Long-term equity is 81). brought low.
The idea is to, if required, 82). sell it high.
Otherwise, 83). it is sold when you no longer believe in the stock concerned, for strong fundamental reasons. Or, it is sold when something more interesting comes along, and your magic number is capped. Then you sell the stock you’re least interested in and replace it with the new one.
84). Attitudes of managements can change with changing CEOs. Does a new management still hold your ideology-line?
Is the annual report flashy, wasteful, rhetorical and more of an eyewash? Or, 85). is it to the point with no BS? Same scrutiny is required for company website.
Your winners 86). try to entice you to sell them and book profits. Don’t sell them without an overwhelming reason.
Your mind will 87). try and play tricks on you to hold on to a now-turned-loser that is not giving you a single good reason to hold anymore.
If you’re not able to overcome your mind on 87)., 88). at least don’t average-down to add more of the loser to your folio.
89). High-rating bonds give negative returns in most countries, adjusted for inflation.
The same 90). goes for fixed deposits.
Take the parallel economy out of 91). real estate, and long-term returns are inferior to equity, adjusted for inflation.
92). Gold’s got storage and theft issues.
Apart from that, 93). it’s yielded 1% compounded since inception, adjusted for inflation.
Storage with equity is 94). electronic, time-tested-safe and hassle-free.
Equity’s something for you 95). with little paperwork, and, if you so wish it, no middlemen. In other words, there’s minimal nag-value.
Brokerage and taxes added together 96). make for a small and bearable procurement fees. Procurement is far more highly priced in other asset-classes.
One can delve into the nervous system of a publicly traded company. Equity is 97). transparent, with maximal company-data required to be online.
As a retail player in equity, 98). you are at a considerable advantage to institutions, who are not allowed to trade many, many stocks because of size discrepancies.
All you require to play equity is 99). an internet connection and a trinity account with a financial institution.
If you’re looking to create wealth, 100). there’s no avenue like long-term equity!
Pundits taught about Inflation.
It ate into you.
Did it discriminate?
Did life discriminate?
Or was it your Karma?
So you made it to HNI, without perhaps knowing what HNI stands for.
You’re a high networth investor, bully for you.
Here’s a secret. You’re not really bothered too much about Inflation.
Yeah. Don’t bother too much about it.
It’s eating into you, given, right.
By default, you need to look into something that’s eating into you, right?
Well, right, and then, well, wrong.
You had a hawk-eye on inflation till you made it to HNI. Well done, correct approach.
Now, you’re gonna just use your energies for other purposes, for example for asset allocation, fund-parking patience, opportunity scouting, due diligence – to name just a few avenues.
Why aren’t you using even a minuscule portion of your energies to bother about the effects of inflation?
Well, simply because it’s not worth the effort – FOR YOU – now that you’re an HNI.
Sure, inflation will eat into you. However, the way you handle your surplus funds will defeat its effects and then some, many times over. Use your energies to maximise this particular truth.
What makes you an HNI? Surplus funds to invest, right?
It waits for opportunities.
An entry at an opportune moment gives maximum returns.
You’ve sifted through the Ponzis. You’ve isolated multi-bagger investments. You’re waiting for the right entry.
Meanwhile, old Infleee is eating a few droplets of your wad. Let it. Focus on what we’ve discussed. A multi-bagger investment entered into at the sweet-spot could well make ten times of what old Infleee eats up.
Go for it.
Everyone’s heard of fixed deposits (FDs).
Are they so non-lucrative?
I believe that in some countries, you need to pay the bank to hold a fixed deposit for you.
Why does our system shun savings?
What are savings, actually?
On-call cash. Ready for you when an opportunity arises.
That’s exactly it. The system doesn’t want you to have ready cash when an opportunity is there.
Because finance people have already dibsed on your cash. They want it when opportunity is there. The cash should be available to their institution, not to you.
That’s why, your bankers generally try and get you to commit whatever spare cash floats in your account. They try for commitment towards non-access for a specific period of time.
I don’t know how things are in other parts of the world, but in India, a fixed deposit is still considered ready cash, because one can nullify one’s FD online, in a few seconds. Some banks charge a penalty for such nullification, but this penalty is charged on the interest generated, not on the principal. Therefore, in India, you have access to at least your FD principal (plus a part of the interest generated) when you really need it, all within a few seconds.
What’s the meta-game here?
You “lock” your money in an FD for one year, for example. Let’s suppose that within that one year, no opportunity arises for you. You cash out with full interest. In India, as of now, if you’re in the top taxation bracket, and are a senior citizen, you’re still left with a return of between 6.6%-6.8% after tax, whereby we are not looking at the effects of inflation here, to keep the example simple, though I know, that we must look at inflation too. We’ll go into inflation some other day.
Meanwhile, your FD has been on call, for you. Let’s assume that a lucrative investment opportunity does arise within the year, and your break your FD after 6 months, reducing earned interest to 4% annualised from 9.5-9.75% p.a. However, your investment yields you 20% after tax, because it was made at the most opportune moment.
You do the math.
Do you see the inherent power of ready money?
Your FD has thus worked for you in multiple ways.
It has worked as an interest-generator, yielding a small return. Simultaneously, it has worked as ready cash, on-call in case of opportunity. Should the opportunity arise, and if the investment that follows works out well, a handsome return could be made. It’s all should/could/would in a meta-game.
There is yet another way FDs are used. I use them this way.
FDs are a safety-net. They allow you to take high risks elsewhere. You lose the fear of high risk once you know that your family is secured through your safety-net. In a safety-net, sums are large enough and deposits are regular enough to discount (actually effectively / realistically nullify) the power of inflation. With the haven of a safety-net going for your family, you can enter high-risk arenas fearlessly. Fearlessness is a perquisite to do well in high-risk arenas. If you’re afraid of loss, don’t enter such areas. Safety-nets make you lose your fear of loss elsewhere.
People – SAVE!
Create FDs. Don’t listen to your bankers. Commit your money to an uncompromisable lock-in only if you’re convinced that the investment is safe and really worth the lock-in for you. Harness the power of the FD for yourself. A safety-net of FDs is the first step towards the formulation of a profitable meta-game.
Did you also know that when you create an FD, the money used to create the FD doesn’t show up as ready cash in your account. Bank accounts with large amounts of ready cash over long periods of time are like red flags which online fraudsters look for. Creation of FDs gives extra online safety to your money.
ONLY you are responsible for your money.
Start looking after it.
Start making it grow.
Cyprus almost bust…
Money from savings accounts being used to pay off debt…
Five European nations going down the same road…
US economy managing to function for now, but without any security moat (they’ve used up all their moats)…
Our own fiscal deficit at dangerous levels…
Scams in every dustbin…
Mid- & small-caps have already bled badly…
Let’s not even talk about micro-caps…
Large-caps have just started to fall big…
Just how far could this go?
Let’s just say that it’s not inconceivable to think… that this could go far.
Large-caps have a long way to fall. I’m not saying they will fall. All I’m saying is that the safety nets are way below.
I see one big, big net at PE 9, and another large one at PE 12. Getting to either will mean bloodshed.
Inflation figures are not helping.
In a last-ditch attempt to get reelected, the government recently announced a budget for which it’ll need to borrow through its nose.
Oops, I forgot, it doesn’t have a nose.
The whole world is aware about work-culture ground-truths in India.
Things are out of control, and this could go far, unless a miracle occurs and Mr. Modi gets elected. Before such an eventuality, though, things could go far.
When large-caps fall, everything else falls further.
How prepared are you?
Hats off to those with zero exposure.
Those with exposure have hopefully bought with large margins of safety.
Those who are bleeding need a plan B.
In fact, a plan B should have been formulated during good times.
Anyways, how prepared is one for a Cyprus-scenario, where dictatorial last-minute legislature allows the government to whack money from savings accounts?
In future, you might need to find a solution for loose cash in savings accounts. It needs to be kept in a form where government doesn’t have access to it.
As of now, what’s serving the purpose is an online mutual fund platform, through which loose cash can be moved and parked into liquid mutual fund schemes. For government to exercise full control over mutual fund money, it’ll probably need to be more than a bankruptcy scenario.
That’s just for now. Adaptability is the name of the game. It’s always good to be aware of one’s plans B, C & D.
We in India have decided to go for gold after the Olympics.
I mean, there’s a whole parallel party going on in gold.
What’s with gold?
Can it tackle inflation?
Is there any human capital behind it?
Meaning, gold has no brains of its own, right?
Is there a storage risk associated with gold?
Price at an all time high?
Yes, at least for us in India. We’d be fools to consult the USD vs time chart for gold. For us, the INR vs time chart is the more valid one for gold, because we pay for gold in INR.
No parameter to judge its price by, like a price to earning ratio for example?
Then how am I comfortable with gold, you ask?
Right, I’m not.
Can I elaborate, is that what you are requesting?
Sure, it’s exorbitance knocks out its value as a hedge. A hedge is supposed to balance and stabilize a portfolio. Gold’s current level is in a trading zone. It is not functioning as an investor’s hedge anymore.
Because from a huge height, things can fall big. Law of gravity. And gold’s fallen big before. It doesn’t need to begin it’s fall immediately, just because it is too high. That alone is not a valid reason for a big fall, but the moment you couple the height with factors like improvement in world economics, turnaround in equities (if these factors occur) etc., then the height becomes a reason for a big fall. Something that can fall very big knocks out stability and peace of mind from an investor’s portfolio. The investor needs to bring these conditions back into the portfolio by redefining and redesigning the portfolio’s dynamics.
By selling the gold, for example, amongst other things.
What’s a good time to sell?
Well, Diwali’s a trigger.
Then, there are round numbers, like 35k.
What about 40k?
Are you not getting greedy?
Yeah – but what about 40k?
Nothing about 40k. Let 35k come first. I like it. It’s round. It’s got a mid-section, as in the 5. It’s a trigger, the more valid one, as of now.
Fine, anything else?
Keep looking at interest rates and equities. Any fall in the former coupled with a turnaround in the latter spells the start of a down-cycle in gold.
Is that it?
That’s a lot, don’t you think?
I was wondering if you were missing anything?
No, I just want to forget about gold max by Diwali, and focus on equities.
There are much bigger gains to be had in equities. History has shown us that time and again. Plus, there is human capital behind equities. Human capital helps fight inflation. What more do you want? Meanwhile, gold is going to go back to its mean, as soon as a sense of security returns, whenever it does.
And what is gold’s mean?
A 1 % return per annum, adjusted for inflation, as seen over the last 100 years.
And what about equities?
If you take all equities, incuding companies that don’t exist anymore, this category has returned 6% per annum over the last 100 years, adjusted for inflation.
And what if one leaves out loser companies, including those that don’t exist anymore.
Then, equity has returned anything between 12 -15% per annum over the last 100 years, adjusted for inflation.
Yeah, isn’t it?
What a party we are having in the debt-market, aren’t we?
Exceptional payouts, day after day, week after week, month after month, it’s almost going to be year after year.
Are you getting too comfortable? Lazy, perhaps?
Meaning to say, that when you can get a 10 % return after tax without having to move your behind for it, it is a very welcome scenario, right?
People, scenarios change.
It isn’t always going to be like it is at the moment.
Are you flexible enough to change with the scenario?
Or will you be lost in the current moment, so lost, that you will not recognize the signs of change?
What would be these signs? (Man, this is like spoon-feeding….grrrrrr&#*!).
Inflation begins to fall.
The country’s central bank announces back to back interest rate cuts.
Too lazy to read the paper? Or watch the news? Ok, if nothing else, your online liquid mutual fund statement should tip you off.
The payout, dammit, it will have decreased.
Also, something else starts performing.
Smart investors don’t like the debt payout anymore. They start moving their smart money into value equity picks.
Slowly, media stops reporting about a gloomy economy. The buzz gets around. Reforms are on the way.
Foreign direct investment picks up. The media latches on to it. It starts speaking about inflows as if the world begins and ends with inflows.
Now, the cauldron is hot and is getting hotter.
Debt payouts are getting lesser and lesser. Equity is already trending upwards, and has entered the meat of the move.
If the trend contnues, a medium to long-term bull market can result.
There you have it, the chronology played out till just before the start of a bull market of sorts.
Be alert. Recognize the signs early. Be mentally in a position to move out of the debt market, if the prevailing scenario changes.
… you miss a first run in equity. Boo-hoo. When stocks cool at a peak, and start falling, you make multiple wrong entries into them.
You get hammered by equity, having caught it on the down-swing.
You missed the correct entry time-point in equity because the debt-market made you too comfortable. You were late to act. When you acted, finally, you caught a correction, and took a hammering.
One or two more hammerings like that, and you’ll be off equity for the rest of your life.
And that, my dear friend, would be a pity.
Because, in mankind’s history, it is stocks that have given the best long-term returns. Not gold, not debt, not bonds, but stocks.
You need to approach them properly, and timing is key.