Wise Wealth Advisors

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

  • Blog Stats

    • 907,464 hits
  • Enter your email address to follow this blog and receive notifications of new posts by email.

    Join 883 other followers

  • Follow me on Twitter

How an ordinary businessman made $1.75 billion?

Posted by Muthu on November 5, 2017

$1.75 billion is Rs.11,375 crores. This conversion is to show the magnitude of this sum.

Whenever we hear illustration of if someone has held a fund or stock for 20 years how rich he would have become, we just yawn. We believe those are just illustrations and not a reflection of real life. No doubt it is not easy to hold a stock or fund for 20 years. But I keep giving examples to show, though rare this can be done. We may or may not make  hundreds of crores but tens of crores is possible for high income earners with right investment strategy, patience and discipline.

In 1980, Stewart Horejsi was a struggling business man. Warren Buffett was not well known 40 years ago as he is today. Horejsi heard about an upcoming businessman doing well in capital allocation and building wealth for shareholders. So he invested $10,600 of his family wealth in Buffett’s company, Berkshire Hathaway. He also started adding more shares regularly.

After 3 decades he nearly made a billion dollars out of his Berkshire holdings and got into Forbes list of billionaires. He subsequently diversified his wealth but still hold good number of Berkshire shares. As per Forbes, his current net worth is $1.75 billion.

Buying a good company itself is not an easy job. Keep on buying and holding on to the same for 30 years demands extreme conviction, patience and discipline.

Buy and hold may or may not work for a single stock. But for portfolios, mutual funds and index, selling rarely and holding on for most of the time would work wonders. The argument mainly against buy and hold is disruption. Disruption has always been there for businesses. It is not a new phenomenon. Good companies adapt and thrive. Weak companies fail and die. Buying & holding does not prevent us from tracking developments. Also it does not mean giving up our judgement and discrimination. Selling can be done but it has to be the last option. If we buy right, selling will be infrequent.

You’ve been following our guidance for more than a decade and have been rewarded for the same. Good principles would never go out of fashion though it may have periods of underperformance.

Stay the course and build fortune.

Posted in Stock Market, Warren Buffett, Wealth | 1 Comment »

How a retired executive built $70 million?

Posted by Muthu on October 31, 2017

Theodore Johnson was born in last century and died at the ripe age of 91 in 1993.

From 1923 to 1952, for 29 years, he worked in United Parcel Service (UPS).

He joined the company at $25 a week, rose through the ranks and retired in 1952. At the time of retirement he was making $270 a week, which is $14,000 per year. For ease of understanding, in today’s dollar, it is worth around $1,25,000.

He had a habit of saving around 25% of his income every month and he invested it in stock. When I say stock, he invested only in one stock, that of his employer UPS.

When he retired in 1952, he has accumulated UPS stock worth $7,00,000.

He never touched the corpus. He might have been living on his dividend income. Assuming a dividend yield of 2%, he would have lived very comfortably with dividends itself.

Thirty nine years after his retirement, in 1991, the stock has grown to the value of $70 million. Please note that he might have received a dividend of $1.4 million a year for that corpus.

He gave a sizeable portion of this wealth to his son and two grand children.

After the same, he donated $36 million for various charitable organisations supporting education for poor and disabled.

He passed away next year. His wife died few years before him. They had a long married life.

From what I read, he has lived a well balanced and good life.

No doubt he was a high earner of his times. Still building a corpus of $70 million is a huge achievement.

Many of you are high earners. You can also save 25% of your income. Instead of investing in only one stock (we would not advice that), you’re investing in equity funds. Shareholders would receive dividends and mutual fund unit holders can do SWP (Systematic Withdrawal Plan).

Five equity funds or a portfolio of 15 to 20 stocks can do wonders if you save with discipline during working years and withdraw only for your lifestyle needs in retirement years. Higher the corpus, even a small withdrawal would ensure an excellent life style.

You can pass on wealth to your children and grand children and also provide for underprivileged in the society.

Leading a good life style, passing on wealth to next generation and giving it back to society, what more a life well lived needs?

Aim big and work for it.

Posted in General, Giving, Stock Market, Wealth | 1 Comment »

Simple yet effective

Posted by Muthu on October 28, 2017

Walking thirty minutes a day is good for health. Eating simple vegetarian diet is also considered good for health. But not all of us walk or eat simple food. There is nothing great in the suggestion to walk or have good diet. These are very simple suggestions but are extremely effective if followed upon.

SIP is also a very simple idea of investing a fixed sum every month for many years. There are few million SIP investors in the country. I would not be surprised if it becomes tens of millions over next one decade. As we’ve seen above being simple or common does not mean it is inferior. All of you have been SIP investors for long with a minimum commitment period of one decade. You’re already seeing the result of this simple method.

I was reading Mutual Fund Insight magazine of this month. One example attracted my attention and thought of sharing the same. If you’ve started investing 20 years ago, Rs.10,000 a month in HDFC Tax Saver and increased the contribution by 10% every year, you would have invested Rs.68.7 lakhs over  last 20 years. The value of the same now is Rs.7.06 crores, an annualised return of 24.78%.

Who would have got this return? Someone who invested for 20 years, while increasing SIP contribution regularly, completely ignoring plenty of bad news which he kept hearing frequently and staying the course without wavering.  This sounds very simple but extremely difficult to follow.

All of you, our clients, are sticking to this simple but effective discipline. You’ve achieved what is behaviourally difficult for many investors to achieve. We would continue to offer simple and effective solutions while ensuring you stay the course.

We may not get in future the kind of returns an investor would have got in the example cited above. But equity is the best asset class to own in India for long term. The returns would be superior to what we can get elsewhere.

In personal finance and investing, simplicity triumphs complexity by a wide margin. What is simple is also mostly effective.

Keep up the behaviour and continue to stay the course.

Posted in Mutual Funds, SIP, Wealth | 2 Comments »

Nuggets for October 22’nd

Posted by Muthu on October 22, 2017

Some of my recent tweets:

1)Instead of chasing new ideas, buying more of what we own is often the best thing to do.

2) Forget alpha, those who keep timing the markets would not even make index returns.

3) Would keep saying same things with different words. There is nothing new. Good advice is always repetitive and boring but invaluable.

4) You win by not losing. If you can avoid permanent loss of capital and earn moderate returns over long run, you’re surely a winner.

5) In investing, compounding creates wealth. In borrowing, compounding destroys wealth.

6) Don’t go for shopping to kill boredom. You’ll kill both boredom and seeds of future wealth. Start reading. It’s inexpensive and rewarding.

7) While you build wealth, learn to manage it as well. Ignorance and money rarely stay together.

8) Money does not buy happiness. True. But does poverty buy happiness? Money gives freedom. Up to us to be happy or miserable.

9) In investing, discipline wins handsomely over smartness.

10) Average IQ coupled with above average discipline is the recipe for success in investing.

11) Living below means is not being frugal or miserly. It is the right balance between consumption and savings.

12) What is worse than getting into debt? Signing surety for someone else’s debt.

13) Investing is like planting a tree. Both take times to blossom, except some activities need to be left alone to grow & would nourish generations.

14) Keeping things longer is one way to reduce expenses. For example, there is no need to change phone for every new version.

15) Possessions provide a false sense of superiority. Be really superior by achieving financial independence.

16) Don’t go by titles secrets of millionaires or how to attract wealth. Many have made it old fashioned way, high savings & living below means.

17) In a country like ours, where many lead a hand to mouth existence, ability to save is a privilege. Don’t let go of this opportunity.

18) If you Google and see past predictions, you’ll not take any current predictions seriously. Predictions grab headlines. Nothing more.

19) As much we focus on term or medical cover, need to have career insurance as well. Investing in knowledge and skill is the best career insurance.

20) We always stay the course not being carried away either by exuberance or gloom. This trait has been very rewarding.

21) In investing, what you don’t do and avoid is more important than what you do.

22) Without high savings and investing it regularly in equity during accumulation phase, financial freedom would remain a pipe dream.

23) Availability of fast and easy credit leads to poor choices. Buying through cash leads to better choices. One more reason to avoid debt.

24) Great investors speak to us through their books, blogs, tweets and interviews. What a great time we live in with access to them.

25) We find lot of news and information either irrelevant or toxic. Unless you’ve right filters, would be better off by consuming less of these.

Posted in Tweets | 2 Comments »

Some changes expected in next 5 years

Posted by Muthu on October 21, 2017

I anticipate some changes to take place in next 5 years or so. Though I cannot precisely time, I strongly feel this is the way forward.

As a first step, expense ratios of mutual funds would come down. This would lead to reduction in income for mutual fund companies and advisors. As an investor, it is good for you because the return goes up to the extent of cost reduction.

As a next stop, expense ratio would further come down leading to zero commission income for us. We would be asked to become RIA (Registered Investment Advisor) and charge you a fee. Those who pay fee would continue to get advice and service. Those who cannot or do not want to pay need to take care of their affairs on their own.

Actively managed funds are broadly doing well now because mutual funds are still not a very significant percentage of total market size. At some point, due to growth in their size, they will become THE market. Once they become the market, they cannot outperform markets. As an investor, you may then want to own passive funds. Passive funds simply invest in broader indices like Nifty 50 or Nifty 500 for a very low cost. ETFs (Exchange Traded Funds) listed in stock exchanges would also come into being which also can be owned at very low cost.

The expense ratio paid is worth now because of the alpha (excess returns over benchmarks). When alpha is no longer there, cost cannot be justified.

Not only costs would come down, the returns also would be down. When there is no alpha you get only market returns. This would have huge impact on the entire eco system of investors, asset management companies, advisors and distributors.

It is our responsibility to advice you on the above as and when we feel the time is ripe. As I said, I see it happening within 5 years or so.

We would then tell you whether to only own passive funds or some combination of active, passive and ETFs.

These changes would not be limited only to equity but for hybrid products like MIPs and balanced funds as well.

For those of you who would continue to be with us when our revenue model changes from commission to fee, our advice and services would continue as usual.

This is the way forward.

There is nothing you need to do now on this communication. It is just to keep you updated on the changing landscape in coming years.

When the time for change come, we would handhold you.

Despite any changes, we would continue to assist you in reaching your financial goals, financial independence, building and managing wealth.

Whether it is active or passive, funds or ETFs, commission or fee our focus would be on you and your behaviour. In any form, we would continue to focus on right behaviour of discipline, patience and staying the course.

Have a nice weekend.

Posted in General, Mutual Funds | 2 Comments »