This post is about the attitude of the employees of Jet airways, Kingfisher and Air India.

On my last trip when I was at the airport waiting to get into an aircraft…and could not find a newspaper..suddenly one of the girls came up with a newspaper. She need not have done it. It was Jet Airways.

Once while checking in at Chandigarh…I said there is a connecting flight from Delhi..but it has just a 10 minute gap. They ensured that I ran from one aircraft to another (which means I boarded the Del-Mum flight without security check)..The airline was Kingfisher. They need not have done it.

Sadly I have no such ‘Wow’ experience with other airlines. I also have some bad experiences with both Jet and Kingfisher.

However the attitude of the Air India staff is – ‘We do not care, GoI owes us a living’. The airline may not offer good services, may make losses, may do whatever it wants….but the GoI owes us a living. To say that the employees are responsible for the mess maybe wrong. However to blame the employees of Jet and Kingfisher is ALSO wrong.

Employees at Jet and Kf are subdued. They are getting their CVs drafted. They may leave the industry if they can. Obviously pilots have lesser choice than the others. They are not saying “If you do not pay we will quit”. Their HR may not mind that.

It must be tough for all the stakeholders – suppliers, management, passengers, employees and of course the government, but at least it is collective responsibility. It is also clear that getting into a financial mess is possible when you are in manufacturing or in the service sector or in any sector.

You can get into a mess whether you are the government or the private sector.

If you are in the government, the world owes you a living. If you are in the private sector, you owe your family a living.

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Grandfather is aged about 95 had the following:

1. A great job (he was a supervisor in Gen Motors and retired in 1980),

2. Has an indexed pension from a company that has not yet gone bankrupt

3. Social security is paying in full and

4. His house that he bought for a small amount is worth about US $ 1 Million.

No debt, and has enough money to spend.

His son aged 70 has a few strong legs:

1. A decent job, retired about 5 years ago, he would have loved to work for a few more years, but the job moved. However his wife works as a senior nurse in a good hospital.

2. Has started drawing from his social security

3. Has a medical insurance that his company is continuing to fund. However no long term care insurance….he hopes he does not live too long.

4. His house has lost value recently, but he hopes to inherit something from his parents…so he feels a little more secure.

The next guy is gen Y guy…

1. Recently lost his job, and his wife has left him. The house belonged to his wife, so he is homeless, trying to come back to his dad’s house.

2. His 401(k) looks like a 201(k)

3. No savings, no wife, no house, luckily no kids. He does not dare get into a relationship.

4. With no job, not sure of his social security, no savings, obviously no retirement plan.

Well well….at the age of 45….the current generation of Americans will be the first to see a fall in their standard of living.

So if the 4 pillars of a good retired life were: a good job, a defined pension, social security, and good health, the current generation has none of these…Obama what will you do? seek a re-election? You might as well go back to Kenya.

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I have said this in the past too….and saying it again…

“I have NO clue about what attracts big companies to the financial services sector” – repeat a zillion times.

None of the so called ‘big groups’ have ever done well in financial services. Whether it is the Tatas, Birlas, Sundaram,….really only Hdfc as a group has mastered the art of financial services. They too have done well in housing finance (which requires tremendous discipline and a robust back end), banking (same as housing finance), mutual fund (a few good fund managers and a decent sales force).

Even Hdfc has not done well in the brokerage business (which needs tremendous personal skills). Brokerage at the HNI level requires some fantastic managers knowing how to take calls and bets. For the retail business you require a very good willingness to invest in technology (so you have Kotak and Icici direct the winners here).

In life insurance, the winner is yet to emerge, but I think the dice is loaded in favor of LIC, just too favorably. Even though some of these companies will earn some profits, it is too heavily regulated. Though I am not against regulations, the current regulations leave very little scope for innovation. Not sure where this is headed, but personally I am happy that I do not have any options of any life insurance company. The only options currently that I would like to be sitting on are PUT options.

Actually when you see some managements in the financial services business make projections – of the business, EPS, P/e (and therefore price of the share 5 years hence!) feel like saying ‘will you pay my fees in PUT options please?’ Of course the only risk is they may not be eligible for listing.

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So suddenly they look for somebody who will ‘help’ them to plan their finances. They get to somebody and find out somebody who comes to their house or their office.

They think (thanks to the TV ads, I am sure) that Retirement / Life Time planning is simple. All they have to do is to sit with the ‘consultant’ for 15-20 minutes and hey presto…it will all be done.

Sadly that is not the case. Alas!

It takes some homework, some understanding, willingness to consult with your partner, understanding of risk, etc. ALSO you are better off using a pencil or a white board instead of paper and pen. IT WILL CHANGE – as your understanding of retirement changes.

I am convinced it is time I wrote another ‘New and Revised’ Retire Rich..Invest Rs. 40 a day – simply because of the new things that one has to consider.

HOWEVER, do not wait till you understand everything. Start doing a SIP in an equity fund IMMEDIATELY…as and when you have your full plan in in place, you can make this a part of the plan.

Does not mean the answer will be different if we are talking about your kid’s wedding or education…START, START, START….understanding will come in 4 weeks, 4 months or 4 years….at least do not lose the power of compounding!

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1. Will the next 20 years be the same as the 20 years that have gone by?

2. A recent article in a leading Pink daily said that equities and fixed deposits have given the same return, so why equity?

3. Is there some guarantee that equities will give better returns than real estate?

4. If I do not invest in equities, what will happen?

5. Why should I invest in equities at all?

6. Over the past 18 months, people have made profit only because of AVERAGING, not because the MARKET has gone up.

etc. etc.

Frankly, I do not know anybody’s portfolio, goals, attitude towards risk, attitude towards an asset with high variability (which most professors treat as risk), …so I cannot comment. Far more importantly what difference will it make in my life, IF YOU INVEST or IF YOU DO NOT? Nothing. Really nothing.

I do believe that assets with a higher variability of returns will have to give a greater return. However I am a victim of my own past behaviour, am I not?

Realty, equities, commodities, debt – all asset classes will make money for some, will lose money for some. A few brilliant human beings will make sensational gains, and a few will match the indices. However a lot of the so called ‘middle class’ traders / investors will lose money in the markets.

Making money in life is about skill and luck. If you are skilled and work hard, luck will follow.

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- Do not sell all your equities, but do put some money in debt instruments, it is safe

- Do not worry about sector specific investments, but the sectors to be avoided are auto, infrastructure, etc. You should be investing in sectors like FMCG, Pharma, banking – because they will do well even in a slow down

- It is risky to invest in equities, so it makes sense to stop your SIP investments – remove it when the markets have recovered.

-real estate seems to be doing better than the equity markets so do take a long term view and invest in real estate

- averaging in good stocks makes sense, so if you have bought a good share at a high price, buy more of it, so that the average cost comes down.

-take a short term view of the market and invest in a one year FD..by that time the markets would have recovered…and you can buy equity.

Good show, congrats anchor…

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today it is a case of ‘mis-selling’ by Met Life Insurance agent.

My views…I will do a story a little later on…

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Take a city like Mumbai. It is impossible to set up a barber shop, an inexpensive eatery (I mean selling dosa at Rs. 50), a general practice or even a specialized practice for a doctor…

However the older businesses continue – simply because the owner believes that he is earning well. The old owner is right, and a little wrong.

If you are sitting in a house with a market value of Rs. 4 crores, an office with a market value of Rs. 3 crores, a factory that will fetch Rs. 4 crores, and you are earning a GROSS income of Rs. 40 lakhs (pre tax)…YOU ARE FOOLING yourself?

Just sell off all your assets and move out of Mumbai. You would have got cash of Rs. 11 crores. Use 2 crores to buy a nice decent house and put Rs. 9 crores in a bank. You will earn Rs. 90 lakhs, GROSS.

Thus if all the real estate people in the expensive cities were to arbitrage the opportunities, the people remaining will find it very, very difficult to live! WHY?

Simply because all the low cost service providers will be forced to go out. A guy who buys a house for Rs. 4 crores will want to give it on rent of Rs. 15 lakhs a year…not Rs. 7 lakhs as the current owner is doing. There will be a lot of pressure on all fronts. Lower end jobs will not be created in Mumbai – no business house can pay astronomical costs to cater to Mumbai and Delhi’s prices. So the businesses will shift to less expensive areas, people will refuse to take transfers to these cities, …

Will all this actually happen?

NO. Not in the immediate future. What happens to the balance sheets of home finance companies? What happens to bank balance sheets? (SBI alone has a Rs. 100,000 crore housing loan portfolio). How can the politician allow a builder-mafia nexus to go away? Big ‘reputed’ builders who have usurped ‘school’ reserved land and ‘play ground’ ground reserved land could not have done it without political patronage, right?

So you will hear ridiculously funny stories like a school auctioning parking space in Mumbai and the whole parking lot getting sold out (at Rs. 4.5 lakhs per parking) in 10 (TEN) MINUTES, ……sure something is stinking…but cannot put a finger on the solution!!

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Recently when a friend asked me what are the risks in unit linked plans…I said Well Max New York Life has started a campaign saying “Our agents are different”..well I wish they say this to the client BEFORE the client signs up:

Sir the following risks exist in a Unit linked Plan:

1. Buying ULIP is a long term committment and you should look at a 15 year premium paying term at least.

2. Our charges favor the bigger premium payers, and there are some absolute charges, so please pay a premium of at least Rs. 20,000 per month.

3. As a long term product the surrender charges are very high for an early surrender. If you stop paying the premium within 5 years the chances are you will get NOTHING.

4. Our fund managers are, well, hmm at best average and historically all of them have underperformed the sensex and the nifty over 5 year rolling periods.

5. Irda has approved does not mean they have understood the product. It just means it meets their current norms.

6. The Insurer makes no comment nor does he recommend the underlying assets. Our sales people use words like asset allocation, switching, reallocation – this is proof that they are trained in using jargon. If you think they understand this, give me your boss’s phone number, you need to have your head examined.

7. You have to have the ability to choose the underlying assets and their combination. If you cannot, please get a PhD in finance, or hire a fund manager. If you have funds in excess of 5 Billion US $, Goldman Sachs will offer you fund management expertise. If you have less than that..hey muppet what are you doing here?

8. If the value of the fund falls below the point at which we lose interest (i.e. below Rs. 500,000) we reserve the right to close the policy and give back the money to you after deducting our closing charges of Rs. 489,000

9. None of what we have said hereinbefore in anyway means that there is any kind of a guarantee. Our asset management charges of 1.89% p.a. works out to Rs…….and is about 20% of the premium paid.

10. The policy is subject to the usual terms and conditions of risk…etc. these 9 risk factors were only with regard to the fund management.

PS: I have no clue where the top management of our company invests. To the best of my knowledge they do a SIP in a mutual fund.

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A house is rarely just the cost that the broker told you when you bought the house. Have you seen what are the associated costs?

Cost of the house is Rs. 50 lakhs. Assuming you did not have any money for down payment, you paid Rs. 50,000 per month for 20 years = 50,000 x 12 x20 = Rs. 1,20,00,000.

Stamp duty, brokerage, etc. @ 2% = Rs. 100,000

Furnishing (throughout the life of the house) = Rs. 15,00,000

Maintenance, tax, etc. @ 2% of the original cost of the house : Rs. 100,000 x 20 = Rs. 20,00,000

thus the total costs = 1.56 crores. Assuming a 30% tax, you need to earn about Rs. 2.2 crores to afford this house. If you are an employee and earn about Rs. 10 lakhs gross, that is about 16 years effort.

Yes during this period the value of the flat would have gone up…I am not talking about that.

My take is if 16 years of your 30 year working life has gone into buying a house, how much time is left for you to earn for your entertainment, retirement, children’s education (a friend is just now paying Rs. 4 lakhs as fees for the kid’s 12th standard and IIT coaching class fees, yipee!), children’s marriage (Rs. 30 lakhs is not unheard of, correct?)….and of course RETIREMENT.

The financial services industry is desperate about ‘where to lend’ is happy lending to the housing industry. Just how much are they willing to lend? Well, frankly anything. But that is another post.

My idea of writing this blog is simple. Money like time is just energy. It can change form. So if you look at ANY EXPENSE, look at it in terms of TIME, not money. If you earn Rs. 5 lakhs a year, and if your wife suggests a vacation in Switzerland, tell her ‘It is one year gross  – about 3 years net’…LOL….Just change the mirror, the image will change!!

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