WHAT AM I DOING IN THIS OVERHEATED MARKET

WHAT AM I DOING IN THIS MARKET

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Today the Nifty touched 10000 mark and promptly came down; The Sensex too has had a brush with the 32000 mark twice before it decided to stay above it for some time. Everyday different companies are touching their 52 week highs; even the duds which you never knew existed are being called chartbusters. It’s a mercy that such thing never happens in music industry.

Those of you who like to follow Economy and Finance through TV channels and various media forms may have heard that the market is in the “Over-heated” range. Knowledgeable people are becoming cautious; some are booking their profits and taking the money off the table.

Every morning, I am being asked the same thing- What Are You Doing in the current market situation ?

The question specially pertains to me as, I am held responsible for initiating over 500 collegues and friends , directly and indirectly planning their Financial future and Independence, over the past 25 years.

The answer however that I give does not satisfy many of the colleagues and they feel that I am hiding something and not giving some kind of a mantra.

What Are You Doing in the current market situation?- They ask!

Nothing –I reply! Absolutely nothing!

As most of my known people are aware – mine is a very unique and not a very enviable or “followable “- position.

I am about to be a 53 male- about to complete 3 years into retirement. I have no salary, income, pension, insurance, Ulip –Nothing. I just have a very primitive version of a health plan and a critical illness plan which would expire in another 10 years. So am I expected to, be doing in the current market situation?

Some people suggest that you could book your profit and wait for a lower level to re-invest.

Some suggest to entirely sell my mutual fund holding as this is the maximum that the market will ever get to.

Some knowledgeable people even suggest going into day trading of shares.

I would be very frank with you; I have always been a passive investor. There was a time when I claimed to be very knowledgeable about different stocks and I dabbled in them on a daily basis. However very soon good sense prevailed and I thought that this was not what I was trained for. My core competence lies somewhere else and I must concentrate on my profession.

 (I always hated professionals discussing stocks instead of their core knowledge. Discussing the Economy in a healthy way is fine, but talking about stock prices from the point of view of the frugal knowledge that they claim to posses, is pathetic).

From there on I started shifting my focus entirely onto Mutual Funds. I understood the dynamics of MF management quite early, and was reasonably happy that the Fund Manager was able to give a double digit- tax free return even in those days of double digit inflation. The engineer’s sense taught me that if I could “confidently” mobilize all my savings in this route- I could have a winner at my hands.

Such was my faith in the market that during the onslaught of 2008- I exposed myself completely into equity funds. My confidence of course came from the fact that I was working and earning.

So I can safely say – that even at that time I was doing nothing and even today I am doing nothing. That time I had the savings from the salary so I was mechanically investing with scant regard to the market situation. Even today I am staying invested with scant regard to the market situation. Yes I need some money for my sustenance, travel bug and other social activities that I am attached with. For that I redeem from my holdings a decent sum that can last me for about 4-6 months. Yes due to the run-up in the market the equity allocation had climbed up by 8-9% which I had shifted back to Debt- Gilt and Liquid schemes, bringing back the allocation to 80:20.

Some analysts may call a 80:20 allocation as too aggressive, but I don’t agree with that. Given my relatively premature retirement age and my spouse being even younger- I need my savings to at least last till the grave.

It is important to realise the fundamentals. We should not invest in shares of different companies or Mutual Funds based on the news that you hear. We should invest on our perception of our country and the faith in our Economy. Not even our perception of the government.

If we have decided to settle in this country, bought homes, property and other fixed assets ; we have done so with a eye fixed on the future of our country( Otherwise why are all our neighbors trying to make a beeline for US and UK?). Having decided (objectively and not just emotionally) to stay in our own country - now it should be the automatic next step to be a partner in its progress and gain out of it. Of course the automatic next step can be by keeping this money in bank deposits where you are taxed on the Interest Income or other Government mandated schemes (most which you are disallowed as NRIs). Another rational and objective choice can be to invest in Equity based instruments like Mutual Funds and actively see how you are performing vis-s-vis the progress of the country.

So don’t check on the Sensex every day. Behave like RIP Van Winkle. As long as you are working and earning – just keep investing the way you have learned. Follow laws of the land by paying taxes where and when required and keeping your documents updated. Don’t try to live in the India of 1990 and expect to have facilities like US in 2017. Today the world is truly getting unified. Most of the rules/laws will become universal in all countries. The FATCA/CRS form is just the beginning.

 

ABOUT MAKING AND MANUFACTURING

ABOUT MAKING AND MANUFACTURING

Ever since the first machine was designed or invented somewhere around 1760, the drudgery of manual labour was reduced greatly. Not only in the industrial sector, part of the developments spilled over into the agricultural or Farm sector as well.
India was largely touched by the Industrial revolution quite late and through the colonial domination.
Though it's been over 250 years , we still considered manual labour superior to that of machine and agriculture superior to factories.Gandhi, Shastri and host of other socialist leaders gave slogans in that direction.
There had been few dissenters like the Great Engineer Vishveshvariah who had clearly trashed Gandhi's policy of Khadi and Gramodyog .
Slow to follow up , we did however shed the agricultural based priorities to catch onto the fruits of industrialization - but not without heading into large scale urban migration .
Now again when we should be moving ahead, we are once again caught in that manufacturing quagmire.We simply don't manufacture enough. It is a general notion that we still mostly export spices and gems and Jewellery, which was effectively the Indian export a millennia ago.
Time and again there are calls of boycotting the Chinese products for various reasons , but not a reason that we manufacture  those items more efficiently or cheaper.
No one bothers to check the fact that most of a exports ad valorem are Petroleum by-products.
No-one bothers to check that most of the products arising out of a Chinese factory are those with minimal tech and profit margins. As for India , so it is for rest of the world, the technology and hence the demands and hence the priority keeps changing.
Let me put it better by way of an example. In 1969 when Apollo was sent to moon the computing that was used in the process was using 128MB. Now 48 years down the line , the cheapest of mobile phone uses 100 times of that.
It may be a popular step to compete with the "assembly line countries" and start manufacturing Laptops,mobile phones and even cameras. But if you can do better than that should you take a regressive step.
Better Than That: What is better than manufacturing the latest expensive gadgets which are popular all over the world?
I will like to answer that question in a different way.
Which is the most expensive Indian company in terms of value or Market Capitalisation ?
Right!  It's TCS or Tata Consultancy Service. And what does it make?
What does Apple make for that matter. Or Microsoft ?
Contrary to popular notion, even for Apple- a constant stream comes from it's software platforms like i-tunes.
Value Chain addition: In the complex economy of today, it is very difficult to say that an entire product is made in any one country. (In fact that was also a premise on  which GST in India was based - when the talks started, but that is a different matter). The metals for a products may be procured from another country annd the unfinished metal for it from yet another one. The plastics may be manufactured in a 2nd country but the resins may come from a 3rd one. The design of the chip maybe done in Hyderbad but the chip is made in Guangzou. The software for it maybe made in California by Green Card holder engineers working for Infosys. So now whose product is it?
This is where the Value Chain addition kicks in. This is also why today we cannot clamour about Swadeshi or Pardesi. The companies have joint holdings and cross holdings across companies and countries. The workers come from one country and work in the third but remit their earnings to the first, which maybe their own motherland, fatherland or simply a tax haven.
Read the following article which is actually written 5 years ago when Apple was still strong on the back of it's products
https://www.forbes.com/sites/timworstall/2011/12/24/china-makes-almost-nothing-out-of-apples-ipads-and-i/#5579f0a960b4

So now we can safely address another question,which is a question in sync with the times! What is it to make and what is it to manufacture. While answering this we may have to junk the classical GUNS V/S BUTTER MODEL which was (and maybe is) taught in schools and colleges.
It is good to come to some form of conclusion in the Socretarean way!

Let's start from the first mechanised product- Textile.
Is the cloth made at the power loom or at the designing table or the design software?
Is the cloth considered made when the garment is made out of it or when the yarn was manufactured out of petrochemicals?
In classical economics a product was considered produced once it reached the market or was even part of the inventory. However it maybe , in today's environment- every part of the process may be claimed by a different company or country.Hence it also obvious that the amount of value added to the product is the real clincher. It is this value added that may- I repeat -May decide a country's export.

For stand alone exports anything from an idea (not Idea) to concept to a drawing can be good enough to earn something.
With this new concept of Value chain addition the classical patriotism theory will also take a beating which has been around since last 250 years.
Just to sum up, even Chanakya had propounded in his ":Arthashastra" to manufacture what was efficient for the state and the society and import what was not economically efficient to grow or manufacture.
So don't jump if I tell you that most of the Chana and Moong which you eat , come from Canada, Australia and Mozambique.