Cricket and Investing

As investors we are always in a sea of dilemma. We are ankle deep in investing, but think knee deep, feel waist deep and act neck deep. Not very unusual for us to think more than once, that we have some magic formula, smart strategy, great recipe or secret sauce to think above the market. After all we are indeed fallible – but this does not take away the excitement or irrational exuberance (remembering Alan Greenspan).

 

This is for all my friends who dabble in equity markets ankle-knee-waist-neck deep!! Let’s see investing with cricketing lenses. Growing with our friends, colleagues and acquaintances have seen at close quarters the exhilaration and despondency, the smile and drooping shoulders many a times at the vagaries of Mr.Market.

 

So, here’s my cricket framework for investing – strictly for salaried class (harried as well) who dabble in equity markets but somehow could not find a big bang.

 

Played over 5 days and run rates in the vicinity of 2 per over and strike rates around 30-40 is indeed boring as we see bowlers coming up with maiden after maiden and batsmen leaving most of the deliveries to the keeper. Dull, tedious, boring, wearisome and ennui are some of the terms which someone in the 21^st century would describe a test match. But est cricket is the darling of connoisseurs and purists.

 

A major part of investing ought to be like test cricket – dull, drab and boring. As Gavaskar used to say that if you stay in the middle, runs would automatically come. Stay invested for a long time like Dravid, Boycott and Gavaskar used to occupy the crease for ages. My suggestion – for long term invest on in MF’s (7 to 25+ years) and SIP route is non-negotiable. Select a few diversified funds and start SIPs for as long as you can. Review and balance it periodically (1 or 2 years) but continue this march in a steadfast manner – unwavering in your discipline and focus. 60-70% of your equity investments must be in MF’s.

 

Remember the Hero-Honda bike advertisement of yesteryear for mileage – Fill it, shut it and forget it. This would work wonders in equity investing. A cursory glance at the SIP equity returns for 10, 15, 20 & 25 years would reveal that disciplined investing will go a long, long way in creating meaningful wealth. In fact, even laggards have provided 12-14% returns over 20 years while the top ones have churned out a mind-boggling 19-22+% annualized return. A SIP of 5k over 20 years would be now 1+ crore and a 5k SIP for 25 years in HDFC Flexi / Franklin Prima fund would have left you with 3.5 Crores. 😊

 

Enter ODI which revolutionized cricket in many ways and bought a different kind of fizz and pep to the game. Most of us are not content with dull and boring investing mode and always want something more interesting and exciting as is the wont with human nature. Direct equity investment is so tantalizing that it’s impossible to stay away from this lip-smacking allurement. Select a few fabulous blue-chip companies like Asian paints, Pidilite, Bajaj finance, HDFC bank and again follow the SIP route. Don’t forget to buy in market dips, crashes, corrections and depressions. These stocks are generally buy- and-hold for very long terms, long terms and medium terms. 20-25% can be allotted to invest in direct equity - to put into practice, the wisdom and knowledge gained over years. One assumes fundamental analysis and due diligence have been adhered to in stock picking.

Arnold Glasgow said, ‘Temptation usually comes through a door that has been deliberately kept open’.  Since we always keep the door open for thrills, excitement, adventure at least when it comes to stock market, there is no stopping our innate nature to indulge in outwitting, outsmarting and outfoxing Mr.Market. Nothing gives us more pleasure and anguish in doing this again and again. 

 

Play T-20 also in the stock market. 10-15% our equity investment may be channeled to day trading, ultra-short-term trading, F&O, derivatives. Commodities and whatever exotic product the Marketverse (I have coined this word on the lines of metaverse 😊) offers. You don’t have to restrain yourself in any manner. Paddle shot, reverse sweep, Dilshan scoop, ABD’s 360-degree shots and anything under the sun is acceptable. You can be as flamboyant and jazzy as you can. All caution can be thrown to the winds and ride the wild roller-coasters.

 

Would like to emphasize that you treat this as expense for all the joys and pain you may reap. Let there be no expectations on the returns. Just go about with gay abandon to massage your ego, to pat yourself on the back for your uncanny ability for stock picking, astute market timing and for the big killings!!! No restraints – only no holds barred investing – left, right and center. That’s T-20 investing for you.

 

All you need is to compartmentalize your mind for playing Test, ODI and T-20 in equity market to Create wealth and also to indulge yourself. 

 

Test Match – 60-70% only in MF’s for the long haul 

 

ODI – 20-25% in growth and value blue-chips

 

T-20 – 10-15% for anything and everything in the sun

 

Happy Investing 😊

Term Insurance

Death and taxes are certain, so goes the time-tested adage. While death is certain, no one welcomes it with open arms and it is indeed sad, crushing and an devastating. And untimely death more so. The distress it causes to loved ones, have to be experienced to understand the pangs of agony and the throes of pain. It is inexorable, slow and long drawn. While the emotional distress can be nerve wracking and enervating, a financial distress (if it happens) would be devastating.

Now and then we do hear the shocking demise of someone very young. More often than not the sad part is, the dependents are left in the lurch when it comes to money especially women. Daily normal life becomes an ordeal. This root cause is the inadequate insurance amount. Invariably our relatives or friends would be insurance agents (no escaping) and with great persuasive powers would have sold us endowment policies (yes plural). Most of us do not think too much is about the insurance cover, whether it would be sufficient to meet future cost of living. Since endowment premiums are on the higher side, one tends to turn a Nelson’s eye in this regard.  At best the cover would be 10 to 20 lacs since the premium is very high.

This section is mainly for males who are in the 25-30 age bracket, employed, earning and spending with gay abandon (on the lighter side). Financial literacy and especially insurance would the last thing on their minds. If something happens to you what would your spouse do? Is your savings sufficient to take care of basic needs of your spouse for decades? Would the insurance amount be sufficient?

A small illustration – If current needs are 30k per month, the corpus required in a safe instrument say a bank FD @ 7% p.a. would be to the tune of 50 lacs. Its less than 6% today and the low interest rate regime is likely to continue for quite some time as central bankers have no other option.

Most of you would be surprised to hear that the biggest enemy of mankind in financial terms is inflation. With inflation of around 5% your monthly expenses of 30k would shoot up to 38k in 5 years, 48k in 10 years, 74k in 20 years and 91k in 25 years. I think the point is driven home. The size of the corpus is very important and mere savings / investing would not take you there in case anything untoward happens. The only way to mitigate this risk is insurance, term insurance to be precise.

A term insurance, for the uninitiated, is a plain vanilla insurance cover with no bells and whistles. In layman terms, it is like a 2-wheeler insurance, no returns whatsoever at maturity. This aspect puts off many of us from buying a term insurance and which the agents capitalize on. In fact, it would be easier to find the proverbial needle in the haystack than find one insurance agent selling you a term insurance. Looks like not getting any returns at maturity is very agonizing and distraught!! We blithely forget that we pay vehicle insurance premiums all the time, without any expectations of any returns.

A term plan for those in the 25-30 age bracket would cost you anywhere between 6-10k PER ANNUM and that is all you need to secure your dependent’s future. The premium is pretty low when compared to the kind of spending we do all throughout the year. Also with that small sum almost all your insurance needs are taken care of, leaving you free to invest the remainder of your savings in other asset classes to meet your financial goals.

A term insurance is the first financial task that MUST be undertaken to secure the family’s financial independence and peace of mind. This is the best gift your dependent wife can have, whatever the feedback you might hear. Do NOT procrastinate. Procrastination is the biggest enemy of mankind. All opportunities go past us,  only because we have a great propensity to procrastinate and for some inexplicable reason have an insatiable to be delighted in engaging that favorite pastime.

Stg

Personal Finance - PPF

PPF

PPF is one of the safest instruments and should form a part of one’s portfolio. This is a long-term sovereign instrument with a 15 year lock-in period.

Ideally this can be used as a vehicle for your child’s education or retirement corpus. For a horizon of 15 years equity will beat PPF hands down any day but for conservative and risk averse investors this is godsend. Even for the risk takers, PPF can be a part of their debt portfolio (of course assuming asset allocation strategy is adhered to).

For funding your child’s education, start the PPF when the child is one to two years old and a sizable corpus would be ready when the child steps into college.

The minimum subscription is Rs.500 and the maximum is 1.5 lacs per annum.   My suggestion is to frontload the PPF i.e. invest 1.5 lacs a year at least for the first 5-6 years and then investments can be tapered if circumstances constrain you.

The power of compounding and long-term investing benefits can be seen below (@ 7% pa)

Investing 1.5 lacs for 5 years would fetch 17+ lacs after 15 years for the invested sum of 7.5 lacs

Investing 1.5 lacs for 10 years would fetch 30+ lacs after 15 years for the invested sum of 15 lacs

Investing 1.5 lacs for 15 years would fetch 40+ lacs after 15 years for the invested sum of 22.5 lacs

Though PPF is eligible for deduction under 80C, this is likely to vanish in the coming years as the govt is moving towards a less exemptions tax regime. So do not consider this as a tax saving instrument anymore.

Also, PPF interest is calculated on the least balance between 5^th and the end of the month, so invest it before 5^th of every month. Though the benefit is very miniscule considering the long-time frame it does gives you an opportunity to pat yourself that you are thinking smartly and bask in that glory.

For those considering this as a retirement vehicle the full limit of 1.5 lacs must be invested at least for 12+ years to reap the benefits.  Also PPF can be extended in blocks of 5 years with or without additional contribution.

Investing 1.5 lacs per annum for 15 years and extending for another 5 years would see the corpus growing to 55+ lacs.

The only caveat is the PPF interest rate is money-market determined and would move up and down but let this not deter you from investing in this risk-free sovereign backed instrument.

Happy Investing ☺

Solar Eclipse

Solar Eclipse

The solar eclipse is a dazzling celestial phenomenon and a breath-taking sight to behold or at least it is supposed to be so. Well this is not exactly shared by most of those whom I know. No longer disappointed or dismayed by this fact as I have become wistfully wise over the years or decades. A simple matter of the moon coming between the earth and sun and casting its shadow on the sun. That’s all. 

Not an eclipse passes without a hue and cry being raised by astrologers, religious heads and other charlatans who feed on the fears and ignorance of the general populace. Dire warning would be issued, grave dangers to pregnant women would be bandied about and deleterious effects of the eclipse would be hyped - A good racket indeed. These slimy, two-bit prognosticators who boast of having all the wisdom and knowledge of thousands of years could not predict the corona virus which has shaken our lives as never before!!!!!! Of course, I did eat many things during the eclipse – have been doing this for decades.

The solar eclipse will be visible on June 21, so the newspapers, TV channels, web sites proclaimed in very excited tones. I was in Kollegal to take care of my mom who somehow got stranded there due to the Corona virus. Now that the excitement has been kindled partly by the news and partly by self-induced enthusiasm, I had to find some dark glasses to watch that spectacular event. After trying some glass shops, I finally managed to procure a welding glass for a modest amount on that day. Incidentally, the guy next door, a nice bloke doing all sorts of project works for school students (so much so for learning),  was quite kind enough to provide a cardboard with dark tape for safe viewing.

Its only on such occasions do we really observe things around us, especially the quirky acts of nature. Till June 20 the sun was beating down on our backs mercilessly and relentlessly and when I had to venture out to run errands, I could not see even a small patch of clouds to get some respite. On June 21, 2020 there was no dearth for clouds at all, they were everywhere obscuring the sun. What a conspiracy nature cooks up and always against me!! How these things happen so uncannily at the right time is beyond my ken. I remember the same thing happening during the last lunar eclipse in April. It was a cloudless sky and when the shadow of the earth started falling on the moon the clouds started appearing in droves all of a sudden and once the eclipse was over they blithely melted away,  having done their duty.

Without losing heart I kept darting out of my house on to the street with both the glass and the cardboard googles and kept looking at the sky much to the amusement of the bystanders and passerby’s. How many of them thought I were nuts and a bit unhinged, god knows? That wasn’t exactly unfamiliar territory for me either. 

Then some of the clouds parted ways and lo and behold the sun was visible!! The round disc of the sun was covered partly by the moon like the apple logo. Geometrically this is a simple thing but if you really wanted to see whenever you wished, then even a billion dollars would do no good as you have wait for the next eclipse and then again the clouds should not play spoil sport.

Sitting and watching the road for some sunshine became my occupation for the next 2 hours and mercifully the clouds obliged me by moving away or thinning out, so that I can watch the eclipse in snatches. Also had the satisfaction of showing it to my mom, my neighbor and also to the painter we engaged.

The next task in this age of camera mobile phones, which has made all and sundry as photographer, is to capture this spectacular sight for posterity. So I tried to hold the glass in one hand the mobile in the other hand and tried in vain to take a photograph. But this seemingly mundane task was not to be so simple. Holding both together did the job but the light got diffused in the glass and raagu eating the sun shape was not being captured. Same with the cardboard googles. So, had to settle for that disappointment.

Being someone not to give up so easily I placed a bowl of water and tried to watch the eclipse. When the clouds thinned out the shape was visible, and the brightness of the sun was considerably reduced. So finally captured a few shots which weren’t that great. I added a little robin blue to the water. You see I do get all sorts of ideas now and then. While patting myself for thinking out of the box, I found to my chagrin that things were not exactly great with this innovative idea as will. The sun was still bright for any kind of mobile photography.

As the moon continued its inexorable journey round our planet, the shadow become smaller and smaller and the finally the eclipse ended. Unfortunately, it was only a partial eclipse and no ring of fire or diamond ring or such spectacular displays.

A few hours of craning my neck now and then and juggling the dark glass and goggles during the difficult Covid times was quite refreshing. The eclipse weaned me away from the dreary ennui which all of us have to undergo in these era of lockdowns, total lockdowns, complete lockdowns, stringent lockdowns and what not. Remembering John Keats – A thing of beauty is a joy forever; its loveliness increases and never passes into nothingness.