Monthly Archives: January 2021

Black Swan event

Dear Patrons,

A story to start with,

The world has seen a swan as symbol of white for centuries. Until in 1697, Dutch sea captain Willem de Vlamingh explored west coast of Australia and during his expedition, he saw a black swan. Since then Black Swans became symbol of unbelievable.

A new term coined as “A Black Swan event” – It is an unthinkable event that massively affects our life. Career and country.”

There are both positive and negative events. Influence of Social media ten years ago and now, Invention of Penicillin, discovery of gold mines, somewhere are positive Black Swan events. Whereas falling of USSR, World Wars and latest one is Covid emergency are negative Black Swan events.

Investment in volatile market has become a daily activity for many investors. Sometimes it goes up and sometimes it goes down. But In general markets move around a stable mean. Our SIPs are ultimately to benefit from the stable mean.

Though we continue to plan for better future. Black Swan events are impossible to predict that destroys our best laid plans. Certain occurrences of events are unknown. We never predicted occurrence events like Covid a year back but it has affected entire human generation today.

How to thrive in Black Swan event?

  • Stay out of Debt
  • Invest your Savings with continuous eye on it
  • Have a generalized standard of living
  • Continue points 1,2,3 whether there is any emergency or not.

Does having Rs. 5 crores make you feel rich?

Dear Patrons,

Does having Rs. 5 crores make you feel rich?

A young enthusiastic young woman thought to have an early retirement. She thought a corpus of Rs. 5 crores would be sufficient for a good retired life. For her, not much is expected by way of inheritance. She has a residential house in which they live in.

She understood that only she has to manage her own earning and investments.

Her salary of Rs.50,000 either goes to monthly living, luxurious life style and EMIs. She has not saved a single paisa till now. She is 24 currently. Let us assume 7% inflation and what her expense will be later in life. (At 7% assumed inflation, Expense to double every 10 years)

Age Expense
24 Rs. 50,000
34 Rs. 1,00,000
44 Rs. 2,00,000
54 Rs. 4,00,000

At age of 54, her spending would be appx. Rs.4 Lac.

…But story does not end here.

Life expectancy in urban area has gone up. what will be the spending  scenario with same inflation?  (Yes, she is not compromising with her lifestyle)

Age Expense
64 Rs.8,00,000
74 Rs.16,00,000
84 Rs.32,00,000

 Rs.32 Lac per month…. Yes. She will need Rs.32 lacs per month in later years of her life.

That is how compounding of inflation shatters all plans.

So to dream to have Rs.5 Crores as a retirement corpus is sufficient?  Let us examine, how much she actually need at age of 54 to feel rich?

Staggering Rs.12 crores. That is what she should have. Much beyond her plan to have 5 crores.

 Infants, toddlers, kids, teenagers, youth are phase of life. Consider Retirement is phase of life. Take steps calculatedly to take care of uncertain future.

Illusion of Attention

Dear Patrons,

During monsoon, have you heard often that cars and vehicles washed away in gushing flood water? During heavy rains, flood like situation arise. Local water streams and rivers start overflowing and sometimes starts flowing over the shallow parts of the roads. Authorities closes that part of the passage for time being and divert the traffic.

Now Illusion of Attention comes into play here.

We see in news and armature videos that each day cars drive past through it despite visible warning signs and rushing water. The drivers are so focused on their car’s navigation system that they don’t notice what is right in front of them.

Take example of Swissair or Kingfisher airlines of Jet airways, the management was so fixed on expansion that they literally overlooked possible worst market scenarios and eventually they went bankrupt. Similarly in 2007, everyone was so immersed in enjoying upward move of stock market that no one literally checked risks brewing on banks’ books.

In Mutual Funds, investors are very much fixed to the past performance of the schemes that they literally loss the vision for the future. How false would it be to think that a fund having best track record of last 10 years will continue to have the same greatness for next 10 years as well?!? We come across investor saying ‘I have done research on my own’. But is it really a research of past performance and connecting them randomly? Can this be called as research or just number crunching?

Instead, confront yourself with all possible and impossible scenarios. What expected can happen? Pay as much attention to silences as you may get away with noises. Check periphery and not just the center. Something unthinkable can be huge and disastrous. But when you already factor these unthinkable scenarios, their impact can be minimized.

Consider It Done

Dear Patrons

‘Consider It Done’

A recently graduated MBA young man goes to an interview of an International firm. During the interview, he is asked that what would be his strategy to boost sales by 30 % while cutting 30 % of the costs. With powerful confidence, he replied ‘Consider it done’. Even tough his heart was trembling on how he would be able to do it.

Just to please the interviewers, He decently exaggerated the possibility of results without realizing actual actions to be put.

The term for such behavior is called ‘Strategic Misrepresentation’

Strategic Misrepresentation is primary power house of sales & marketing departments of large companies. Fairness cream advertisements are strategic Misrepresentation.  An advertisement depicts that having an expensive car makes you powerful person is Strategic Misrepresentation.

How is this related to investment products? Many times investor gets swayed away by obligation under relationship & fancy presentations.

‘Consider it done’ marketing representatives claim false promises to achieve their targets. investor tends to believe it due to their obligation or fancy brand name.

  • Does investor need to check benefits & costs of similar investments?
  • Should investor grill the sales manager with valid questions?

Misrepresentations will not work when individual information requirement is addressed with right information.