- PSU jobs are safe and the best

-dealing with a government agency is good, because they will not cheat you

Sure Psu jobs are the best -ask the retiree from Air India who has not been paid his dues…for the past few years.

So if you were an AI employee and you were dependent on the PF /gratuity for your old age – you have been reduced to being a pauper. You are now dependent on your kids for your food and shelter.

Ha ha…you played safe and had bought a house, did you say?

And that too from a government agency named CIDCO – and the house is at Nerul? Well for some reason you have not got the NOC for occupying the flat…eeek…no money, pay the EMI but no flat….like a friend said

“bad luck itna kharab ho gaya”…Of course Cidco has its story of what went wrong and Air India has its own story of ”what went wrong” – The transaction started in 1992…most employees would have finished paying the EMI in 2010 (you normally get possession when you START paying the EMI!!).

I do not have all sides of the story….but it must have really hurt the employee, what say? If you do Google around you will find that DNA has done a story on this on 25 nov 2011……..

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I have no clue whether Mark Twain, Warren Buffet, Peter Lynch, Taleb, or anybody else has made this statement…if they have not, here is a original statement from Subramoney. As originals are very rare, please remember you read it here first.

One risk that all of us HAVE to understand is the risk of inflation. So for all those experts who think a portfolio containing public provident fund, national savings certificates, bank deposits are ‘No Risk Portfolio’ please think again.

The youngsters whom I meet have got the following advise….

1. Over the next 3 years nothing good will happen in this country so keep your money in debt.

Vow…why should a 24 year old worry about ’3 years from now’? Beats me. Ok let me stick out my neck. Over the next 3 years (starting Nov 2011) Hdfc Top 200 would have out performed the best FD that is available today (let us say SBI FD – not some risky debentures).

2. You will not incur a loss if you are in a debt portfolio. Correct.

You will NOT RETIRE either. My dad’s dividend income today is HALF the amount that he got as PF for his 37 years of service. If he had not invested his money in equities, he would not have the lifestyle that he enjoys today WITH HIS OWN MONEY staying in his own house.

A kid of 24 today runs the biggest risk of inflation and will not be able to RETIRE AT ALL (leave alone at 60) if he has a portfolio sans equity.

3. Invest in Real Estate – God does not make it any more.

Look at the 30 year figures, put it in excel and then take decisions. Maths and logic should prevail – not parental pressure – just heard of a 25 year old committing to buying a house because she was emotionally blackmailed by her mom to commit to a house.

Mom’s Logic: It is her house – at least it is forcing her to save by paying the EMI…

Like the depression babies of the US, India has the ‘Harshad Mehta’ and ‘Ketan parekh’ babies. These people keep talking of ‘My father lost his 3 lakhs in the market…or some such stories. Take a closer look – it is YOU who is to be blamed.Not the market, not Harshad Mehta, not Ketan Parekh, not SEBI…JUST YOUR LACK OF KNOWLEDGE..of course risk also comes for people who think websites and blogs can replace good advisers. For such people risk comes from reading too – because understanding is not a given, is it?

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Can you believe this…if you are a middle class Indian?

I found it a little amusing…but not difficult to believe. When I spoke to him, I just heard some of his expenses – Rs. 3000 for a gift for a colleague’s wedding, EMI on a car, and EMI on a motorcycle. Rented house – supporting his parents so paying Rs. 23,000 as rent.

These were too adhoc, so I did not want to be judgmental. So I asked him to maintain accounts for at least a couple of months before I could comment….and here are the expenses:

i was not as stunned to see this. This guy is about 28 years of age – works as an accountant – and as he himself admits, he is well paid. He is still a bachelor, says he is not a big spender – and has ZERO savings – except for some mutual funds (80C), nsc, and ppf.

I said my life style is very different, cannot comment on yours.

However readers are welcome to comment. He reads my blog….:-)

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I said house – I have no clue, but have friends in Hdfc and I can give you their numbers…and they may be able to help on the builder feed back…

She said….No, no, I have chosen the builder and the house too…just tell me what to look for in a loan (mortgage as the yankee would say)…I thought for some time and said:

Interest rate.

She said what in interest rate: So I said

Flat rate or Reducing balance.

Rests: Monthly, Quarterly or Annual.

Floating rate or a Fixed Rate?

If floating rate, then linked to what rate.

Is that rate independent of the lender?

then how often will the reset change?

will she have to check the reset…

and the reset will increase her term or her EMI….

she said ‘I thought the TOUGH job of buying the house is over…..now it is the ‘EASY’ part.

Sounds complicated, does it not? L O L.

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Okay, so the market fell 1,100 points on 22 May 2006, it fell 350 points on 31 May 2006 and another 327 points on 1 June 2006. What is to be done?

Just go back in time. Rewind to Diwali 2005. All the bulls including die-hard bulls said the market would have done great if it ended Diwali of 2006 at the same index as Diwali 2005. No expert was willing to brave even a 9000 call.

What actually happened? Just go back to your older files, and refresh. The market made these bulls look ordinary. January, February, March…. the markets cross 11,000 then April sees 12,000. Then, we celebrated.

We made 12,000 stickers and stuck it all over the place. We made T-shirts, mugs and celebrated 12,000.

Then the market had a hiccup. We panic. We sell. We cry. We moan. We expect the Finance Minister, SEBI Chairman and all of them to crowd near the wall to save humpty dumpty.

In reality, nothing is lost. Just rewind to Diwali in your time calendar, you would be thrilled with the 10,000 index. Rewind to February when we were still celebrating 10,000. Just because we ran too fast in January, then galloped in March, April and May we are now worried. Just slow down and you will be fine.

The key takeaway, ‘The market will do what the market will do. You have to do what you have to do’.

Markets will be volatile. You will see a sensex of 10,000 and even perhaps 20,000 in a 12-month period. As a rule everybody loves a bull market. So the FM, the SEBI Chairman and everyone else will look worried and will try to talk up the market.

Keep in mind – for 3 years we have believed that markets cannot come down, and interest rates cannot go up. That might be about to change. We believed that a 2-day fall would be followed by a rise. We believed that the market is fairly valued at 3000, 5000, 8000, 10000 and 12000. We may rethink. We believed that you could go to the terminal in the morning and come back richer at the end of the day with Rs 5,000 or Rs 50,000 simply by buying. The bigger you bet, the greater was the gain. We may rethink on that. We believed that we could build our own portfolio and save the asset management charges that mutual funds charged. We may rethink on that.

The lessons are very simple.

1. Asset prices fluctuate and they are inversely related to the interest rates. Markets are but an asset class. If it goes up, it will come down.
2. Individual investors will come, conquer, panic and leave. FIIs will do similar things. You need to act sane. Nothing changes in the economic situation. The solution lies in having an investor mindset rather than a trader mindset.
3. If you have money for the long run (I mean 3 years at least) you should be in the market. If you need to pay your EMI by selling shares, you should be praying in a temple.

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Good job, Surabhi..but I got only the last part of the program…and so will not comment anything about the program content!

However, here are some of my thoughts on debt…

Today it is very easy to live beyond ones’ means. If you take any magazine you will find about 15 advertisements – of this about 14 will extol you to live beyond your means. If you can afford a Ford Ikon, they will urge you to buy a Honda City. If you can buy a Honda City, they will push you to an Octavia.

If you tell a real estate broker you are looking for a house for 6 million, be prepared to shell out 9 million!

All of this is easy – because there is a huge push to make you think in EMI language – not full price language! Sir a Merc is available for “only” Rs. 54,000 p.m. as EMI!

What are the indicators that you are living a little beyond your means? They are as follows:

a. Your cheques are bouncing! This is perhaps the worst indicator that you are issuing “rubber” cheques…so this is not a good idea.

b. Your credit score (currently in India you do not have a copy of this) is falling and the people who have lent or wanting to lend to you are hesitant about default and are increasing the interest rate. Speaking of credit scores CIBIL is the place everybody likes to go to…but there are others and they are FREE. At Cibil you pay some charges.

c. You are saving less than 15% of your salary! This is SCARY, very scary there is little elbow room, beware!

d. You are charging everything to your credit card and are paying only a part of the amount! I hope you noticed Hdfc bank has raised the interest charges to 3.25% p.m. Translate it to a per annum basis and you will not be far away from a number which is half a century!!

e. You have 4 credit cards and you are borrowing from one card to pay the other 3!

f. More than 30% of your earnings are going towards EMI payments – and these are all long term commitments

g. You have no emergency fund, losing your job is one of the nightmares you go through regularly, one small repair like having to replace your car tyres can create hell for you!

h. you are happy visiting your parents for 10 day vacations because you can save some living expenses

i. if you will touch your parents’ kitty for your purchase of car, bike or your marriage expenses

if you have any of the above mentioned problems, you need to set your financial house in order. TODAY.

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Here are some more resolutions – on the WILL NOT DO side!

1.    I will not buy anything on a credit card unless I can pay it off in full on the due date.
2.    I will not buy any product before I understand the why, when, how of the product.
3.    I will not buy things or services to show off to friends who are also doing the same!
4.    I will not buy a ‘branded’ product unless I can see the Value in what I am buying.
5.    I will not change jobs just to get a higher salary
6.    I will not invest in any financial instrument without increasing my knowledge
7.    I will not buy any asset beyond my means hoping to pay a higher EMI from an increased income.
8.    I will not mix my investments with my insurance IMMATERIAL of how attractive the transaction looks!
9.    I will not marry a person who is financially incompatiable with me.
10.    I will not assume anything in the financial world – will check using present value and future value before taking a decision.
11.    I will not buy a house ‘because it is conventional to do so’. Will buy a house when I am convinced that I am planning to stay in it for more than 10 years at least!

Most important:  Properly stick to all the resolutions!

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That may not be the right argument.

It is a person’s migration from one level of strata to the other one which is marked by ‘buying’ a house. He is under tremendous pressure from his own parents, in laws, friends, Hdfc (as a shareholder collecting the recent 1:5 split, I am happy), his employer (an employee committed to an EMI cannot leave, can he?), …so he buys.

It is easy to have a sense of regret…”Oh, only if my father had bought one more flat…” It was available for Rs. 2 lakhs, now it is Rs. 80 lakhs…..” normally you hear this quite often.

My take is if you must feel s…#$%..ed about your dad not buying something it should be equity shares. Your regret should be…”If my dad had just invested Rs. 10,000 (forget Rs. 200,000 maybe he did not have it in 1980) in Wipro (it would have appreciated to Rs. 300 crores), Ranbaxy, Cipla, Larsen And Toubro, Infosys (1992 listing), Sensex, .literally anything..it would have been worth at least about Rs. 2 crores – apart from the dividend with which one could have paid rent….

So first in life, do not regret.

However if you want to regret, regret big! Regret about your dad not understanding the impact of inflation on fixed income securities. Regret that your dad bought land. Or a bank FD. Or put 70,000 in ppf without fail for the past 20 years. Or 40 years. Regret about the ‘gold’ in which they invested – and the Jewelery that will never be sold immaterial of whether gold is in a bull run, bubble run or a bear run. Do not regret that he did not buy some steel, cement, paint, wood, …these are commodities. Instead if he had bought Tisco, Acc, Asian Paints and Hdfc (btw did you notice that a Rs. 50 lakhs house bought with a Rs. 50 lakhs loan costs Rs. 1.1 crore when you multiply the emi * no. of installments?) So Hdfc is also a good proxy for the home that your dad could have bought.

Luckily whenever a friend / cousin / customer asked me for advise re buying a house I made them buy 100 shares of Hdfc. Those who kept the shares (literally most of them) have about 300-400 shares of Hdfc, and 200 shares of the bank.  Not bad considering the interest rates may have been 12-14% p.a. but the share has yielded greater than that…

Ha ha ha….LOL If you get to rent a place @ Rs. 1 Lakh a year, you should buy the place only if it is available at about Rs. 15-17 lakhs according to some researchers in the US. No such no. is available for India…Mumbai is atrociously expensive to buy – it is almost a renter’s paradise in terms of rent: own ratios go. However Mumbai real estate has nothing to do with the kind of income that you can earn @ Mumbai….so read on.

http://online.wsj.com/article/SB10001424052748703561604575282910161870380.html?mod=WSJASIA_newsreel_personalFinance

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Let me enumerate the ‘investment opportunities’ that I missed. Happily for me, I did not even waste an ounce of energy in considering these proposals except remembering the details enough for blogging about it .

Car loan scheme: One proposal was Mr. A wanted to buy a car. So I had to use my IT return (which means my creditworthiness) to borrow from Icici bank (that was chosen by the intermediary) and buy a car. Let us say the EMI was Rs. 18,000, then Mr. A would pay me Rs. 22,000 p.m. for FULL period of the loan and at the end of the period Mr. A would buy the car from me at Rs. X (pre-fixed). That amount would be equal to the down payment of the car (that I made today) + 15% (i.e. 5% simple interest for 3 years).

The person who brought the scheme to me of course told me this was a fantastic 30% return scheme WITH NO RISK at all, and beautifully with no MONEY at all also!

Well to me the risks were as follows:

1. The car HAD to be in my name for 3 – being the term of the loan. If during that period Mr. A decided to hit somebody, do some funny business called drugs, or use it for transporting prostitutes, – and got caught, I WOULD BE IN JAIL. Simple.

2. If ANY person was hurt / killed in an accident in this car, I WOULD BE IN JAIL.

3. If Mr. A ran away with the car, I WOULD BE STILL paying the EMI, AND not even have the asset .

4. Imagine complaining to the police that Mr. A stole my car. If arrested he could produce the papers showing he had the right to use the car. If not arrested I still pay the EMI. For recovering MY money I sue Mr. A. What a ride!

5. I should have played along and seen the agreement papers – would have been able to pick more holes in that perhaps.

more about such schemes….in later posts!

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Over the past weekend and beginning this week I have got phone calls from one media house with respect to lost (or losing) jobs. Many people have been sacked from well and high paying jobs. Now many of them are couples working in the same organisation. It gets worse when husband and wife both lose their jobs, and the wife is expecting. EMI on housing loans, cars, student loans etc. have to be paid….

What went wrong?

Well to begin with many channels sprung up (change this to life insurance companies, banks, airlines…story remains the same). They paid higher and higher salaries to attract and poach talent. Suddenly you had many more people than you required. In each location 3 reporters, cameramen, assisstants etc. were being sent. Now suddenly there is a worry on profitability. The board is pressurising. So the employee gets sacked. This is also sadder because the HR in most companies are happy recruiting when the MD says and then SAD when the MD sacks. Most of them do not hire to a plan nor fire with any sympathy.

From the employee’s point of view – he quickly adjusts to his ‘new’ salary. So what if it has gone up from 5 lakhs in 2002 to Rs. 54 lakhs in 2008? Well today they are not really too many companies willing to pay Rs. 52 lakhs to look after risk (in a bank) or even Rs. 50 lakhs to look after operations! Only peple bringing in sales revenues can hope to earn higher income than Rs. 50 lakhs – that too as a variables!

When the times get tough, the tough get going….

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