SHARE OF SHARES IN OUR PORTFOLIO
In the book that I wrote for the Financial education of Seafarers I broke a few well established beliefs.
This was not on the back of any complex calculations as the modern day economists are used to coining but simply on the back of two things:
1. Common sense as applied to self.
2. The result of the risk and experience that I took and benefited.
In times when even the AMCs themselves are expounding the benefits of SIPs I advocated STPs- that too the weekly and daily types.
Another area that I tried to encroach and dispel the notion was advocating Equity diversified MFs instead of direct stocks.
I did ruffle a lot of feathers of the established brokerage firms , few of which were of good friends.
But this recommendation was based on some very simple facts:
We the merchant navy personnel have a very intermittent stream of cash inflow in form of salary. It is mostly 6 to 7 months year. Upto the time that we complete our last exam which could be as late as the age of 30 there are prolonged periods when income is ZERO. This is unlike the landbased people who invariably get paid for all their training and exam periods.
Hence it becomes imperative that we try to save / invest our funds in best avenues which can create a corpus for our immediate and long term needs.
I will not dwell upon the inefficient avenues like Small savings , PPF and even Insurance policies that people get sucked into.I will simply elaborate upon the smart ones who recognize the power of equity due to whatever influenced them.
These wise men ( and I actually mean without sarcasm) start buying stocks with the help of tips from colleagues , friends on shore or brokerage firms. Few of these stock purchases make them some profit in short term further encouraging them to pump in more funds. Our friends do learn few nuances about share purchases but largely do not learn about technical analysis of the companies.
It is in fact not easy either to learn about Equity Analysis and then confidently invest in a handful of companies based on that knowledge.
As a a result our seafarer does invest in stocks , but the quantum as a percentage of his total earning is not very large- at best I have seen about 10-15% of the salary being invested. The remaining earning stay in either NRE savings or FD accounts. Some in FCNR too. This amount which stays in Fixed returns and small savings actually works counter productive to the health of his wealth as it brings down the total return due to tax and inflation.
Now, all the stocks do not have the ability to become multi-baggers , and most of them appreciate by about 15- 30 % . If you calculate the percentage of equity in his entire portfolio, it is not even close to being noticeable.
So in effect though he has invested in equities, the asset class will hardly make any benefit to his planning. In fact we can hardly blame him, even by my own standards...
I started investing from the first year of my sea career, and since stocks were only option - I had obtained 200FCD (Fully convertible debentures ) 0f L&T. The selection was largely based on "engineering identity and compassion" since I myself was an engineer and thought that only a engineering company can help in building a country- how naive I was?
Over last 29 years , I have held my first scrip and it has paid me rich dividends and has grown more than any real estate that I could have held. Similar story about another company that I bought 10 years back because my relative worked there- has grown 39 times in 10 years.
But when I analyse them in relation to me total portfolio , they form less than 10% of the total corpus.
In addition the above 2 stocks have made you starry eyed- I have not yet told you how many stocks that I invested in have turned out duds and a large number of them have gone unlisted.
In comparison , Mutual Funds have given me a broad based selection ground. Where I can simply select 4 funds of various Capitalisation and my selection of Equity as a Asset class is complete. My money does not stay waiting for an appropriate opportunity in bank accounts.
I simply kept putting my entire salary in debt funds and created STPs into corresponding good Equity funds of those fund houses- as long as I earned. Sometimes I checked the underlying stocks in those MFs and was surprised to find companies that I had overlooked , and also a ot of companies that I had never heard of when they were listed and have turned from small caps to Mid caps and from mid caps to Large Caps in last 15-17 years.
To wrap up the argument, my case has not only been investing in Equity class but also of investing substantial and majority of the saved income. If you have proper guidance , then by all means invest in direct stocks- but ensure that the guidance is reliable and proper . How you will ensure that the guidance is proper and just- is your outlook.
If however you cannot decide if the guidance is fair and just- stick to Mutual Funds. You simply have to chose from about 10-15 Large Cap, equal No. of Mid and Small Cap and Multi cap funds.
Yes there are over 1800 funds but you don't have to go through everything - do you?
In the book that I wrote for the Financial education of Seafarers I broke a few well established beliefs.
This was not on the back of any complex calculations as the modern day economists are used to coining but simply on the back of two things:
1. Common sense as applied to self.
2. The result of the risk and experience that I took and benefited.
In times when even the AMCs themselves are expounding the benefits of SIPs I advocated STPs- that too the weekly and daily types.
Another area that I tried to encroach and dispel the notion was advocating Equity diversified MFs instead of direct stocks.
I did ruffle a lot of feathers of the established brokerage firms , few of which were of good friends.
But this recommendation was based on some very simple facts:
We the merchant navy personnel have a very intermittent stream of cash inflow in form of salary. It is mostly 6 to 7 months year. Upto the time that we complete our last exam which could be as late as the age of 30 there are prolonged periods when income is ZERO. This is unlike the landbased people who invariably get paid for all their training and exam periods.
Hence it becomes imperative that we try to save / invest our funds in best avenues which can create a corpus for our immediate and long term needs.
I will not dwell upon the inefficient avenues like Small savings , PPF and even Insurance policies that people get sucked into.I will simply elaborate upon the smart ones who recognize the power of equity due to whatever influenced them.
These wise men ( and I actually mean without sarcasm) start buying stocks with the help of tips from colleagues , friends on shore or brokerage firms. Few of these stock purchases make them some profit in short term further encouraging them to pump in more funds. Our friends do learn few nuances about share purchases but largely do not learn about technical analysis of the companies.
It is in fact not easy either to learn about Equity Analysis and then confidently invest in a handful of companies based on that knowledge.
As a a result our seafarer does invest in stocks , but the quantum as a percentage of his total earning is not very large- at best I have seen about 10-15% of the salary being invested. The remaining earning stay in either NRE savings or FD accounts. Some in FCNR too. This amount which stays in Fixed returns and small savings actually works counter productive to the health of his wealth as it brings down the total return due to tax and inflation.
Now, all the stocks do not have the ability to become multi-baggers , and most of them appreciate by about 15- 30 % . If you calculate the percentage of equity in his entire portfolio, it is not even close to being noticeable.
So in effect though he has invested in equities, the asset class will hardly make any benefit to his planning. In fact we can hardly blame him, even by my own standards...
I started investing from the first year of my sea career, and since stocks were only option - I had obtained 200FCD (Fully convertible debentures ) 0f L&T. The selection was largely based on "engineering identity and compassion" since I myself was an engineer and thought that only a engineering company can help in building a country- how naive I was?
Over last 29 years , I have held my first scrip and it has paid me rich dividends and has grown more than any real estate that I could have held. Similar story about another company that I bought 10 years back because my relative worked there- has grown 39 times in 10 years.
But when I analyse them in relation to me total portfolio , they form less than 10% of the total corpus.
In addition the above 2 stocks have made you starry eyed- I have not yet told you how many stocks that I invested in have turned out duds and a large number of them have gone unlisted.
In comparison , Mutual Funds have given me a broad based selection ground. Where I can simply select 4 funds of various Capitalisation and my selection of Equity as a Asset class is complete. My money does not stay waiting for an appropriate opportunity in bank accounts.
I simply kept putting my entire salary in debt funds and created STPs into corresponding good Equity funds of those fund houses- as long as I earned. Sometimes I checked the underlying stocks in those MFs and was surprised to find companies that I had overlooked , and also a ot of companies that I had never heard of when they were listed and have turned from small caps to Mid caps and from mid caps to Large Caps in last 15-17 years.
To wrap up the argument, my case has not only been investing in Equity class but also of investing substantial and majority of the saved income. If you have proper guidance , then by all means invest in direct stocks- but ensure that the guidance is reliable and proper . How you will ensure that the guidance is proper and just- is your outlook.
If however you cannot decide if the guidance is fair and just- stick to Mutual Funds. You simply have to chose from about 10-15 Large Cap, equal No. of Mid and Small Cap and Multi cap funds.
Yes there are over 1800 funds but you don't have to go through everything - do you?
Posts
Yes if we keep waiting to have knowledge of each company we will never invest.we all shud invest in our Circle of Competence for comfort. Eg. Doctors in pharma. Bankers in hdfc and so on. Its not a bad idea to stick to your own field.
ReplyDeleteYes if we keep waiting to have knowledge of each company we will never invest.we all shud invest in our Circle of Competence for comfort. Eg. Doctors in pharma. Bankers in hdfc and so on. Its not a bad idea to stick to your own field.
ReplyDeleteWell written. Thanks
ReplyDeleteYou have talked about STP from debt fund to equity MF. Could you give suggestions when should we pull out from an equity MF.
Well written. Thanks
ReplyDeleteYou have talked about STP from debt fund to equity MF. Could you give suggestions when should we pull out from an equity MF.