It is not that the retail investor cannot invest on his own, it is just I think the odds are terribly against them. Let us look at some of the foolish statements that I hear from time to time:

1. I do not make losses in the market: A wife told me that this is exactly what her husband tells her!

What it means:

It just meant he did not know how to cut losses in the market – he just held on to shares which went below his cost! This is one of the worst things to do and will dramatically reduce your total returns. Admitting your mistakes is a very very important step necessary in any market – or in life itself!

2. I just BUY and HOLD for long periods of time – I am a long term player and hold on to shares for 3-5 years till it does well!

What it means: I just buy some shares and hold it for a long time. This is again a completely unfocussed and non strategic method of ‘hope’ based investing. Shares are chosen based on some irrational logic – it made money for my dad, I think there is a great demand for infrastructure, etc. – does not work!

3. I have a diversified portfolio :

What it means: I have bought a bunch of shares – there may or may not be any co-relation between them, and the list is some 40 companies. However 5 companies add upto 80% of the value! Makes no sense, this may not be diversified at all.

4. I use Price-Earning Ratio to buy shares: I buy shares of companies whose Price-Earning Ratios are low and sell those that are higher

What it means: . However after I bought some shares at a low P/E their P/E has gone lower! Using P/E ratio is not easy – calculating P/E is easy, but not interpreting the P/E. God bless the investor!

5. I have a good Adviser who tells me what to do!

What it means: I ask my broker who tells me what to buy and what to sell. His advise has not been bad, I have made a lot of profit and some losses. Overall it is in the positive category, so I am not worried.

More to follow…later..

3.

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Too many pundits and journalists jump to declare ‘The market is now in a bear phase’. My left foot. None of us know whether the market is in a bear phase or in a bull phase. The day I finish saying the market is in a bear phase, it can go up 5% and make my prediction look stupid. Even if it was a bear market which pundit knows whether it will remain there or will it go up?

The whole market argument (or rather pundits argument) about bear market and bull market is completely futile and absolutely useless. Markets always have good shares to buy and bad shares to sell. Check your portfolio – see what is worth selling off even today because the management is not good or the products are not selling. Shares like Gillette, ITC, P&G and Colgate also loose sheen when the markets are doing badly. However these companies are NEVER available at a price earning multiple of 10 – if that is what a bear market is supposed to mean. Does it really matter that the index is at 18000, 17500 or 15500 – but the shares that YOU want to buy are still quoting at a price earning ratio of 28 – albeit lower than 31? If you were a buyer at 31, you can buy more at 28!

Strategy for bear markets:

Let us assume that we are in a bear market. Should you rejoice or feel sad? Well depends on whether you are in an investing mode or you are in a withdrawing mode! Most people I know (from age 23 to age 84!) are still in investing mode..so a bear market (or a market are depressed at the current stage) is a blessing. I have no clue which share is a good buy and which is a good sell ..but if you are in such a doubt pick up an ETF of the sensex or the nifty.

Pick a real low cost etf (if you are aggressive pick the Sensex etf and if you are not so aggressive pick a Nifty etf). If you are already an investor in a mutual fund, just pump in some money into the funds that you are already investing in.

A SIP is a good idea, but so is picking up some stocks which you understand…However I do not think markets are at mouthwatering levels for many shares, so please be careful…Remember roses are surrounded by thorns!

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There is no great secret to investing in volatile times. Imagine the situation of a person who is doing a Recurring Deposit in a bank…does he/she think what are the interest rates prevailing?

No. He just does his RD.

Why does he invest/save?

Because he/she has money to invest they do a RD. However equity investors get into a mind set of ‘I will not do SIP’…and the reasons could be:

1. Market is too high or 2. Market is too low.

to me both reasons look stupid. Also for long term money to be kept in debt sounds funny…from a current yield/ ytm point of view. Yes if it is money for 2-4 years, can still understand debt option, or treating it as a corpus for annuity withdrawal….not if it is money for 30 year goals!

So simply do your SIP…at some time in the future you will look back and say “Man in 2011 the markets were at 17000, it was a great time to be picking stocks, now the index is 34000′. And it may not be more than 5 years away .

Remember markets gave an outstanding run from 3k to 21k in 5 years..the excess has to soaked up so that the  markets can do a ‘Regression to the Mean’. This means if you take the returns from Indian equity markets from 2002 to 2032 it may show an average of say 16%p.a. So obviously the 2002 to 2007 super high returns will have to be reduced..so that the average catches up! As a common investor we have no clue whether this grind will take the sensex to 15k and then come back to 21k or go down to 12k and then bounce to 25k. Well I do not know, and those who know are not telling me. Nor are they telling you on the TV channels, so it is a secret which only Mr. Market knows.

So what can you do in the interim period? Stop worrying about negative interest rates (interest rates 10%, inflation 12%), slow grinding up / grinding down equity markets, volatile markets, falling dividends, poor Q3 results….and continue your SIP. For the common man it works.

Anil Rego (SIP article on Moneycontrol) and Sandeep Shanbag (Investing in volatile times article on Moneycontrol) are saying similar things.

Funny thing is all of us must have said similar things earlier also…please go out there and listen. You do not need to read so much about personal finance – doing it is far, far more important. So like Nike says

Just Do it.

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In exactly the same fashion if you are a serious player in the wealth creation business, we must be particular about the record keeping of your income, expenses, investments, taxation, etc.

Record keeping is necessary (nay, compulsory) for 3 main purposes:

1. Tax returns filing
2. Investment performance tracking
3. Goals monitoring

All the 3 are critical and let us start in the same sequence as mentioned above.

You can avoid headaches at tax time by keeping track of your receipts and other records throughout the year. Good record-keeping will help you remember the various transactions you made during the year, which in turn may make filing your return a less taxing (pun intended!) experience.

Records help you document the deductions you’ve claimed on your return. You’ll need this documentation should the IT department select your return for examination (in official lingo called scrutiny). Normally, tax records should be kept for three years, but some documents — such as records relating to a home purchase or sale, share transactions, and business or rental property — should be kept longer.

In most cases, the IT department does not require you to keep records in any special manner. Generally speaking, however, you should keep any and all documents that may have an impact on your tax return:

• Bills
• Credit card and other receipts
• Invoices
• Mileage logs for those claiming reimbursement of car expenses from the employer

Investment records – those which have helped you claim the deductions
• Cancelled, imaged, cheques or any other proof of payment

• Any other records to support deductions or credits you claim on your return.

Good record-keeping throughout the year saves you time and effort at tax time when organizing and completing your return. If you hire a paid professional to complete your return, the records you have kept will assist the preparer in quickly and accurately completing your return.

Nothing lasts forever, but you wouldn’t believe it by looking at some people’s record-keeping systems. People insist on keeping every scrap of paper, just in case. And when it comes to tax paperwork, folks are even more adamant. These documents will save me, they argue, if the IT department comes visiting.

But that’s not necessarily the case, say tax and organizational experts.

When it comes to tax-related documents, you should keep those that help you identify sources of income, keep track of expenses, determine the value of property, prepare tax returns or support claims made on those returns. However, common sense — as well as storage space — should be your guide.

The rule of thumb for tax papers is hold onto them until the chance of audit passes. Usually, this is three years after filing. But if the department suspects you underreported your income, it gets seven years to check into your tax life.

That’s why most accountants advise taxpayers, even those who are meticulous filers, to keep tax documents for six to 10 years.

Some items, however, have a longer shelf life. These generally are assets that a taxpayer will eventually sell, triggering a tax bill. So if you have a pension plan, an endowment plan, own a home or invest in the share market, tax pros recommend keeping these records indefinitely.

For most taxpayers, the biggest asset — and potential tax bill — is a home.

While the rules for home sales have changed in recent years, meaning sale profits don’t automatically face Capital Gains, any paperwork relating to a residence should be kept for as long as the home is owned. Inherited homes, homes broken down and reconstructed, etc. are all potential areas of tax confusion and should be taken care of.

Fast on the heels of home sales as tax triggers (and record-keeping headaches) are share transactions.

“A decade years ago, it was harder for people to invest so a lot were more conservative and went to a bank for a fixed deposit,” says Rohit Mehta a stock broker. “But with online trading, people are investing more. Keeping track of a FD or PPF wasn’t that difficult, but when you move on to shares, the tax record keeping becomes critical.”

Investment account statements contain financial data that a taxpayer will need as long as the share or mutual fund is owned. On the share side, there may be splits (bonus, rights, change in face value) that change the value of the holding and, therefore, the eventual worth of the share, which is used to determine the taxable cost.

Retirement record requirements

And then there are all those retirement savings plans, with all those different rules.

Contributions to PPF are tax free. But pension plans are tax-deferred. But sometimes already-taxed money goes into these accounts, too.

Business considerations
If you operate a small business, from a moonlighting job to a small operation with several employees, dealing with records becomes a bit more complex.

The Income Tax generally focuses on self-employed travel and entertainment expenses, scrutinizing returns to make sure all the expenses are really related to the business and can be proven. In these cases, complete and accurate — but not overdone — contemporaneous records need to be kept until the audit threshold passes.

Unlike personal bank statements, business financial account records should be kept permanently. Similarly, anyone who has employees should hang onto employment information and related tax returns for as long as the business is running. And don’t shred articles of incorporation, company bylaws, shareholder minutes, and trademark and copyright applications.

Pick a system, any system
Once you’ve identified critical records, the next step is to decide how to keep the data. Electronic bill paying can help keep track of your financial and tax life, but so can a plain old check register, as long as expenditures are entered faithfully. Do you need the computer and the world wide web to do it? Yes and a no. For repetitive, boring and accurate work the computer is a far better ally. The human mind it horrible in record keeping. Try calculating how much you spent on food in the past one month. Software programs (with faithful data entry work) can do a far, far better job.

It doesn’t matter if it’s a filing cabinet, cardboard boxes or a complex computer program. The key, is to find your record keeping comfort level, pick a system and stick with it. Myiris plus is a convenient way of aggregating your financial life and keeping it organized. It helps you know exactly what your net-worth is, when your bills are due, how much of cash you withdrew in the past 43 days, how your mutual funds are faring, which income tax form to use while filing your return, etc., etc. Ranjan Verma was also working on an accounting system – I have no clue on what stage that is now. Surely other financial practitioners also must be having some system which works…check them out too. 

Once you start down the path to investing, one thing that you’ll notice is that the paperwork piles up fast. You’ll get a confirmation every time you buy or sell a share or mutual fund, and every time you move money into or out of an account. And each of those account statements will probably include a couple of transactions, such as dividends you’re received or interest that’s been credited to your account.

If you invest using dividend reinvestment plans, or SIP (Systematic investment plans) you’ll have another set of statements to deal with, for each SIP and for each transaction. Every time you buy a mutual fund, you’ll receive a statement in the mail. Shares you own will send you quarterly and annual reports.

The bottom line: You’ll be swimming in paper if you don’t get organized. Besides the advantage of keeping your desk or dining room table clutter-free, myiris plus (www.m3.myirisplus.com) provides two some other important benefits:

Your CA will have all the up-to-date details in one location.

In case of you are physically (or mentally) disabled (or dead) the next person will find all the details in a well organized manner.

You’ll be better equipped to know how much of your investing profits you’ll owe to the tax, and can make better decisions regarding the tax implications of any investment decision. Tax planning (which happens much before tax filing)

You’ll be better equipped to figure out how well your portfolio has been performing and what problem areas you might need to address.

The biggest advantage of myiris plus to me comes from GOALS tracking. Most of us earn money to spend – on our selves, our families or charities. If this is so all the monies are earned towards meeting some goal. Goal tracking means checking whether your investments that you made towards a particular goal are going on track. Myiris plus, going forward will help you set milestones and check whether the direction and speed of your investments are appropriate of whether it requires any change – in the direction or the speed. This to me is the biggest advantage of record keeping – it helps your Track your goals.

After all Tracking is the last word in being SMART!

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The mind is a poor accountant, and it creates facts in such a way that is palatable and is socially right sounding! For example if you have spent on some gifts which you feel guilty about your ego will search all the past data to justify the gift. On the other hand if you have not gifted anything, it will find all the past data to justify the ‘non-gifting’. Either way its job is to make you feel good TO YOURSELF – there is no outside judge.

Look at this conversation I had with a friend:

Me: People over spend on many unnecessary things and that is why there is not enough for investing for a retirement. This delays / postpones retirement.

Friend: Can you give an example?
Me: Let us take the expense on clothes…how much do you think you spend on shirts?

Friend: Not really too much, say about Rs. 3-4000 a year.

Me: Really? Tough to believe it is just that much.

Friend’s wife: It could be a little more say 6k…on his shirts.

Me: What brand do you buy – I see it here – Arrow or Van Heusen, correct?

F: Yes, need to wear it…

Me: Hey I am just calculating, not commenting!!

Me: When do you buy?

Friend’s wife: His birthday, Our wedding anniversary, Diwali, …and sometimes just like that!

Me: Say 5-6 shirts a year for HIM?

Friend’s wife: Yes

Me: at Rs. 2500 a shirt that means Rs. 15,000 per annum

Friend’s wife: we also buy for his brother’s birthday, our parent’s wedding anniversary, my brother’s birthday, and my sister’s husband’s birthday. That makes it another 6-7 shirts.

Me: that is almost another 20k.

Friend: Man…vow!

Now why did this friend tell me 3-4k when he was actually spending Rs. 35000 on shirts? Simple – his brain did not want him to sound extravagant when he was sitting in front of a person like me! Was he worried about me judging him? Subconsciously perhaps, but frankly he could not care.

It is just packaging by the EGO..it hides all facts – and makes it  palatable.

However an accounting software – could be a simple diary or an excel sheet (enough calculators on Google) or a more sophisticated accounting software like www.myirisplus.com will show you a mirror on your spending.

Do not like what you see?

Do not break the mirror, change your spending pattern!

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Recently my father got a copy of a book for children about Money.  Here is what I learnt from that book and I thought it will be useful for all of us to know a little about Money. So here are some important concepts about money:

Saving:
Saving money is very important. We should save money because if one day suddenly we need money we will have it with us. If we just keep on spending all the money that we get and one day we need money we will not know what to do.
I am also saving all my pocket money because I might need it in future. I have kept it in a bank account and I get interest on that every year.

Tax:
As we all know that Government pays money for various things we should never spoil those things as Government takes money from our parents in the form of tax. All those people who get regular salary have to pay tax. When we buy a movie ticket half of the money that we pay goes to the government. This is called Entertainment tax.

Investing:
Investing makes our money grow. Just as a plant grows from a seed to a plant. When we keep our money in a savings bank we get interest but if we will invest our money in fixed deposits, shares, mutual funds, public provident funds, etc. our money will grow from a small amount to a big amount faster. Real money takes more time to grow whereas a plant grows within weeks.

Insurance:
Insurance protects you from spending a big amount on medical treatment, repairs, etc. Today if I am spending a small amount on a helmet, kneepad, arm-pads, etc. this will help me in being safe while skating. I will not have to spend a big amount on medical treatment. And if I fall ill the insurance company will pay the hospital bill. This way I  and my family are spending lesser money from our pockets.

Prize Money:
We should treat our prize money just like our pocket money, because that also we have earned by working hard. We should save that money and not waste it on unwanted things. A part of the money we should spend on something fun like ice-cream and the balance we should put in our piggy bank or the savings bank account.

Banking:
We keep our money in the bank so that it is safe. The bank gives us a passbook in which we can see how much money we have deposited and how much money we have withdrawn. For using our money the bank pays us interest – this is also added to our total amount. Last time I saw there was an additional Rs. 314 interest in my savings bank account.

Credit Card:

When we are in a shop and we do not have cash with us we can buy things by using our credit card. The shop-keeper will let us take the goods because he will get the payment from the bank which has given us the credit card. However we have to make the payment to the bank after a few days when the bank asks us to make the payment. If we do not make the payment before the due date, we will have to pay interest on the amount that is due.

—end of Mridula’s article——

comments from kids more welcome than from adults -subramanyam

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Warren Buffet made most of his money by staying and investing in the USA. Late John Templeton made most of his money by betting on markets world wide. He was in Asia, he was in commodity stocks..all over the place.

Which strategy works? And the fact that a strategy has worked well from 1977 to 2007 it does not mean it will work from 2007 to 2037.

If you read what John Templeton says, you will believe that you need to create a diversified portfolio – a little of Japanese stocks, lots of American, some emerging markets, etc. in equity alone. Apart from this some debt – short term, long term, etc.

Warren Buffet on the other hand says you should concentrate your portfolio if you wish to create wealth.

Whom should you listen to?

Both!

You should have a concentrated portfolio – which means in the Indian context, if you have a Rs. 25L portfolio you may not need more than 6 companies. However, once you have created some wealth, you need to protect a portion of it from the vagaries of the market.

Let us take an example. In case you had invested Rs. 10,000 in Wipro in the year 1980, today it would be worth Rs. 350 crores (assuming you consumed all the dividends). However, at various stages you would have sold some part of your wipro shares to invest in other companies too – now if WIPRO had not done well, but some other company in which you invested (say Silverline) had done well, you would have looked smart (but actually you were lucky, simply, lucky).

However if you are still holding on to ALL the shares of WIPRO, it makes sense for you to sell a portion of WIPRO and invest in a simple index fund, some real estate, some rbi bonds, etc.

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If you are wondering what this means for doctors, read on!

Very rarely do doctors seek advice on investing in their own ‘profession’ – and try to make it a business. They seek outside investments. Clearly wealth creation from your own ‘profession’ – being converted into a business is a great thing to do. Is it possible for a doctor to do so? I think yes. Ask Dr. Prathap Reddy – the founder of Apollo Hospitals.

If you are a doctor earning well it is time you tried converting the profession into a business. This means you are earning not only on your skills as a doctor, but also on the ability to leverage the skills as a doctor-cum-businessman. What are the steps required for this metamorphosis from a larvae to a butterfly?

Well the following steps would be nice:

1.    Decide on how to grow the business – geographically (chain of small clinics with your brand name?) or by creating a hospital.
2.    Once you decide to set up a hospital – look for a good location where you can one day grow to be a really big hospital.
3.    Make a business plan – make your strategy, invest in resources, work the strategy and just do it!
4.    Be ready to let go of non medical functions to a partner with good management skills. Such a person should be brought in early in life so that the business can grow.
5.    Spend time on good systems, people, marketing, brand building, etc.
6.    Keep in mind funding sources – angel investors, venture capital and then listing. It is clearly the best way to create big wealth.
7.    Creating a big business has to start with a nice idea, perhaps a couple of like minded people to team up with you and the guts to launch the business.

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Myth No. 1: I am too young to plan for retirement: This is a very very wrong statement. The earlier you start the sooner you reach the goal. What happens if you are not able to earn from the age of 54? You thought you will save very well in those 7 years did you not?

Myth No. 2: I can never be as good as Vallabh Bhansali or Rakesh Jhunjhunwala so why try? So stupid. Of course I cannot write as well a zillions of good to great writers, but I have been blogging, published a book…and till date nobody has called my blog lousy. So what if I cannot be as good as Vallabh in investing or Swaminathan Anklesharia Iyer in writing? Come on I can manage my own portfolio (lot of value copying from Warren and Vallabh, but my money does not know I have copied, does it?).

Myth No. 3: It is too late for me to start planning for retirement: same as point no. 1. Start today, of course yesterday would have been better. However today is still better than tomorrow.

Myth No. 4: Planning for retirement is very difficult. Not at all. Invest some time first – the rest of the pieces fall into place. Sorry to use this post as a plug – ‘Retire Rich Invest Rs. 40 a day’ is my book and a good place to start.

http://www.subramoney.com/book-written-by-me/

PS: there are only 3 myths – the 3rd one is just like point no. 1 and the 4th is a plug.

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Applications: a) for financial statements

b) for taxes c) accounting and business reporting

d) government for analyzing information and aggregating

e) analysts for comparing across countries, across industries, etc.

f) accounting institutions across the world

g) mechanizing the whole generating and reporting functions across all regulators – accounting, investing and fund management.

many other sensible even non accounting applications.

It seems to be a good thing for reporting and a fantastic career opportunity for young Chartered Accountants just starting their careers and interested in a career in accounting and equity research. The way the accounting information will be consumed in the future is being created – a great time to be a part of History.

One of the co-founders of XBRL (Ms. Liv Watson)  is associated with a company called IRIS and details of XBRL can also be got from their website http://irisbusiness.net/xbrl/showLatestHappenings.php?id=15

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