let them also enjoy your wealth. And don’t forget to give it to needy. This is a well balanced life and living this way is meaningful.

Kanchi Maha Periyava and Ramana Maharishi are the two Jnanis I respect most.

I end this note with what Sri Ramana said on giving:

“Giving to others is really giving to oneself. If one knows this truth, would one ever remain without giving?”

Posted in General, Giving, Muthu's Musings | 2 Comments »

The reward is wealth

Posted by Muthu on April 29, 2019

Good things in life never come easy. Take any country, only a small percentage of population is wealthy. Only 1% of us can be in top 1%. Wealth helps to avoid money worries, which is the main worry for most of the population.

Markets over the long run have been providing around 15% annualised returns. We believe India becoming $10 trillion economy over next 12 to 15 years is very much possible. This means growth in many sectors resulting in good wealth creation for investors.

Equity investing is almost the only way for most of us to create wealth. Many private businesses do not have the return on capital of good listed companies. Be it salaried or SME owner, equity is inevitable to create wealth. The path is clear. It is the journey which is difficult.

Markets do not provide returns in the way we like. A stock may not deliver any returns for many years and provide many years return in a single year. Markets can test your patience greatly. Some give up precisely at the wrong time, only to see that stock soaring subsequently.

Markets go through years of positive returns, negative returns and no returns. Our initial experience varies based on when we entered the markets. If in first few years of investment we see negative or no returns, we tend to give up. That’s why we suggest equity for a period of not less than 10 years. Good and bad years get evened out over this period.

Over 10 years investing, 80% of returns come in 20% of time. This means you need enormous patience during the 80% period to reap the reward in the remaining 20%.

Patience is the most difficult trait to develop. Patience involves pain and none of us like pain. But without patience and developing the understanding that returns are never linear but always lumpy; it is impossible to create wealth.

All those who have been investing through for us for last 10 years or more have created good wealth. They would vouch from their experience; the journey has never been smooth. But the rewards are worth the pain.

Only few create wealth from markets because the journey is not emotionally easy. Unless you learn not to react to your emotions, develop right understanding and enormous patience; it is impossible to create wealth.

Nothing meaningful in life can be achieved without pain. So is wealth. Wealth or lack of it makes enormous difference to our life on earth. So embrace pain and patience.

The reward is wealth.

Posted in General, Wealth | 1 Comment »

It’s review time

Posted by Muthu on March 30, 2019

Other than our regular meetings and interactions, at the end of every financial year, we make it a point to send you portfolio reports along with our review.

Yesterday was the last working day of the market for the financial year 2018-19.

We would start sending your reports from next week and we hope to finish the task for every single client by end of April.

2017 was a great year and you all saw phenomenal returns. 2018 turned out to be a horrible year. But for the sharp recovery in the month of March, this financial year had a very bad time.

For long term investors, the portfolio returns look good. For those of you who started in the recent years, it is average to below average performance.

It’s election time and this is in the top of the mind for every investor. In the long run, markets are not influenced by politics. In the short run, sentiment and liquidity rules the roost. In the immediate future, election results would have impact on the markets. In the long run, what matters is return on equity and growth in earnings.

In the last 40 years of Sensex journey, it has seen all kind of governments; NDA, UPA and third front. The long term results you see are after going through multiple governments. I’ve no permanent affiliation to any one party or leader. Each election, be it parliament or assembly or local body; I’ve voted based on what I felt appropriate at that point of time.

Any government would have pluses and minuses. All I see is which one is more. This time I would prefer NDA government. I believe it is good for both the country and corporate India. None of us can be sure of who would form the next government till the last vote is counted. If NDA loses, it may impact market negatively for short term. In the long run, markets are politically agnostic.

Don’t worry about electoral outcomes. Your only focus should be on developing right behaviour and temperament. In your investing journey, you’re going to see multiple governments and prime ministers. They are not going to determine your investment results. The only deciding factor is going to be your behaviour.

Those of you who have invested during the recent years may be concerned by the lacklustre results. This too shall pass. Long term results would always be good. For time being, trust my words. In the long run, portfolio return itself would automatically convince you.

It’s all finally boils down to staying the course through ups and downs. The long term results are always rewarding.

All the very best for sticking to the course.

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

The future roadmap

Posted by Muthu on February 24, 2019

There have been lot of good developments over the last few years for the investors of mutual funds. The costs have been coming down, funds have been meaningfully classified and appropriate benchmarking has been done.

The costs would further come down from April of this year. Henceforth we see costs going only one way, down. Due to increased allocation to financial instruments by households, the size of the funds has been going only one way, up.

Globally, majority of the funds struggle to beat the benchmark. I would give you an example. If Nifty returns 12% in a year, your large cap fund should provide you more than 12% to justify the cost. The excess return over benchmark is called alpha. If the fund provides you lesser than benchmark, the cost you’ve incurred is simply waste of money.

To the credit of Indian fund industry, over last two decades, funds have created significant alpha over the benchmarks to justify the cost incurred. This is likely to change. World over, index funds have been gaining strength as fund managers find it extremely difficult to beat the index. In my view, this may be the case in future for India as well. Though Indian fund managers are confident of beating the index in future, I doubt whether that would be the case.

Based on the industry’s past track record, I want to wait for next three years to see how things take shape. We need to then decide whether we would move fully to index funds or combination of index funds as core portfolio and some active funds as satellite portfolio. We also need to choose whether the investments would be through funds or ETFs.

The advantage of index funds is the costs would be very low. At the same time, investors have to settle down for index returns and not something over and above. As much as the costs would come down, the returns also would go down.

I want to touch upon here real and nominal returns. Equities in India have been providing around 8% over and above inflation. When inflation was 8%, the returns were as high as 18%. Here the nominal rate of returns is 18% and the real rate of returns is 10% (over and above inflation). You can see that the inflation has been coming down over years. If inflation settles around 5% in the long run, then equities would provide nominal returns of only 12% or 13%.

Though the real returns remain the same, the nominal returns would come down. To give you an example, during times of high inflation, you may get 12% as salary increment. When the inflation comes down, the increment may be only say 6%. Though ‘really’ you’re not getting less, ‘nominally’ you’re getting less.

If indexing, alpha, real or nominal returns sounds very confusing, I would clarify all these in our personal meetings. In your own interest, it would be better to start learning.

As you’re aware, we’ve never recommended you any NFOs (New fund offers), sectoral or thematic funds, closed ended funds, PMS (Portfolio management services) and AIF (Alternative investment funds). We’ve consciously avoided all exotic and expensive stuff. Recommending these would have made you poorer and us richer.

Our biggest contribution is to avoid all nonsense and choose few sensible stuff. Also we’ve been continuously focusing on your behaviour to ensure you stay the course and earn the returns the funds are able to offer in the long run.

For now, you need to do nothing. But in next three years, we may have to relook the way you invest.

As I’ve said earlier, your costs are going down. This means the income of fund houses and advisors have also been going down. Ultimately what is good for you only should prevail.

Once indexing becomes the main stream, the cost would be bare-bones and so is our income. We also expect the regulator to nudge advisors to fee based model rather than commission based one. The intermediaries like us would then have to become RIAs (Registered investment advisor), who would only charge fee. Also there may be migration towards flat fee rather than asset based fee.

I’m writing this to keep you informed of likely changes in next three years. We need to see how things evolve before firmly recommending you a course. Stay with us. We’ve guided you so far with utmost integrity which would continue in future as well.

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

Extreme patience

Posted by Muthu on February 12, 2019

To make money from equities, not just patience, but extreme patience is required.

Even last piece I wrote on patience. I’m continuing with the same. Why?

Patience is the most difficult virtue to develop. As I’ve said before, the origin of the word patience means suffering. To be patient is to suffer.

By nature, we try to avoid pain. But nothing worthwhile is ever achieved without going through pain.

Markets may not give any returns for three years and give three year returns in the fourth year.

Gains are never linear but always lumpy.

Markets can test our patience to the extreme. Only those who are able to bear the same are rewarded well.

Investors who are impatient seldom make money from markets.

Those who are with us for long are still seeing good returns.

Those who have become clients in the last few years are staring at bad returns.

Things will definitely change. Over a ten year period, the results would be good.

I cannot predict when markets would start going up. All I know is, in a decade, you would have more good years than bad years and the overall results would meet your expectations.

I can motivate and handhold you. But it is you who need to develop the required virtues.

Stay the course with faith. You would be amply rewarded.

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