1. The life insurance agent: the old, tried tested method. An agent is appointed then there is a manager to look after this agents requirement. This manager is given a lot of fancy names – Unit manager, business development manager, sales manager, etc. The agent has to first pass an exam – “conducted” by IRDA approved institutions. In the English dictionary the closest word to this exam is Joke.

2. The “relationship manager”: Employed by banks these guys (and gals too) know your bank balance, your salary, your credit card payment….so they know how much of life insurance you need, so they sell to you. A very aggressive channel, training, if any is strictly optional. If anything it is a hindrance – 3 training days means 3 sales days less

3. The “relationship manager” who works in brokerage houses like Indiainfoline, Kotak securities, Edelweiss, Motilal Oswal, Sharekhan, Angel broking, etc. more or less similar to 2.

4. Wives of agents: Unlike doctors, lawyers, Chartered Accountants, once a person becomes an agent his whole family can start selling life insurance products. So the wife of an agent, mother, father, major son, major daughter, partner, neighbor all pitch life insurance products.

5. MLM: Multi Level Marketing agencies like Amway, enroll new members on a daily basis. So when you are enrolled as a “sales officer” – you need to get say 2500 points to start. Of course you can do this by simply buying a life insurance with a premium of Rs. 15000! So here is a fantastic way to sell life insurance – every day if you enroll 200 members a day, you would be selling (rather the new sales officer would be buying) a life policy to “qualify” as a member! So this channel works like a sales and back office processing factory. There is a large no. of people selling and a million people filling up the form, etc. Here there is no requirement of training. Simple.

6. Agents of other companies selling life insurance: All the old Indian names who have entered the life insurance business got a lot of “walk-in” agents. These are the old Indian hands who were selling equities, mutual funds, equities, etc. Now since these guys are MDRT agents, TOT agents, COT agents (titles for high life insurance sales people). The competitor companies put a plan in place to “attract” these high title agents with fantastic schemes so that they start selling the competitors’ products also. Let me explain – suppose Ms. K N is a top agent of ABC life insurance company. DEF Life insurance company knows about Ms. KN. They approach her to sell their product – and this is without her having to do any paper work. So a new channel has been set up .

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

I think Benjamin Graham was a good thinker and had a lot of patience. That is the reason why he has a student who loves him (Warren Buffet) and we find deep thinkers like John Bogle also quoting him. John Bogle is of course, the founder of Vanguard Funds and the father of Index funds.

When Bogle says, you listen! His 3 books – 2 on mutual funds and one on Investing are all worth reading – and they are inexpensive too. I urge all of you to go and buy the book, and far more importantly read them

Just as an aside – I keep telling people that to lose weight you must go to a gym regularly (Ok i know 90% of your weight is a function of what you eat, and only 10% depends on your work out, but…). Many people I know promptly join a gym – and go there once a week, if at all!

I know a gym owner – she has 5 gyms in Mumbai. She is 5′ 6″ and weighs about 90kg.

My argument still stands – buy a book if you will read it, join a gym if you will go. This gym owner is proof that even OWNING a gym is not enough, forget JOINING A GYM. So if you buy the Bogle books keep reading it – just buying is easy!

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

The greatest dividing line that separates financial professionals is fiduciary obligation. By law, a fiduciary must act solely in the best interest of the client. As such, a fiduciary is obligated to reveal any potential conflict, as well as to fully disclose how they are compensated for their services.

Doctors, lawyers, chartered accountants, trustees are fiduciaries. In April 2005, the SEC set forth recent regulations that require brokers and other financial professionals to include the following to indicate an absence of fiduciary obligation:

“Your account is a brokerage account and not an advisory account. Our interests may not always be the same as yours. Please ask us questions to make sure you understand your rights and our obligations to you, including the extent of our obligations to disclose conflicts of interest and to act in your best interests. We are paid both by you and, sometimes, by people who compensate us based on what you buy. Therefore, our profits, and our salespersons’ compensation, may vary by product and over time.”

If you see this disclaimer, you should ask questions, request complete disclosures, and really question if this is the establishment that seeks to advance your best interests.

After all, that’s why you hire a financial advisor in the first place, isn’t it?

However, most investors do not spend enough time and effort on training themselves about the questions that they should ask. That is gross neglect. See what even SEC is saying is “advisers will answer questions that are asked”. So if you do not know what to ask, God save you!

How Does Your Advisor Get Paid?

Fee-Only Compensation: This model can minimize conflict of interest. A Fee-Only Advisor is paid for advice rendered and for ongoing management. No other compensation can be rendered by any other financial institution, thus advancing the fiduciary standard. Fee-only advisors are paid solely for their knowledge and their asset management services.

Fee-Based Compensation: Frequently confused with Fee-Only Advisors, but not at all the same, fee-based advisors may earn only part of their overall compensation from advisory fees paid by clients. They may also receive compensation for commission-based products they are licensed to sell, advancing an inherent conflict of interest. As such, fee-based advisors do not hold to a fiduciary obligation.

Commissioned Compensation: Commission-compensated advisors can face enormous conflict of interest. A financial benefit can only be derived through transactions, creating a bias toward account activity. Unbiased advice is an improbable outcome for investors who use the services of commissioned advisory services. Further complicating the conflict of interest issue, commissioned representatives can receive incentives for selling one investment over another.

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

1. Confusing between trading and investing: Traders and investors both make money if done professionally. However most retail investors do not know whether they are traders, investors or speculators. So if they lose money in a trade they do make the same mistake again, and again. Professionals learn better than retail investors.

2. No asset allocation: Normally they have never enumerated all their assets and liabilities. There is an easy way to do it today – just go to www.myirisplus.com , down load the software (hey it is free) and know how your assets are allocated.

3. No portfolio construction knowledge: Just buying a few shares is not a portfolio. I recently came across a person (he considers himself successful as an investor) who had put all his equity portfolio (40% of his net-worth)  in  2 companies  (both of the same group).  I was aghast  at his portfolio, but  as he had made  a lot of money, he thinks it  is the best strategy.

4. Not doing enough research: In your whole life you need to pick and hold about 50-60 companies. However to reach this figure you may have to look at say 500-1000 companies. If you are assuming an investing life of 40 years, looking at 1-2 companies a month is not difficult. Most retail investors are too lazy to do it.

5. Watching TV watching television is not a bad idea. Problem is when you listen to the sound bytes, believing it and acting on it. Do not think of business channels as your “financial guru”. They are not. They are here for entertainment.

6. The money that an investor makes (or loses) is a function of market behaviour and investor behavior. Markets are far, far easier to predict. Investor behavior is impossible to predict. Most investors cannot put a rationale to their own action, once the action is over.

let me add some more later on,,,,,,

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

Other companies which come to mind are say Wriggley’s gum. When you are spending say Rs. 5 (or Rs. 20) on a packet, seriously you do not consider too much about competition! You do not want to pop something into your mouth just because it is a buck cheaper, do you?

Another company which fits into this Buffet definition is of course his own favorite – Gillette. Even in the Indian context Gillette has a monopoly at a class level. It caters to the middle and upper classes of population. This category of people do not really think too hard before paying for a shaving blade, gel or after shave – giving the company a huge moat.

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

Reminiscences of a Stock Operator (Wiley Investment Classics)
by Edwin Lefèvre

Once upon a time, quite long ago – the US was a highly unregulated market.

Very briefly, Jesse Livermore’s life as a stock and commodities trader is portrayed in the book through the character of Larry Livingston.

It is a story well told – and is surely gripping. It is racy and you will be able to read it in a short time. Readers who have been in the Indian equity markets since the 1970s should be able to identify with some of the happenings in the book. A note of caution though – this book is only meant for the persons who understand how brokerage houses work – concepts like churn and price rigging are clearly broking concepts!

It is also important to remember that Jesse’s life had many upheavals – and he died by committing suicide.

Jesse Livermore was supposed to have been responsible for the market crash of 1929, the tsunami of all market crashes. A clear indicator perhaps that not too many fortunes have been made by trading. Livingston started out life at the age of 14 as a quotation board boy (those of you who went into the ring at the BSE would surely remember the “kaka” who would write the quotations on the black board – just outside the “ring”). Here he developed an uncanny knack of predicting the patterns – just a good feel for numbers. Surely as a trader (even as an Investor perhaps) having a feel for numbers is necessary.

A friend wants him to play on “Burlington” – he quickly amasses $ 1000 – and his mother wants him to “save up” because no boy so young could have made so much money. But a trader is always a trader so all the money constantly becomes margin and Livingstone goes through many ups and downs in life. Traders have this peculiar trait of playing – it is not about money – it seems like a game – its about winning. And like Yudhishtra of Mahabarat they cannot ever seem to walk away with a small loss or a small profit.

You will also see some absolutely foolish ideas being touted to Larry and even as a small boy he realized the foolishness of the idea. In page 45 you find mention of one such idea – making a client buy a share and immediately close the deal. Sure, clients like action, but at least at the year end the client sees his P&L account and knows he has been had!

He tells us about being invited to New York by Williamson & Brown. Their biggest client is Alvin Marquand who is rich and is also Williamson’s brother-in-law. Williamson wants Livingston to trade through W&B and gives him a seed capital of $ 25,000. Livingston uses the capital, makes enough money to repay Williamson. Williamson does not take it back – and tells Livingstone that he is needed to protect his big clients. The ability of Livingstone to see through the transaction – and not allow Williamson interfere with his deals is amazing in hind sight. It is difficult to guess the motives of brokers or poker players!

The story of how a bucket shop tries to pull a fast one on him – of the sugar speculation is spine chilling to say the least.

Some of these methods may not be happening in the bigger cities, but I recently heard of bucket shops in rural India – however could not verify the authenticity of the same. Surely in rural India where banks are a rarity, broker’s contracts would be a dream. Surely some kind of bucket trading could be happening. Only in a bear run would some of these horror stories come out.

However, if you see stories like Consolidated Stove- you get feeling in your stomach that you just saw it happening!

Like a Random Walk Down Wall Streets many axioms, this book too has some axioms.

“SPECULATION IN STOCKS WILL NEVER DISAPPEAR”

Sounds so simple and so profound, and true! Till date you hear horror stories of clients calling their brokers to buy “ISN E 42300” – many of them do not know the names of the scripts that they are buying. You need to be in a broker’s office to believe this statement!

“WHATEVER HAPPENS IN THE STOCK MARKET TODAY HAS HAPPENED BEFORE, AND WILL HAPPEN AGAIN.”

We have all been there, seen that, and again believe the pundits on Television when they say “This time it is different” – it of course requires a John Templeton to call these the most dangerous words in the Investment world.

“WEAPONS CHANGE, BUT STRATEGY REMAINS STRATEGY.”

Whatever you do, this is true. When you do make money (or lose money) you need to go back and question your strategy. Livermore had clear strategy – whether it was in a bucket shop or the New York Stock Exchange! I think whatever works for you as strategy – should be questioned repeatedly so that your brain does not blind side you into a false sense of confidence.

“THOU SHALL NEVER FIGHT THE TREND”

The trend is your friend. This is a timeless, and perhaps a useless saying, because the human mind’s ability to see a trend is not so simple. In fact, what you see as a trend is just the mind wanting to believe the trend. Many books on mathematics and statistics keep telling you that recognizing a trend is difficult.

“LET YOUR PROFITS RUN AND CUT YOUR LOSSES SHORT”

* “NO STOCK IS TOO HIGH TO BUY OR TOO LOW TO SELL”

Jesse Livermore was everything you think he was, and more. His untimely death at his own hand is not what should be studied, and learned. We all have our pains that we must deal with. Read this book, and change your investing life forever, or don’t read it, and pay a price with your portfolio, and forgone profits. Good luck

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

Cahrlie Munger and WB concur on one thing “market forecasts are like poison” it should be kept away from investors – they are like children and need to be protected!

WB ignores market forecasts – likening them to fortune telling / sooth sayers! In fact a big Indian investor says “technical analysts make the astrologer look good”. Another saying is “the more the money that you spend on computers, software programs, etc. 3 businesses DO NOT GET BETTER, they are weather forecasting, share price forecasting, and astrology!

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

Well there are many things to do. Your life is a sum total of your family, friends, colleagues, likes, your readings, your job…and of course your money. The bear market only dents a small portion of the total – it affects your money. In fact if you have a simple portfolio of 25% in equities, a 20% fall in the market reduces your networth by about 5%. That is not too much is it? Also if you believe that this is a temporary setback, you can be sure that all these monies will come back!

Look at your total worth – which is what you feel you are worth as a human being + your net worth in money terms.

If your financial planner asks you to re-visit your “risk-profile” questionnaire, ask him to go for a walk. I am yet to meet a client who knows how to fill up a “risk-profile” questionnaire – or a planner who understands how to interpret it. Especially when the market goes from Bear to Bull or vice-versa. (OK, OK, I am not saying we are in a bear market – why am I denying it so hard? Because the market likes to shoot the messanger of bear news, and far, far more importantly I am not sure). At the budget I predicted a 2k point fall, and repeated it again at 16k…now I am not sure. What i did is already documented – I moved from some high p/e shares (Tata Power, L&T) to lower p/e shares….

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

They should know whether SIP helps, and if so, how. Value averaging is a difficult concept, but not really useless. They should know the common financial, retirement problems, difference between term, whole life, plans in insurance. they should know term insurance is cheap, but on a cost basis some companies have strucutred ulips cheaper than term – simply because of an increasing risk cover based on VAR.

Also for plans to succeed clients too have some obligations – the students should have the ability to convey this to the clients. Of course it is elementary to know asset allocation, volatility, growth and value styles, fundamental and technical analysis, portfolio management, portfolio construction, etc.

Taxation is of course important, especially pre-tax loans and post-tax loans – or the main causes of cost difference.

Life insurance is today a complicated subject. So they should know how the whole industry works.

This post is for my students…so please do not comment on this!

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

Planning for a secure financial future is a must! It can be done, and is not easy.

• Maybe you’re saving to buy your first home.
• Perhaps starting your own business is a dream.
• The costs of a college education have spiraled and you may wonder how you will pay for your child’s education.
• You will probably live longer. Additional years after retirement can cost more than originally planned.
• Your company pension plan may not be enough to maintain your standard of living after retirement.
• Complex financial marketplace and changing tax laws make it difficult to understand your financial picture.

Everyone needs to plan for tomorrow. At every income level, there are steps you can take to make more efficient use of your assets and to ensure a secure financial future. It makes sense to develop well-defined goals and to map out appropriate strategies to turn your dreams into reality. To help you get started, below are some frequently asked questions about personal financial planning.  

What is personal financial planning?

Personal financial planning is a process, not a product. It is an organized, well-planned system of developing strategies for using your financial resources to achieve both short- and long-term goals. You may think of the process as helping you to answer three straightforward questions:

• Where am I?
• Where do I want to go?
• How do I get there?

When should I start planning?

It is important to start planning as soon as you can. Time passes quickly – it is never too soon to start planning for tomorrow. Nor is it too late to start a plan. 

Who should prepare my personal financial plan?

A well-qualified financial adviser should work with you to prepare your plan. A CA financial planner combines the objectivity and trust long associated with the CA profession and the years of experience and expertise in personal financial planning. However, if he does not do this for a profession (most of them do not), look for a financial planner who is a full time professional.   

 What should it include?

A comprehensive financial plan – one that addresses your entire financial picture – should include a review of your net worth, goals and objectives, property and other assets, liabilities, cash flow, investments, retirement planning, estate planning, tax planning and insurance needs, as well as a plan for implementing your goals. 

 I don’t have a lot of money. Do I need a full-scale financial plan?

You may not. You can seek out different levels of financial planning advice, from counseling on a particular issue to comprehensive planning. Speak to the advisers you are considering and discuss with them your requirements. You should be able to find one who meets your needs.  

 What role does goal-setting play in financial planning?

It is important to list both short- and long-term financial goals on paper. You can then rank the importance of the goals. If you are saving toward something tangible, instead of just saving, it may be easier. These goals could include: available cash for emergencies, education for children, care for family members, retirement, a nest egg to permit a career change, acquiring or selling a business, estate planning, financial independence or personal objectives such as a special vacation or second home.  

How do I know how much I am worth?

One of the first things that you should do in reviewing your financial situation is to determine your net worth. Many people are surprised to find out how much they are really worth. First, estimate the value of your assets. If you have owned your home for a number of years, you may be sitting on a nice nest egg. Several different real estate appraisals will help you determine its worth. Organize bank, mutual funds, insurance policies and brokerage statements and record their value. List your liabilities such as housing loan, car loans or credit card debt. Subtract your liabilities from your assets and you will have a good estimate of net worth.  

 How can I plan for tomorrow when I can barely pay for today?

Create a budget. Determine what you actually spend each month. It is easy to keep track of large expenses such as mortgage and car payments. The variable items such as food, clothing and entertainment are often what get away from us. Write your expenses in a diary or an excel sheet – it is far more efficient than the human memory. The human memory is selective in remembering. Excel and diary are not  

 How much should I be saving?

It is hard to apply a rule of thumb toward savings, because it varies with age and income level. Ten percent of CTC is a good start. If that amount is too high for you, do not let that deter you. You can start by putting a little money aside each month and slowly increasing it.     

How does insurance fit in to the process?

Evaluating your insurance needs is part of personal financial planning. The insurance industry has changed a great deal over the past few years and there is a wide array of new products. Some of them may be better options than your current coverage.  

Do I need a will?

Everyone needs a will. Whether you are single or married, you need a will. No one but you knows how you want your estate divided after your death. It is especially important if you have children. If you do not have a will and both you and your spouse die, the court will appoint a guardian for your children. Maybe you would have chosen someone else.  

What type of advice can I expect from a financial planner?

You can expect objective financial advice that is tailored to meet your financial goals and objectives, as well as the level of risk with which you are comfortable. Depending on your unique situation and goals, your financial planner may confer with your lawyer, stockbroker, insurance agent and other investment advisers to achieve the best plan for you. 

 After a plan is developed, what happens next?

The best plan is useless unless put into action. A financial planner can advise you how to implement the plan and can put you in touch with other financial experts as needed.  

How often should I update the plan?

It is good to review the plan when there is a significant life event such as marriage, birth, death or divorce. Any change in financial position should be evaluated as well. Many people have an annual update that reviews how the plan is being implemented. The review also considers changing goals and circumstances.

Post Footer automatically generated by Add Post Footer Plugin for wordpress.