_Conflict of Interest_ - a highly debated issue, especially in the financial services industry.

I recently picked a copy of an 'Indian Mutual Fund' magazine which has been in existence for over 2 decades. Tonnes of gyan coming out in every issue from the editor & his team on how to invest, where to invest, random thoughts on regulatory & compliance issues, how should advisors work, what to avoid, what should be the compensation structures etc...+ the *Star Rankings* based on an, in house rating mechanism 🙂

Out of curiosity, I started counting the # of advertisements in this issue & with a particular interest on, 'who' are their revenue cash cows 🤔

Data points - 

142 pages - Issue size
30 pages - Full Page Ads 😳
Of which,

23 Full Page Ads are from various Mutual Fund Companies (there are 44 of them in the industry).

7 Full Page Ads are from Housing Finance, Banks & Insurance companies.

That's makes 22% of the magazine content is ads 😳....16% of the 'total pages' are ads from various Mutual Fund companies which probably??? *pay* the magazine.

By the statistics, *76%* of the *total ad pages* are from the mutual fund companies 😳😳

Is there a credibility in the magazine's content ? 

Yes, there can be, if the entire *content* is completely unbiased & consistent in approach. Be it, with the categorisation of the schemes, ranking the schemes, ideation of the industry issues, erratic thought processes of the content contributors etc...

Bottomline, 'there can be revenue streams with a *positive conflict of interest*, meaning, _everyone benefits, without short changing one another_.

But, I suppose that is an *ideal efficient stream of bliss*, which the majority 'service providers & takers' miss by a large margin. 

*A few good men / women, are indeed few*

"Gambling Disease kills One Australian a day, But it's too lucrative to cure" - Bloomberg

Australians lose most money to gambling per capita each year...$761. Followed by Hong Kong ($570), Finland ($360), Italy ($325) & Canada ($325).

& & &

Australia has never seen a recession in the last 25 years.

Well, data scientists might explore at Co- relating, "Per Capita of Gambling" to "# of recessions in a decade" 😳

Bottom line, Gambling has got nothing to do with an Australian Recession, but it fills $ 4.4 Billion as Government Revenue 🤔

Gambling in Machines = Speculating in Stock markets

Both behaviors trigger the same neural wires in our brain. It might be for just one shot in the slot machine or continuous slots (buy, sell, buy, sell etc...) in the stock market. Both are the same.

Avoid, Speculative Gambling

Indulge in, Peaceful Investing

"It is true that Fear is the root cause of degradation & sin. It is fear that brings misery, fear that brings death, fear that breeds evil. And what causes fear? *Ignorance of own nature* - Swami Vivekananda

It is true that -

Fear is the sure cause of Portfolio Degradation.

Fear is that brings Portfolio Misery.

Fear is that brings one's Portfolio Death.

Fear is that breeds Portfolio Churning, especially at the most inappropriate times.

And what causes *Fear*?

IGNORANCE OF OUR OWN BEHAVIOR & RISK TOLERANCE LEVELS

Sometimes, this is what too much data & number crunching can lead to...or should I say, 'Most times'.

Decision Making - "a thought process of selecting a logical choice from the available options" 🙂.

Good description, but; Do we always have choices to make decisions? Do we always behave with all the logic? With all the logic, choices & rationality, do we always make the 'appropriate decisions'?

I don't know :( but, one thing is for sure in 'Decision Making'..."More often than not, the *Cost of Delay* in Not taking a decision & actioning it, leads to quite a disaster vs making a right or a wrong decision".

'Cost' of Delay = 'Time & Value' Decay.

Bloomberg - Harvard Does a Trade You Should Never Make http://bv.ms/2dguaQ4

Harvard, a Country, a State, a Corporation or an Individual...All think the same way :)

Reasonable Expenses are not the only criterion for delivery. Harvard listened to its Endowment fund donors & has now paid a *super heavy price* (in performance), for a decision which was *Million Wise & Billion Foolish*

Expenses matter, but there are things that matter even more.

When erratic *Greed based Constructions* happen in a city, in the garb of development, there is no need to blame the Rain Gods.

When *Need Based Portfolio Construction* happens, we need not worry about Low Pressures, Rains & High Speed Winds in the  Capital Markets.

(Hyderabad's state, today – Floods everywhere due to incessant rains)

How does 'Risk' hit us?

Michael Schumacher - 7 time Formula1 champion & probably the greatest in the sport is still recovering from an accident which happened 3 years ago. He is now as good as a vegetable; maybe in a condition termed ‘medical coma' 😟. Hold on, he did not get injured while driving the F1 car. He got into an accident while 'Skiing' with his family 😟. Isn't it an irony; we all perceived that, he had a very high 'Risk' of getting injured during a race 🙂.

But, 'Risk' hit him very hard from a direction no one could ever imagine. 'THIS IS CALLED RISK'. It hits one from an unprepared, unplanned & unimagined - time, place & degree.

So, what can we do? Definitely, 'Be Prepared' (financially or otherwise) for all Risks we can possibly think of. Accept the 'Reality of (Money) Life'....It can only do 'so much'.

Leave probabilities to statisticians. They are too good at #s, but are also as bad as a Weatherman in predicting the possible 'direction of risk'.

Be Prepared. Accept Reality.

One of the biggest challenges I find people facing today is, identifying "genuine good people". Trust, Character & Personality are rare commodities. Integrity & Honesty??? Each one's 'Self Interest' precedes others 'Good' in monetary and other parameters. Doctors, Lawyers, Bankers, Advisers, Real Estate dealers, Friends, Relatives...it’s all the same.

But once we can identify someone who genuinely feels & wishes for other people's good; it’s not a great idea to lose them, for whatever reason. A good Portfolio or a good Person, once identified; if we don't stick with them - the end result is definitely not favorable (especially, when one considers a few pennies more or less). Anything can be bought for a price (less or more), but not; "Trust, Integrity and an Absolute Well Wishing Attitude" 🙂

Identify good People & Portfolio. Stick with them for long 😀

Mutual Funds – Value Creation

13 April 2015 to 8 Sep 2016 – BSE Sensex performance is 0%

Compare this to some top quartile mutual funds’ schemes. I’ve taken the NAV (Net Asset Value) of a scheme on the same days as mentioned above; but, the returns are not 0%.

Large cap, Mid / Small Cap, Multi-cap or Balanced – all categories of schemes delivered…except the BSE Sensex.

Should we look at the Index value & Invest into Mutual Funds?

"Ultimate Cost of a Gadget / Spend" -

Assume that a family spends just Rs.50,000 /- a year, on a latest gadget or any other kind et al...The ultimate cost is an eye opener. Rs.50,000/- a year of thoughtless spending leads one to loose Rs.1.02 Cr of accumulated corpus, grown at an annual rate of 18% p.a, over a 21 year period. The same still delivers over Rs.27 lacs at a modest return of 8% p.a. 

Now, let's add a 'zero' to 50,000 rupees of unnecessary spending and make it 5 lacs....😀. I leave it to your imagination on the ultimate corpus. 

It is not a couple of % points in Returns that matter most....Before that, "COST OF SPENDING", matters.

And the 1st, 5 years of investment delivers 40% - 60% of the ultimate corpus. That is Compounding.

Think, before Spending. What to spend on & What to Avoid. That makes the difference.

Happy, 'less spending'

Happy, 'more investing'

In Life – “A Doctor might win many battles, but God always wins the war” (extract from a book by, Nick Murray).

In Money Life – “Any Asset class might win the battles, but Equities mostly win the War”.

I rest my case.

'Managing Money Life is both an Art & a Science.' - Unknown

Is a woman's involvement in her family's 'total money life', important?  Yes, Yes & Yes...infinite times.

The neural circuits in women are wired strongly between the 'Logical Left Brain' & the 'Intuitive Right Brain'. Whereas, in men, the circuits are strongly woven within a particular hemisphere. The medical research conclusion is that; women are good at Multitasking, Social skills & a better Memory; vs Men being good at Perceptions, Co-ordination & Motor Skills.

Coupled to the Neural Circuits, it is a generally accepted life principle that, women are at a higher level of competence vs men, in attributes like 'Patience & Tolerance'; the 2 critical components in 'Money Life Management'. In addition, for ages, we have seen too many Indian households being run with each woman's unique & extreme efficiency, suitable to one's family. Thanks, primarily to 'Her' 🙂

Women should break this boundary of 'household money & life management' and transcend beyond, into the realms of 'total money life management' within the family. The principles are the same as a household run...Patience & Tolerance with an added bit of scientific salt. And, with 'Her' added salts, the 'Family Money Life Dish' will taste even better 😀.

If anyone would have predicted the above numbers in Feb / Mar 2015...my salute to him / her. Retrospective - everything looks easy to predict & say, "I said so". In Real Time, everything looks like either a 'Dooms Day' or a 'Boom Day(s)'. Either way, the thought is not correct.

Life, Money or Money life; we always keep moving up & down...and those fortunate people who don't go through this roller coaster journey, have definitely missed 'Life' in a true sense.

‘Market Timing’ Myth – Compiled the last 2 decades data on Sensex’s High & Low values during a particular year. Assume that 2 investors invested exactly on the mentioned dates, one always at the highest point during the year & the other by a stroke of a Miracle, only at the lowest points of the year; for the last 20 years.

The results –

Investor investing only on the Highest Value day 😟 of every year - CAGR of 10.74%.

Investor investing only at the Lowest Value day 😱 of every year - CAGR of 14.46%

I've not assumed any dividends getting reinvested. Even if considered, the differential CAGR would not differ significantly.

Should 'timing' matter for long term investors? Even the worst timer for 20 years has been better off - post tax, post expenses 😀 on the Index. And I've not even come to pick on some top quartile funds.

Cloud storage firm Dropbox hacked, 68 million passwords leaked - http://economictimes.indiatimes.com/articleshow/53972955.cms

Using tech is an 'ART' in itself. One who learns it, benefits. Knowing which tech to use for what, in itself, is the truth of wisdom.

We can't have confidential data floating around in the 'Clouds' 🙂

Taxes: "A 'Financial Charge' or a 'Fee' or any 'Other Levy' Imposed upon an individual or a legal entity by a State or a Functional Equivalent of a state to fund various 'public expenditures'. A failure to pay, or evasion of or resistance to 'Taxation', is usually punishable by law."

A Fixed Deposit with a bank @ 8% per annum (we don't get this rate anymore 😟). 10 year period. Interest is Compounding Quarterly. Interest is not withdrawn at quarterly intervals but, is let to Compound / Grow with the capital. Assume a marginal 15% average tax rate on Income.

Impact: Interest earned (yearly) - treated as income from other sources.

Tax - One pays a 'yearly tax' (as per their tax slab), whether the interest is taken out or left to grow. "Cash from your pocket goes out". E.g. - a 1 crore deposit @ 8% interest for 10 years...Grows to Rs.2,20,80,397/- with an Interest Earned of Rs.1,20,80,397/-…………..Does that look good ? 🙂

In the process of getting Rs.1.2 crs; one has paid Rs. 18.12 lacs as TAX during the period @15% tax rate per year. If I increase the tax rate to 20% per year, one pays Rs.24.16 lacs as TAX & at the peak rate of 34.60%, it is 41.80 lacs 😳

In effect - 18.12% of one's capital is paid as tax @ 15% rate. 24.16% of one's capital is paid as tax @ 20% tax rate & 41.80% of one's capital is paid as tax @ the peak rate. Now, does this sound good 🙂

We haven't even explored the Inflation / Purchasing Power erosion, impact 😀

Your hard earned Money, matters. Taxes Matter, even more.

Jean Marie Eveillard described the best characteristic of a good investor - "The Capacity to Suffer". A smart investor must have the ability to suffer through periods of bad performance. He / She will be able to stay the course when they have the 'ability to suffer the pain'.

Bottom-line, a significant portion of risk in equity comes from the "Behavior of the Investor".

Stay the course. Stay focused.

Worked on this table – Sensex vs. BSE 500 vs. a Large Cap mutual fund vs. a balanced fund vs. a mid / small cap fund. Over 16 years of data points. Chosen mutual funds are the top quartile funds in their respective category over the said period. They are not necessarily the ‘Top Funds’.

Some inferences –

Investment made is a Lump sum (one time) on the mentioned date. So, 'Timing' is irrelevant, unless the 'Time' is, when everyone is selling. Can we buy, then? 😟

BSE Sensex gives the lowest returns vs the others 😀. Is it a suitable benchmark to track & draw conclusions for an investor? BSE 500 might be more an appropriate benchmark to track.

Mid/Small cap fund wins hands down over others. Short, Medium or Long term; this beats all. But, volatility needs to be checked. Balanced fund is the most consistent. Someone investing on 1 Jan 2015 gets a single digit CAGR. But, the time frame is too small to infer. But, it is also the Most Consistent & Most Ignored category in the long run....and busts a myth that, only equity funds deliver returns. Large cap fund falls in between all these. Neither a high nor a low. In fact it tracks the balanced fund very closely & losing to it in performance during some periods.

A lump sum invested in 2007, 2008 or 2009 - a decent mutual fund still made money for an Indian investor (marked in green, yellow & pink). Indian mutual funds beat Mr. Buffet handsomely in INR, CAGR terms (will have to check for $ adjusted).

And finally, if one can't choose their own stocks & better a mutual fund; there might be only one option - 'Invest in a Mutual Fund'. Investor Beware - more than 3000 schemes to choose 😳

Education – The process of receiving or giving systematic instruction, either at a school or university.

Parents in the UAE (Dubai & Abu Dhabi) are going on a borrowing spree (Personal Loans) to fund their kids education; costing over USD $10,000 – 20,000 a year. That makes the place most expensive behind Australia & the US (in education).

Is this essential spending? Or a necessary spending” or a Want Spending?

Value # (is not equal to) what one pays. Stocks, Bonds, Home or Education – all the same.

An interesting fact which Dr. Duvvuri Subba Rao mentions in his book, 'Who moved my Interest Rate' - The only RBI Governor who calibrated the Interest Rates for 23 times (Raising the rates 13 times & reducing them 10 times) during his tenure, between 2008 - 13.

Having appointed as the RBI Governor, just a week into the peak of the 2008 Global Financial Crisis, he mentions that, 'Unprecedented Times required Unprecedented Actions'.

I would have been happy to keep a track of every analyst's estimate on the interest rate movement during his tenure. It would have been a factual eye opener on, how bad can their 'calls' go.

And imagine what if, an Investor 'Churned / Re-balanced' his portfolio 23 times during the same period of 5 years 😳, reacting to every move by the Governor. The result - An "Absolute Portfolio Disaster".

He signs off a chapter saying, 'I hope no other Governor faces such a challenging time'. It was not in his hands, he had to (pro)react to the Global world.

Thankfully, an Investor 'Need Not' react to the Domestic & Global scenarios as many times as he ever had to.

And Unprecedented Times require Unprecedented Actions from an Investor, too. Yes 🙂, but in the form of BUYING & not SELLING.

The above table is the ‘current value (2014) of USD $1000 of Berkshire stock purchased in a given year’ (Source – Business Insider). I tried to go on a fact finding mission from the table & here are the results…

$1000 invested in 1964 with Warren Buffet is now (2014) valued at $11.64 Million. That is 50 years of compounding at 21.6% CAGR vs 9.9% on the S&P 500.

The tonnes of money was made between the holding period years 30 - 50 😀. That is what compounding is. It will not deliver anything in 3, 5 & 10 years or more. Berkshire never paid out any Dividends. Everything it delivered was 'Growth'. The stock lost more than 50% of its value 3 times in the 50 year period. And countless times between 25 - 30% or more. Imagine someone selling it off, every time it fell 😂.

The best CAGR returns were made by investors who gave him money during 1964 & 1975 & still holding onto him.(20.15% - 23.29%). The worst time to invest would have been between 1997 & 2006. An investor would have earned a single digit CAGR, until 2014. The in-between year investors (1975 - 1997) earned anywhere between a lower double digit to a higher double digit (10.13% - 19.81%).

2004 - 14, he delivered 9.7% vs 5.8% for the S&P 500....He still outperformed 😀. The average American inflation for this 50 year period was 3.98%.

So, the next time; a neighbor, a colleague, a friend, a fund manager, a banker, a wealth manager, a financial adviser or one's cook - claim to have delivered a CAGR of 20% ........then, one would have discovered the 'Next Warren Buffet' 🙂

This is what is CAGR (Compounded Annual Growth Rate). A 'stealth total return' and the only return that an investor ever needs to bother about. The world's best investor makes 21.6% CAGR for 50 years. Can we do better ???

Core of Education - 3 R s of an early learning phase...

Reading, Writing & Arithmetic

&

Core of Investing - 3 P s of an investor...

Philosophy (asset allocation), Patience & Persistence

Govt. outstanding borrowing to the GDP of a country. The only 2 countries coming down on this parameter are Germany & India (marked in yellow). And India’s current figure is almost at an all time historical low. Note – This is only Govt Debt. The debt what Corporates & Individuals owe is a different matter (Source – Trading Economics)

Summer Olympics – started in 1896 @ Athens, Greece. The games did not take place in 1916, 1940 & 1944 due to the World Wars. All time medals tally is led by the USA – 2520 medals (gold, silver & bronze), from 27 Olympics it participated. India has 28 medals from 24 Olympics. That works out to 93.33 medals per Olympics for the USA & 1.16 medals for India.

No wonder, the USA has the largest Equity Market Capitalization with the best ‘Compounding Medals’ (Russia / USSR, comes next with 1584 medals) & we are the best investors into Fixed Deposits, Gold, NSCs, KVPs etc…

India has eroded its Purchasing Power, whereas the US has created an unbreachable Compounding Effect of Medals.

Invest Wise. 
Invest Right. 
Invest for Compounding.

If medals are to be won at Tokyo Olympics (2020), works should have started during Beijing Olympics (2008).

If, ‘Adequate Cash Flows’ are to be won during ‘Retirement’, work should have started during the first 5 years of working life. 

Aim for a Consistent, Sustainable & a Peaceful Retirement.

The person who takes a medicine, must recover twice. Once from the disease & once from the medicine - Dr. William Osler (MD).

An investor who saves 'only' in a 'fixed return' option must recover twice. Once from the 'Purchasing Power' & once from the 'Taxes Paid' on the returns 🙂.

Well, a patient can recover from a medicine & a disease, but, a fixed return investor can never recover from either getting his purchasing power back or taxes paid 😟

Thankfully, Investors need not wait for 70 years to earn one's 'Individual Returns'. It will be a phenomenal compounding gold mine.

(Pusarla Venkata Sindhu, wins the 1st individual silver medal, after India's  Independence).

Olympics 2016 ⛳ - The Chief Medical Officer of the Indian Olympic Contingent is a 'Radiologist' 😳. His backup is also a 'Radiologist' (Reason - son & relation of Indian Olympic Association members). The universal medication recommended to any athlete is a pain killer; so much so that one of them is now nick named 'Mr. Combiflam' 😀

It's like anyone walking into a financial institution or meeting an independent financial adviser; and the recommended medication is a universal 'Money Back or an alike, Insurance Plan' 😱

Specialist Sports Doctors are needed, for the athletes. Specialist 'Money Back' schemes are avoided, for a long term Money Life.

I've recently shared via an email, the Indian Equity Market's performance, in 'absolute returns', since Jan 2011. Now, let 

me share similar fact findings under a Monthly SIP (systematic investment plan) format of investing -

Tenor - Dec 2010 until 1 Aug 2016 (5 years & 9 months). Investing on the 1st of every month. 2 Indices chosen - BSE Sensex & the wider BSE 500. CAGR - Compounded Annual Growth Rate, is calculated - BSE Sensex - 9.29% & BSE 500 - 11.89%

Deductions:

Systematic route prevails over One Time investments (in the medium & long run)

The difference between a pure large cap index & a more diversified index is 2.7% p.a. (Over this period)

Tactical Allocations work, when the 'Timing' is appropriate (most investors don't get this timing).

Strategic Allocations work, irrespective of the 'Timing'.

All the 'Gyan Sessions' on which category of stocks / mutual funds to invest 🤐

I've not compared the 'Additional Returns' delivered by mutual funds, as an investment vehicle. The value add is a 'writing on the wall' 🙂....but investor beware, there are more than 3000 schemes to choose from 😀

Leander Paes - competing in his 7th Olympics 😳😟 (1992 - 2016 &....). No wonder we don't get medals. We don't develop talent. We crush new, raw talent.

Narayana Murthy (Infosys), says - 'Indians have the highest ego per unit of achievement' 😱 .....Maybe, we might have to check his, in "tonnes". The reason for he saying this statement - when he was advising the Thai govt, a decade back, they used to make notes and revert back to "HIM" on the progress. Whereas, Indian officials don't do that 😳😳😳

Both these achievers teach us, 'What Not To Do & Say, more than, what to do & say'.

We need to have an 'Investment tenure' as good as Leander's Olympic participation (26 years).

We need to probably have a good temperament as Late Sri A P J Abdul Kalam, and not as NRN.

Choose the appropriate Idols & Choose the appropriate Investment tools.

E = mc 2 (mc squared) ---  meaning - energy equals mass multiplied by speed of light squared - Albert Einstein 🙏🏼

Let's interpret this a little differently 🙂

(E)motion = (M)istakes × @ a (C)ompounding (2) rate

Emotion in Investing leads one to compound their mistakes.

OR

mc 2 = E

(M)istakes × @ a (C)ompounding (2) rate = (E)motional stress

Mistakes made while Investing lead to a terrible Emotional state.

Life or Investing -

Keep out Emotion (minimize)

Keep out mistakes (minimize) Compound Returns (optimize)