Simple Investment techniques…
‘How come you are so thin….and maintain yourself like that?’ -is a question that all slim / well maintained people (especially girls) are asked regularly.
One question which they LOVE to ask BACK is ‘How come you are so obese’ – however that is considered impolite I guess?
Let us look at what people do:
1. Under estimate how much they eat: Just one more samosa, or just one cup of tea, just one Pepsi…..sheer underestimating the power of small numbers. One big bottle of Pepsi contains 56 spoons of sugar. Sheer poison perhaps?
2. Over estimating how much we exercise: We walk for 30 minutes and think that is a great workout. Hey that is NOT A WORKOUT AT ALL. If your Heart Rate does not go up (too technical and I will put you off, so skipping it) and stay at that level it is NOT a work out.
3. Under estimating how much we spend: Last week a person earning Rs. 45000 a month (take home) could not CLEARLY say what was happening to Rs. 20k a month!
4. Over estimating Equity returns: If we bought a share 5 years ago for Rs. 100 and that is currently at Rs. 200 we have got about 14%return – an excellent return. However after 1 more year if it is at Rs. 200, our returns have fallen to 12% – the mind does NOT adjust to this…We are happy it has ‘doubled’. Again Innumeracy – most minds cannot comprehend the power of compounding.
5. I think it takes 50 years to put a new idea into a persons mind and about 200 years to remove a bad idea. If there is vested interest in the status quo (by definition it has to be there!) double the estimates. In case of medicine you can double the numbers stated here. Doctors will keep you amused till your body cures itself.
6. People will argue till the cows come home about carbs, proteins, weight lifting, how running damages your knees, macro economics, Obama care, impact of QE, etc. BUT will do no exercise. Still beats me. Will talk about index funds vs active funds. Will talk of learning from Buffett (why even learning from Subra!!) – but will not start a sip, will refuse to use the power of compounding.
7. People will collect details of calories of all foods, make copies, tell their spouses about their new diets. Follow it for 2 days, then succumb to their friend’s offer for a chocolate. Or a soft drink. Or a meal at McDonalds. They will talk about SIP, but go and buy Punj Lloyd, Speciality Restaurant, Rane Madras, and Coromandel Fertilisers. These are brilliant bragging points – but they will have no clue why they bought these shares.
8. Having a financial adviser like Subra is no use. He says eat idli, daal chawal, exercise. Most people LOVE advise which says ‘You are not responsible for what happened sir, it is the pollution, stress, bad market conditions, rigging, government policies, ….which keeps you poor’…and sir here is the red medicine. I am sure you will love it. My fees is Rs. 35,000.’
Sorry folks, the world has a vested interest AGAINST simplicity. Lucky I was not brought up thinking that TV is a learning media. We always knew it was an entertaining tool. Somebody named it Idiot box. Ocassionally when I watch I keep wondering who is the idiot? the guy inside or the guys outside?
Aditya Karnik
Good one Subra Sir!!! Unfortunately, these days people find it hard to believe anything too simple. They like it complicated. Due to sedentary lifestyle; Physiotherapists and Nutritionists are laughing all the way to the bank. They were unheard of few decades ago. Earlier people used to be smart(no mobile phones or very basic ones, meant for speaking and messaging.) Now, phones have become smarter and phone-users idiots. Simplicity is the virtue.
Regards.
Jitu
I guess we both know, which point refers to me 😉
Lesson learned……
Thank you…..
Manoj
Well written .. How do I approach you for a financial planning advice..??
B
“the world has a vested interest AGAINST simplicity”
very very true… what a quote !!
Murali
I think Madras Rane is a wonderful option.It has a very good dividend yield and is attractive at current prices.
Shinu
Simplicity… My friends who wasted time and money in “investing” in stocks during the past 5 years couldn’t believe that I made decent 10% returns from my MF SIP portfolio in the same period….
Sriram
Subra sir,
Can you post on Sip in Nifty ETF vs. SIP in individual NIfty basket shares,Over a period of 10 to 15 years.
Will it make any difference?
subra
Sriram it will make a HUGE difference.
babon
Subra sir,
Please do a post on above topic (Sip in Nifty ETF vs. SIP in individual NIfty basket shares)
Nitin
Subra Sir
Do you think this is a good advice to a novice?
http://mymoneyrules.blogspot.in/2013/04/i-dont-know-financial-planning-what-to.html
NPR
@Sriram, @Babon
There is a fundamental differences between SIP into Nifty INDIVIDUAL shares & SIP into Nifty Index.
The Nifty Index will keep changing its Index component (i.e. the stocks which comprise the Nifty) periodically. However, if you do SIP into Individual Nifty shares yourself, you will have less clue which stocks have been REMOVED from Nifty. No Index component remains the same for 10-years continuously. Check the BSE Sensex in 2003 & 2013.
Better to stick to SIP Nifty ETF than SIP into individual Nifty shares.
Sriram
@ NPR,
I agree with you on few stocks coming in and going out of Nifty. I assume those movements can be tracked since they will not be happening on daily basis.
The merits i am assuming with the SIP in nifty shares are following:
1. while accumulating shares over a period,one will be eligible for dividends and bonus issues. I am not sure if the ETF gives the same advantage.
2. at the time of with drawal you have choice of opting from which share you would withdraw first, which shares to hold for future etc.based on the market at that time.
Subra sir has commented that there will be HUGE difference. I hope he will do a datailed post when he finds time.
Pooja R
of course it will make a HUGE difference…How will you adjust market cap based weightage? what about capital gains, what about brokerage at market rates? The question, I think, arises from not knowing about index construction, impact costs, and the difficulty in creating the index.
NPR
@Sriram,
Its not easy to track Nifty Index, because even pro-s find it difficult to track. You will find a percentage or two difference in each of the Index funds, because of tracking issues. If you are NOT a full-time investor, it’s rather difficult to do.
1. All share-holders are eligible for Dividends & Bonus, including ETF.
2. If you take a PERSONAL call on whether to continue invested in REMOVED component of Nifty, it defeats the very purpose of investing in an Index. Index is supposed to be PASSIVE investing, not ACTIVE (i.e. personal call).
Subra is right in the sense that, you will save COST, if you invest in individual shares of Nifty. But for a common investor, it’s difficult to monitor, track index, buy, sell etc. based on index movements.
Instead of looking at such details, its important to START investing. People wait & don’t Start – analyzing on these small nitty gritties. Start with Nifty ETF & Switch to your Active investing methods, as & when you FIND a better strategy.
Sriram
@NPR, @ pooja
Thanks for sharing the details on ETF construction & composition . I am now clear on the complexities involved. Thanks once again for your patient replies.