Something again About Philosophy of Life and Investments

 Something again About Philosophy of Life and Investments

Yesterday I posted a 50-point checklist ( On Financial Mistakes that we make) on this group which was copied from somewhere and not that I agreed with completely. Rajeev S Devasthali advised that what is the point of mentioning the mistakes when I'm not suggesting corrective actions.

Now again, since I have published a list of Do's and Dont's a million times and said it from the seminars, I found that there is nothing much left to say in that direction. Such a list is now increasingly being floated around by various Financial Advisors - and I'm sure the people are sick and tired of reading it- even though they may not like to follow it ( in the sense still our major wealth is in bank FDs).

Around 8 years ago I started a blog with the name holisticrajeeve.blogspot.com .That was because I believe in the approach of leading a complete life. It all would come from having a self sufficient life which is backed by optimum wealth which has the spirit of not being ostentatious or showy. The life must have the essential elements of compassion for others, charity for the deserving and not only the needy.The life should have the main aim at acquiring knowledge rather than information.It should have a detached attachment towards your worldly acquisitions , not only your own but also those inherited by you.

With a view to such a life Rajeev S Devasthali and other distinguished Ladies and Gentlemen of the group and the world here is my offering:

The following list if for those who do not consider wealth generation as the only motive of life but want to be assured that they will not go hungry if their employment ceases or any calamity befalls . In case you are looking forward to double your money overnight, please stop reading further on.It's NOT FOR YOU.

Let's start...

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1. Earning your living and saving for a rainy day should be the aim - not acquiring wealth. As the latter makes us lose our perspective and goal of life.

2. Whatever you can save must be invested in assets and avenues that have the sanction and approval of the law of the land.i.e. it should not only be legal but also be tax efficient.

3.In your pursuit of making your savings and investments grow- CUT your taxes by making use of laws available, not avoid it by hiding your income , savings and investments.

4. Remember , what is not on paper and does not have the sanction of the Law of the Land is not only UNSAFE, but may also be ILLEGAL. e.g. ponzy schemes like chit fund, MLMs, Committees, kitties.

5.There are always sufficient provisions in the laws for you to grow your investments that you do not have to resort to unconventional methods.

6.Like other schemes, till Real Estate comes entirely above board, i.e. entire proceeds are paid off in white or tax paid; it will never be profitable .The newer laws prohibit you from doing anything with cash.

Till such time Real estate will never give sufficient returns as compared to equity.

7. The real reason of the skyrocketing of Real Estate prices in the last decade were not some god sent , but due to the Greed of the investors. If everyone had bought a house only for their needs and stuck to equity for investments the Real Estate prices would have been more realistic.

Hence please buy real estate only for consumption and not investment .

8. Modern Idea of a bank is to keep money for your needs and regular withdrawal. Please let your Banker know that .He should not pursue you for any investment and /insurance.

9. The basic idea of ANY insurance is Risk Coverage and not earning money out of it. This is true for House, Car and even Health insurance. Accept the fact that the settlement of Insurance in case of a mishap will NOT be able to completely cover your loss.

10. Risk coverage also applies for life . Hence you should ONLY buy the TERM LIFE INSURANCE with a sum assured to sufficiently last your family for at least 10 years . It is assumed in 10 years your dependents will learn how to live life on their own.

11. Having covered your life as a bread winner and your assets like house, car, health you should endeavour to keep at least 6 months of expenses as EMERGENCY FUND untouched.

The method of keeping this EMERGENCY FUND can be a Bank Fixed Deposit or even Liquid Mutual Fund.

Since you will not use this fund in regular expenses A LIQUID FUND will mostly give a return higher than a bank deposit and more tax efficient if it stays there for minimum 3 years.

12. Wealth creation is a very tedious and boring job. Just because your shares doubled in a year is not exactly wealth creation. You have to recreate that plan every day, every week for every penny of your savings being diverted to your investments.

13. Those who are professionals in their respective fields or employed in other offices - please remember your main job is the one at hand not reading the PINK paper every morning and being glued to the TV whole day long.

The Mutual Fund managers have a whole staff to look after your money and take informed decisions. Select a good fund and trust your fund manager to do the buying and selling. You just do a consistent job of putting your hard earned and well deserved savings into the funds.

I have often thought about the value of money in different forms and at different stages. I've written the article " Colour Of Money" twice but somehow was not able to get to the root of the complex question.

It is something like this...

What is money and what does it represent? What does money look like?

Just 300 years ago it looked like Gold and Silver100 years ago it looked like pieces of paper.

So what do my bygone years of life and labour represent today? Is that just a few figures on a L.E.D. screen.

I will again attempt to write an article on it

The Time Has come and it's staring ...

There was a post by a Mr.Prateek Shah on some channel http://www.dailyo.in/voices/bjp-demonetisation-communal-politics-fake-news-congress/story/1/19272.html .

He has shown his disappointment with BJP despite his longstanding loyalty. I was for once inspired to write something.

I do not agree with Prateek Shah.
That is because I never believed in BJP, for Thai matter I did not believe in Congress either or the amalgamation of all those called coalition.
Yes everytime a change happened, I was hopeful and happy.
I thought Congress losing in 1977 was great even though I was just 13 then , but I thought ..a change.
I felt happier when Mrs.Gandhi returned in 1980 and Sanjay died in a crash. I felt country was safer now.
I was even more hopeful when Rajiv Gandhi swept the mandate and sad when just 5 years later a daughter had to be released to free some terrorists ...
I was happy when PVN became PM and Manmohan depreciated the₹ .
I thought later that Atalji was a blessing to the nation and that APJ could change the political culture.
I waited 10 years for Dr.MMS to do some miracle.
He just passed by after quoting a pretty bad शायरी।
I was jubilant when a person who never was a MP or any dynasty became PM by his own strong will.
In all these cases I thought India would change.
India did change, but our problem was that of expectations were really high.
Indians do have high expectations. Whether it is from a son or his wife- they can't do much but the expectations are the least that we can have.
My best of friends took opposite views and formed their camps.
Even those from service class sold their land in crores and hid their profits in cash.
But it was Modi whose Demonetisation failed.
It was he who could not bring the black money back while we bought and sold our property in black.
We hired CAs to cut our tax outgo and it was all these PMs who failed India.
All my business friends never had a bank account...
But.. openly said...इस देश का कुछ नही हो सकता।
But Sir logo, ab nahi hoga.
This guy is after you.
You know he will be back in 2019 and will be after you and me.
He has openly threatened the most powerful lobby of jewelers and this year the CAs and he will stop at nothing.
He is not trying to settle scores, he is bringing out all the old cases and bent upon solving them.
Rajiv, Atal and PVN tried but failed because you and me were determined to be corrupt. This guy will not let you be that way.
He has slowly and steadily set up systems one on top of the other without giving anyone the power of discretion.
I never voted for him or the BJP ... ever! But that was because my local MP came from royalty and I hate feudalism.
But Sirs and Madams... Friends and relatives..and neighbours... Clerks and bureaucrats... You are advised change , because he is a guy who trusts no-one.
And... Now is the best part...
While he keeps you busy with beef and pork controversies he is out there dismantling and changing the system.
His tenets will go against straight play that we are used to preaching, but have we played straight with our nation. He is confident that he can manage with bypassing laws because he knows he can manage his conscience.
While you can keep complaining about 3000crores of Adanai or Ambani -he will make sure that others fall in line.
He has bypassed the traditional bureaucracy and suspended IAS and IPS and now there are changes in their South and North block which you will shudder to hear.
One thing that is sure is that though it may seem that he did his 8th November act in a hurry, he is not in a hurry.
Mr.Prateek Shah has alleged that the government believes in hiding facts.
अमाँ मियां, आप अपनी तनख्वा बीवी तक को नही बताते हो और सरकार आपको अपने राज़ बता दे?

SOME MORE ON SIP, STP AND BULK PURCHASE

SOME MORE ON SIP, STP AND BULK PURCHASE

Two year ago I had written an article in Marineinsight.com laying out the comparative advantages of STP Vis-a -vis SIP. I had tried to explain why STP works better for the Marine Professional rather than SIP. The Mutual Fund industry has gone so much overboard in repeating the word SIP that people have come to think of SIP as a product rather than a method of investing in Mutual investing.

However, as long as methodical investing goes Mutual Funds are unparalleled in any country including Philippines, Sri Lanka, Singapore, Hong Kong and even Russia, the only limiting factor being their political conditions. As long as a Marine Professional is investing regularly after selecting the right fund, he can actually fine tune his strategy to get the best out of assets.

I will again attempt to unravel, demystify  and simplify the above three methods.

Bulk Investing: is simple .When you buy for a appreciably large amount like $1000 and above one time thinking that the market conditions are correct in your perspective, it is called bulk investing. This may happen once in a while or irregular intervals.

SIP or Systematic Investment Plan: is an automated system when  an amount determined by you is automatically transferred from your bank account to the Fund that you have selected to invest. In this paperwork is done through the fund house who sends the information for conformation to your bank and the process can take upto one month to start. This more often than not takes place once a month.

STP or Systematic  Transfer Plan: is another method where a fixed sum is shifted or transferred from one fund (you can call it source fund or S-Fund) to another ( call it Destination or D-fund).For our purpose of primary investing this takes place mostly from a debt fund to an equity fund. STP cab any frequency Monthly, weekly and even daily.

Now let me point out a few points regarding inherent advantages of STP:

1.       For Seafarers, the main issue is the irregular availability of funds. Even for the six months of work due to the uncertainty of joining and signing off, he remains uncertain in investing.

Hence allocating funds to SIP becomes difficult because one has to make a large outlay in the NRE account. Instead   s(he) gets inclined to make lump sum investments.

2.       With STP he is secure in the knowledge that if the liquid fund runs out he need not worry as there is no liability. Additionally the funds in the Debt fund which is the S-Fund are for his use whenever S(he) wants.

3.       Cancellation of STP takes 3 minutes online whereas SIP cancellation can take more than 2 months.

4.       With STP, apart from the equity funds even the debt fund ( which is your source fund) is earning and appreciating. If you check immediate past 2 year performance equity and debt funds have performed similarly. This may be an aberration but a fact nonetheless.

5.       With SIP one's money in NRE savings of fixed is almost lying idle and depleting with inflation.

6.       With our kind of salaries the amount that one needs to invest per month , for productive gains, one has to invest a large amount per month.

If you put that in 1 SIP per fund, from my point of view it is as good as bulk purchase.

7.       Now consider a single SIP off₹50,000 split into 5 STPs per week. And you have truly diversified your risk. Plus the amount that was in the debt funds in between these 5 STP dates also continues to appreciate at a higher rate than in a bank account.

Last week's fall of 5% and the NAVs at which the last 2 STPs were booked will prove my point.

8.       With the weekly STPs , one is more in touch with reality and any fall in the market  like the last week's, it will give you opportunity to  put in extra lump sum to extract more out of the situation by switching about 5 to 10% into your equity funds.

9.       A single monthly SIP would have deprived you of the situational opportunity.

10.   Last but not the least when you are on board switching from one fund to another will take much less time than making fresh purchase from your bank account.

A lot of advisors do not go into sufficient depth and explain to the investor that a falling market provides you with an opportunity like a time machine- to go back into time and invest at a level which was much into the past. Hence a person who is earning and earning like the Marine Professional does, can actually go back into time and invest at a level which was when he did not have that money.

SIP is a good strategy for a modest salaried investor who never has a large chunk of money except when he gets a bonus. It’s effect on wealth generation for a seafarer reduces when coupled with the money lying idle in the bank account.

 I cannot but repeat and repeat, that try and automate your method of investing by utilizing the tools. Mutual Funds provide with immense flexibility and convenience. You just have to use the tools to form a long ranging plan and portfolio and then keep investing and increasing that investment amount as you progress through to the Captain or Chief Engineer’s rank. The first step is the most important to take , since I  have found that people drag their feet over selecting their first fund  for years together losing out on opportunity every day.

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.