· Too many people I meet are Income rich and balance sheet poor: If you earn Rs.1, 500,000 a year, but spend Rs.1.503, 000, you are broke, worse off than the person who earns Rs.500, 000 but spends only Rs.450, 000. You may be income-statement rich, but you are asset poor. Not enough people are able to realize that the amount of money in the retirement or pension kitty and the amount of life insurance is a function of your CURRENT life style, not the lifestyle you had 5 years back. Financial security comes from being able to live off your assets – and not need the job by the time you are 45.

· Start learning about money – it is not a difficult task. Start taking interest in how credit cards work, how to live within a budget, mutual funds, unit linked plans, financial goal setting, making a will, etc. Managing money is not in any academic syllabus at any academic institution, but you still need to know it. So go ahead, and learn. More importantly, for the women who are reading this article please ensure that you learn about money and encourage your friends, colleagues, daughters, daughters in law, etc. to learn about money. Money is not a “man” thing as much as “cooking” is not a “woman” thing.

· Don’t confuse debt with wealth. If you buy a Rs.8 million house with a Rs.7.75 million mortgage, you are not worth Rs.8 million. You are Rs.7.75 million in debt. Last week when my broker bought a car, he did not borrow any portion of the Rs. 14 lakhs that he needed to buy it. His logic was simple; many of the investments that he had made would yield him less than 15% p.a return – including his PPF. His logic was why should you borrow at a rate higher than the rate at which you lend? Most rich people do not borrow because they do not have money. They borrow because their assets are capable of earning much more than the rate at which they borrow. And as Robert Kiyosaki says in his book the rich buy the boring (my terminology) assets first and then use the income from these assets to buy the “luxuries” that we cannot live without.

· Get good advice: And then listen to them. A great portfolio manager manages my equity portfolio – and he keeps giving good results in all kinds of markets. My role in the good performance of my portfolio is simple – I let him be. Financial advisors like doctors are busy and they like involved and non-interfering clients. You may need a financial planner, a portfolio manager, and a banker. Or a simple mutual fund distributor. Once you have found a good advisor, trust her to perform.

· Retire gracefully: Plan for your retirement. Retirement is an amount of money, not an age. If you are a business owner, for instance, don’t assume you will be able to sell it for the “right” price when you are ready to retire. Keep shifting some money from “business” to the “personal” bucket of finances. Rather than put all your eggs in one basket, set aside a percentage of all earnings in conservative assets to help guarantee a secure retirement, no matter what happens to your other assets.

· Protect with life insurance. is the item that people pay attention to only when approached by an agent. Life insurance is a tremendous tool to help achieve distribution goals, all generally income-tax-free. It puts tremendous amount of liquidity and gives peace of mind. I know men who have constantly told their wives “use the life insurance money to pay off the mortgage if I were not around”. I would rather have guys telling their wives “I have a life insurance policy and Saki is our financial planner. I trust her, and so can you. Ask her how to collect the insurance money and consultatively chose an investment option. Use the notes we made at the financial planning seminar we attended”. Ha, that will be the day. If you do all this, will your wealth give you security? Well there are no “assured return” schemes any more. You need to keep learning and trying. However, by addressing the above issues, you can dramatically increase the potential for turning the wealth you’ve achieved into long-term financial security for yourself and for your loved ones.

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One news item in DNA said many Indian filmstars were down with fever but were continuing to shoot. Aishwarya Rai was shooting for Mani Ratnam’s ‘Ravan’ for more than 10 hrs. at a stretch in WET clothes and high fever. Priyanka Tweeted that she was not well but did not take time off from work. Shahid Kapoor could not shoot because his eyes were red. Deepika had Malaria….Look at all these peoples attitude! Aishwarya Rai has nothing to prove – she has it all, but said “She did not want Mani Ratnam to make a loss” – What a girl! That is attitude. All these people have a fantastic approach to their careers – as if their lives depended on it. Congrats, great.

One rainy day I met a friend. Her milkman had not come, but her paper wallah delivered the newspaper – a lil wet. Both had to come from the SAME place, and obviously TO the same place. Her daughter asked her “How come the paper walah came…but the milk man did not?”. She replied the paper walah is the owner, the milkman is the employee! Even in SSY (Sidha Samadhi Yoga) by Rishi Prabhakar of Bangalore he calls the attitude as ‘owner’ attitude or the ‘worker’ attitude. When you have the owner attitude, you accept responsibility; when you have the worker attitude you blame others for not getting things done. That is attitude.

So when you see a problem you define it “I did something to my body so I am running a fever” or you call up your HR department and report sick. As simple as that. Attitude.

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Keep emergency cash, keep long term money in equities or real estate, in the long term equities will give the best returns – are all very old thoughts. Do we need to change anything now? Have things changed so much now? 2008 has seen the simultaneous collapse of the share market, housing market, commodities market – and thus threatening the theory of ‘asset allocation’. We forgot co-relation graphs are nice to see, but difficult to use as a prediction tool! The collapse of the credit markets – even a credit card company would not increase limits!

And to think that the ‘financial economy’ was a huge percentage of the ‘American economy’ you wonder what would happen! So how do you adjust? First, think hard about the risks you face, because they may not be what you thought they were. This has to change how you save, invest, borrow, plan and retire.

Financial Planner: Risk will be rewarded. Risk is measured in your stomach – this is fine, but what it measures is volatility, not risk.
What you should do: You have to be lucky about timing for your goals. If your daughter’s wedding is 18 months away, withdraw fully, if you have the money.

Risk is not just ‘loss of income’ it is also freezing of assets. If you are not happy selling an asset whose price has fallen how will you react? Risk is also freezing of assets!

Whether you’re investing, borrowing, planning a sabbatical, having a child, buying a home, or making a business decision, you know you have to consider risk. But what is risk?

Well, it is surely a four letter word! It is also a difficult question to answer than what many individuals think. Many of us have learned to think of risk as synonymous with volatility. You always thought that technology stocks, bio stocks, pharma stocks – which are product based (and has a lumpy cash flow) are risky. By definition such companies will give sharp ups and downs. However Biocon has given far greater downs – not ups! No serious investor could have made money in Biocon, sorry to say! For years we thought share prices went down and came up. However some changes by SEBI and IRDA will force the financial services companies to dramatically re-look at their business model.
As you now know, the word “long run” part of equity investment is the real risk of relying too heavily on equities. The longest period of negative returns for U.S. equities is 16 years, according to Jeremy Siegel. In India too Investing on a one time basis in 1992 would have meant a 10 year wait for getting your capital back – you would have at least doubled your money in public provident fund.

If you hit a slump in returns at the moment you need the cash, the eventual upside of volatility won’t do you much good. After all like Buffet says to be there first, you have to first be there! If your equity portfolio keeps falling for the first 10 years of your retirement, your mind set will crush you. If you have to live by selling falling assets (remember in 2008 ALL asset classes fell) on in the early years, your portfolio may be insignificant to participate in the rebound. This might lead to an unfortunate situation of running out of money by the time you are 78 – and a potential 12 years to go. Unfortunately, many of today’s retirees are especially vulnerable to today’s downturn.

You shouldn’t run from risky investments just because they lost money – the horse has bolted already. For too many risk managers the risk is after it has happened! In fact the asset class which gives the worst returns (prima facie) is perhaps the best place to invest. Cash looks attractive – but runs the risk of inflation. At this point a SIP in equity looks risky but to me seems to be a better idea than to stick to a bond fund or a RBI bond kind of investment. The Indian equity market has really rebound but the signals from the real economy are not too great.

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Benchmark Mutual fund announced a Shariah compliant fund recently. Of course many mutual funds (Reliance, UTI, to name 2) are all in the process of launching and managing a Shariah compliant fund.

What is a Shariah compliant fund? And what does it do?

Shariah, the religious law of the followers of Islam, has strictures regarding finance and commercial activities permitted for believers. Arab investors only invest in a portfolio of ‘clean’ stocks. They do not invest in stocks of companies dealing in alcohol, conventional financial services (banking and insurance), entertainment (cinemas and hotels), tobacco, pork meat, defence, pornography and weapons. According to experts in Islamic investments, Muslims are only allowed to invest in companies where interest bearing income is less than 10% in any condition.

India has a very high shariah compliant list of shares – With regards to compliance, the current share of Indian Shariah-compliant market capitalisation (at 61%) is high when compared with countries such as Malaysia (at 57%), Pakistan (51%) and Bahrain (6%).

Of course personally I am neither a fan of such a fund nor against it. In India anyway there are no listed companies in pork meat, defence, porn or weapons. Regarding tobacco I do not smoke, hope the kids in our house do not smoke, but am realistic enough to know the value that ITC brings to my portfolio! Once upon a time as a member of National Stock exchange I had a tough time asking my Jain customers to hold on to Tata Steel (remember they went into shrimp exports to claim tax benefits? – you need to be born in the early sixties at least!!). I do not like any ‘ism’ in my portfolio, but would happily invest in the Vice Fund (fantastic out performance in down times! – Merrill Research report).

Using conscience as a guide is not very useful! Companies which treat their employees, vendors, associates, badly may be making money for you. Are ITC, Coke, McDonalds, Smith & Wesson, not enough as examples?
This downturn isn’t shaping up to be any different. Spending on vices may not fall as much as spending on cars, houses, etc. A recession proof industry where new entrants cannot enter easily (did you ever think that the advertising ban on cigarettes is a fantastic moat for ITC?), fantastic margins,…what more can you want as a shareholder?

Alcohol consumption (therefore tobacco?) actually must be going up in a downturn – because you drink when you are happy, you drink when you are sad! Of course the hedger that I am would also happily invest in a de-addiction company also – provided it is listed.

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Once upon a time there used to be a ‘ring’ in The Stock Exchange (you dummy it had to be just called this, because the other ones did not exist). The Stock Exchange, Mumbai became the BSE – the Bombay Stock Exchange. The people with the ‘sauda’ book went into the ring and executed the transactions. Quotes were given by jobbers (called taravaniwalas). The daily turnover used to be around Rs. 200 crores – anything higher was considered great. There were 100,000 graduates / undergraduates who worked as jobbers, clerks going into the ring, sub-brokers, share transfer clerks, etc.

Then came technology – and the peopl who brought it said ‘now there is tranparency’ – after all the tech people, ‘educated’ people, etc. had to create new terminology. So out went badla, and in came F&O….and many such changes. Jobs changed hands. Frankly do not know whether the benefits went to the investor or the people who created a big army of financial service sector jobs. It would be intersting to see the ‘wealth created’, the ‘salary paid’ , the turnover tax paid…velocity benefits everybody except the investor (assuming he is still alive!).

Then came the mutual fund industry – ‘wealth management’ they said it was. Again distribution was required, professionals were required – so ‘charges’ were imposed. Some people made an attempt to understand the charges – the super big guys understood and negotiated it. The smaller guys do not understand the charges though there are some who pretend that they do. The amount of expenses that an amc can charge is decided by the amount of money that they can charge as expenses and its own fees. These were fixed when the aum of the biggest amc was under Rs. 1000 crores. Now it is Rs. 100,000 crores. Mr. C B Bhave has an advisory committee which is supposed to benefit the end investor. I have not seen any MD of any company of any industry say “Regulator please reduce my charges so that the end customer can benefit”. Well bureaucrats have some simple illussions in life, do they not.

For a customer who invests Rs. 100,000 a year for 30 years the load that he pays would be Rs. 2000 * 30 = Rs. 60,000. However even if the fund puts in a mediocre performance, the amc charges he pays would be Rs. 250,000 in THE THIRTIETH YEAR ALONE!

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There are also some lectures planned by fund managers of life insurance companies (remember they are now the largest equity investors – AHEAD of FIIs – who will also be speaking at the venue)

It is a fantastic intellectual event happening for the 5th time, and the best part is it is free to the retail investor.

The title sponsor is Icici Direct.

for registration www.myiris.com

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There are many fantastic signals to say that this is a bull rally. ONe is the sharpness/ shrillness of the ‘pyt’s who come on business channels and tell you how bad the things are. If a measure has been introduced say in 1998 – there is a good chance that ‘worst ever’ fall in its history means NOTHING ! 10 years’ history in an economic measure is a joke!

The markets have come of the highs, and similarly they will come off the lows. So when it goes from 21k to 18k surely many of us may have thought of that as a temporary blip. However it came down all the way to 8k. Similarly it can rise from 8k to 11k and then stagnate. Even if it does stagnate at 11k for ONE YEAR, you need to know that 8k to 11k is itself a V. If you missed that, you have missed the first 35% of the growth! So a V can become a W or it can become a V with a steep valley like feel on the sensex and the nifty. What really matters is what happens to your own portfolio. My mother who holds shares of Hero Honda, eid parry, coromandel fertiliser, hdfc did not see as much an erosion in her portfolio as my wife – who has cholamandalam dbs, crest animation, deccan gold, tata power and L&T!

So forget what the media says (why are they now not screaming about the profitability of IOC, HPCL and BPCL – were they not screaming when the price was $ 147?

Simply because dog bites man is not news, it does not matter if the media keeps talking of man bites dog stories – unless of course if it is true, and you are the man!

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George Mathew & Swarup Chakraborty of Indian Express Mumbai have done the following story:

At a time when banks are slashing home loan and other lending rates, they are quietly hiking the interest rates on credit card outstandings.

Since October 2008 banks have raised interest rates on credit cards, some by over 4 per cent per annum. The interest charges of leading card issuer SBI Cards, have gone up to 3.35 per cent interest per month, or 40.2 per cent per annum, on roll-over credit. In October 2008, it used to charge 3.10 per cent per month, or 37.8 per cent per annum, as finance charges.Standard Chartered Bank has hiked the interest rate to 3.49 per cent per month, or 41.88 per cent per annum, this month as against 3.40 per cent per month, or 40.80 per cent per annum earlier.

Citibank too raised the rates and 3.5 per cent per month (37.8-42 per cent per annum) from around 3.10 per cent as finance charges.”
My story starts here: the charges are on a monthly basis WITH MONTHLY COMPOUNDING – the interest charged per month figure is correct, but the per annum rates are WRONG.
Here is how it looks:

SBI – was charging 44% per annum, now it is charging 48% per annum
Standard Chartered bank was charging 48.49 …now it is 49.36% per annum
Citibank was charging 44.24% …now it is 51.11%
So the increase is a reasonable 4% by SBI and 7% by Citibank.
Hey guys at RBI….why is the Anglo Saxon continuing to milk us?

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The typical middle class guy is happy, but of course skeptical. The questions he is asking are the following:
Will this market rally last?
Does it have the strength to last?
Will it come down again?
Is it a dead cat bounce?
What do the chartists say?
The most honest answer is nobody has an accurate answer to any of these questions. And when I say markets it is generic – US markets, Indian markets, all behave more or less similarly.

However, one theory that investors / traders are willing to buy is ‘the worst is over’. Having been in the markets on the journey up to 21k, many believe that 7500 will be re-tested.

People are skeptical (In US and in India) about the economy. Are they right?
Sure they are right. Lots of pain is left in the economy.

Let us look at the US economy first:
·    Jobs are still being lost
·    People find it difficult to believe that some banks can be profitable so quickly
·    Banking is in a mess – ask Warren Buffet!
·    Real estate is falling ‘less fast’
·    Nobody is sure about what Maddox has done!

What about the Indian economy?
1.    Banking is slowing but is not in a mess
2.    Jobs are still being lost
3.    Some new jobs are being created
4.    Real estate is down by a mile
5.    Salaries, rent, interest rates are all headed south

How much of an IQ do you need to say things can get worse in the real economy? Not much I guess. It took me quite a long time to realize that there is no direct relation between the equity markets and the direction of the economy in the short run!

So, a family hobby of buying high and selling low has been now converted to a more serious calling – teaching and writing!

The equity market goes up when all the pundits say it will tank and vice-versa! That is the reason why historians like us have learnt the greatest lesson from history – ‘you cannot learn from history’.

Why did the equity market in India suddenly add a couple of ‘000 points to the Sensex? That is about 23% jump! Or the Dow Jones spurt 20% in 18 days?
Well here is a confession – I do not know! However, if you agree that the market came down from 21k to 8k, surely there was some reason why it could also go up from 8k to 10k in a short term.

Is it a bear rally? Is it a dead cat bounce?

Remember when markets are down investors, traders, analysts, all of them look for reasons why it cannot go up – exactly reverse of how they behave in a boom.
A couple of friends who give a classic signal – when they leave the market it is a great time to buy – have left the market. To me that is a fine signal.
And all uncles and aunts say they will be out of the market for 2 years – in cash if need be – to me it is a great BUY signal.
If I knew that the market will be lower – which means I am still expecting a capital loss – I would be in cash. The problem is I do not know.

The Equity market delivers!
I have not asked my friends who shifted to cash recently – how it feels to see their next 4 years from debt markets already delivered by the market in the last fortnight! Sorry guys, I know it hurts.
Some other friends are saying “I will want stronger signals – I will wait for the markets to stabilize”. I find that sad. Wait till when? 10,342? 11,673? 12,500?

I do not think they have an answer. And I keep asking myself – is that the smart thing to do?
This is like waiting to buy AFTER the market has gone up. Why? And in a market with statistics to show that the best return is the steepest one?
Do they forget investment guru John Templeton saying “I do not know anyone who knows anyone who can time the market?”
Other investors have been pushed to the limit. They say they’ve had it. They’re done with the stock market for good.
This funny dialogue reminds me of a graveyard / a crematorium – where everybody says “what is life – it could have been you or me….” And then going home and continue doing what they have been doing.
Less cruel examples is a hangover or the promises we make ourselves at the weighing scale. Aw come on, do not kid yourself. You will be here before long. Maybe when the sensex is at 16k – and perhaps on the way down again!
Bluntly what is your choice?

If you are an investor who is investing towards some goals, do you have too much of a choice?
·    Will real estate give you inflation adjusted, post EMI return in double digits? You got to be kidding!
·    What about RBI bonds with real returns in the negative territory?
·    Or will you be tempted by Income funds – guaranteed to give you sub-RBI bond yields in the longer run also?
·    Or in gold – which has returned pathetic returns in the past 29 years – but has ridden the current metal boom?

Like it or lump it, but if you have long term goals – children’s education, own retirement, etc. you have to be in equities – directly if you know how to or through good fund managers.
Cut all this. Your question is simple. “Should I buy?”
The answer is simple. Yes. You should buy – stick to good fund houses, do good asset allocation.
If you do a SIP remember you are putting only a small portion of your money on a monthly basis.

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One branch of one life insurance company has done sales of Rs. 1.8 million for FEBRUARY – the equivalent figure in say 2007 would have been about Rs. 45 million. So the sales team sits down and makes a stunning projection (obviously without conviction) – and the top management believes it (because it wants too, though it knows these numbers are there just like that).

So what do you do with the backlog from April, 2008 till today? You pretend that the whole gap will be more or less covered in the month of March. Will it happen? Well at least the body language has to be in tandem with the thoughts, correct? So a March ‘scheme’ is launched – it will take the agent to Mauritius, the sales manager to Egypt, and Branch manager to Europe, and so on…

What do these agentd do to make the trip to Mauritius? They go out and buy the Mumbai, Delhi,……. telephone directory…and the March Marketing Mania starts!

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