Hello Investor,

Are we suffering from ‘Neomania’ or have we become ‘Neomaniacs’?

Neomania is a new term coined by well-known author Nicholas Taleb.
It is the mania for all things new and shiny.

When iPhone was launched in 2007, it was certainly a device all wanted to have. However, the craze of having a latest iPhone has become irrational race of show off. Same goes with buying a new, fancy and shiny car. Obsession to be among the first to buy new car take waiting period to months.

Hunger of more feeds and information, choosing get-rich-quick schemes, addiction to social media etc is sign of a ‘Neomaniac’.

Covid in 2020 has made lot of investors turn Neomaniac. Short term volatility has made lot of investors turn to other jazzy and hyped investments like precious metals, Self-help stock trading and crypto currency. Due to additional available time, investors try to fetch information just to get easy returns in short time.

A common man is locked in cage of own belief. The need of the hour is to understand that every asset class has its own performance cycle. There is no short cuts for making money. By hopping different asset classes to imitate others and chase returns, investor may lose lifelong savings.

Don’t be a Neomaniac. Stick to your principles.

It has been said that “Change is constant in life.” It is evident in our lifecycle. Life starts as an infant, to a school going kid, than to a college going teenager, to a family person and lastly to phase of retirement.

All phases comes with a change which we accept as human being.

When it comes to hard earned money, we question the rule of change. One must understand the importance of outperformance and underperformance. Let me explain the simple criteria considering current market situation.

Why Portfolio Reshuffling is important?

• Imagine a situation of index value at 100 before Covid situation.
• Due to Covid, Index falls from 100 to 80 (-20%)
• At the same time, a performing scheme is outperforming index and falls only -15%
• While an underperforming scheme is underperforming index and falls -25%
• In an hypothetical situation, Index recovers from 80 to 100 which is 25% growth.
• As the performing scheme fell less to 85 will become 106.
• And the underperforming scheme fell more to 75 will become 94.

Case here to prove is loss can be recovered by patience but underperformance cannot be recovered.

Mutual fund investors must review and reshuffle portfolios at different time horizons.

Bhagavad Gita: Chapter 2, Verse 2 and 3

श्रीभगवानुवाच |

कुतस्त्वा कश्मलमिदं विषमे समुपस्थितम् |

अनार्यजुष्टमस्वर्ग्यमकीर्तिकरमर्जुन || 2||

क्लैब्यं मा स्म गम: पार्थ नैतत्त्वय्युपपद्यते |

क्षुद्रं हृदयदौर्बल्यं त्यक्त्वोत्तिष्ठ परन्तप || 3||

Translation – “The Supreme Lord said: My dear Arjun, how has this delusion overcome you in this hour of peril? It is not befitting an honorable person. It leads not to the higher abodes, but to disgrace. O Parth, it does not befit you to yield to this unmanliness. Give up such petty weakness of heart and arise, O vanquisher of enemies.”. Lord Shree Krishna makes Arjun uncomfortable about his current state.

We all feel uncomfortable when we are confused because it is not the natural condition of the soul. That feeling of discontentment, if properly channeled, can become a powerful motivation to search for true knowledge. The suitable resolution of doubt helps a person acquire a deeper understanding than before.

Thus, God sometimes deliberately puts a person in turmoil, so that he or she may be forced to search for knowledge to remove the confusion. And when the doubt is finally resolved, that person reaches a higher level of understanding.

All equity investors are currently in this uncomfortable situation. Self-claimed Experts may portray apocalyptic scenario. But no one knew such drastic economic situation due to Corona in advance. All advices, suggesting, expert calls are post event. But primary medicine for all diseases is to make own self brave and confidant. Time heals deepest wounds. Let us not time the crisis but give time to crisis.

For most of us, End of Financial Year is the time for finalizing our books of personal and business accounts. What do we normally target while closing accounts for the Financial Year?

“How to save tax?”

Government gives enough deduction / exemption / rebate to reduce the tax burden by various means. We have covered all major deductions for individual in our February Newsletter on 4th page. It is our duty to remind that we do not forget following things before FY ending.

• LTCG Exemptions – Make sure that you don’t have to pay Long Term Capital Gain tax from Equity investment until ` 1 Lakh of capital gain.
• 80C Exemptions – Don’t forget to avail the deduction of ` 1.5 lakh by investing under section 80C.
• Indexation Eligibility – Any withdrawal from Debt Investment should be indexed as per Indexation value.
• FY 2020-21 Planning – You must start Taxation Planning from beginning of the year.

A Baya Weaver Bird prepares everything in early. It builds the nest before monsoon arrives. Similarly, a smart investor doesn’t wait till end of the Financial Year.

Power of Compounding is eighth wonder. How?

Anyone can solve the equation 6+6+6+6. But ask somebody to calculate 6x6x6x6 without a machine and they will be confused. The human brain is designed for linear processing, not exponential.

Some examples are completely beyond comprehension: “A piece of paper is folded in two, then in half again, and again and again. How thick will it be after fifty folds? What would be a ridiculous number? Well, let’s assume that thickness a sheet is apprx .004 inches, then its thickness after fifty folds is a little over sixty million miles. This equals the distance between the earth and the sun” Linear growth we understand intuitively.

However, we have no sense of exponential growth.” Try this at home. You cannot fold a paper more than 6 times with hands.

The most powerful force in the universe, as Einstein referred to it, which many of us avoid for two main reasons.

1. One, most people just don’t understand how it works. For instance, 10% growth for 15 years is not 150%, it’s 417%!
2. The second reason why many fail to take advantage of compounding is because it takes time.

Warren Buffett was not rich forever, 95% of his net worth was earned after his 60th birthday. Till than he just waited to compounding to work in his favor.

Strongly avoid event-based investment calls such as budgets, monetary policies, elections, etc. Real assets created by bypassing this noise and long-term investments.

The most dangerous act in Retirement Planning is, ‘I will invest only in highly safe investment for Retirement corpus’. Why it is dangerous? Because it deprives the investors to take growth oriented decision. There is no growth if one doesn’t take some risk.

Planning for Retirement and Retirement Planning are two different phases.

Planning for Retirement – In this phase, one is planning to create wealth for retirement which is 10, 15 or 20 years in future. While being young, one can aggressively participate in Equity investment by SIP route and take maximum benefit of compounding. However, the equity allocation should gradually come down when retirement age is nearing.

Retirement Planning – In this phase, one is already retired and have received money from various sources. Investment in this phase takes care of cash flow, liquidity and safety. The significant task here is to manage taxation. During years in retirement, one cannot afford the outgo of taxes. Cash flow through SWP mode is desired situation to receive it as regular income.

In Formula One racing, the biggest advantage is that the driver has to take immediate lead once the race starts. It is winner’s strategy to take lead in the initial moment.

Similarly, Planning for retirement is a long term race. While planning for it, one must take first step lead by adopting aggressive investment strategy. Of course, it depends on the age on which one is planning for retirement.

We believe that retirement is the single most important goal which is need of the day.

Our love to Conspiracy Theories

Our brain is wired for analytics. Brain makes simple problem complex and tends to start believing complex solutions only.

Same goes with negative news making rounds in various media citing economic slowdown, low growth rate, war mongering, international disputes etc. Brain accepts all these complex analogy which give negative signs.

However, let me put some very positives news of last week:

1. IRCTC IPO subscribed 112 times against the IPO size of Rs.645 crores. It is highest collection for the PSU.
2. Bharat 22 ETF received the bid of Rs.23,500 crores against the basic size of Rs.2000 crores. It is listed on the stock exchanges then also received the 10 times bid of the size.
3. CDSL has opened the highest number of Demat accounts in the month of September in the current financial year.
4. Movie ‘WAR’ starring Hritik Roshan collected more than Rs.100 crores in the first 3 days.
5. Amazon and Flipkart reported more than Rs.19,000 crore good sold in recent sale.
6. XIAOMI brand of cell phones reported that they have sold 38 lakhs smartphones in just 7 days.
7. Mercedes delivers over 200 Mercs on a single Dusshera Day! It has outperformed own expectations.

What went past is available with everyone to tell but what comes in future is in no one’s mind to expect.

Focus on future earnings instead of gossiping about the past.

Doctor give medicine for health. I give some Investment Mantras to read daily for wealth.

1. 80% of gains come in 20% of time. So an investor needs enormous patience to hold investments for 10 or 20 years.
2. Why not all investors get rich? They like to get rich through a shortcut. But we all know process of becoming rich goes through many years of discipline & patience.
3. Compounding is back loaded. It works well only over a long period of time. There is no substitute for time in compounding.
4. 99% of the time, doing nothing is the best thing to do in the market. Activity hurts. Sit still.
5. You cannot predict or control market. What you can control is how much you save, investment process and behavior. Focus only on that.
6. Markets usually run ahead or fall behind. Rarely in stability. Over or under valuation cannot last for long time. Don’t time the market.
7. Buying and selling is action. Ultimate reward comes through ups and downs.
8. Not investing in equity is more risky than investing in it. Remember, you need to beat the inflation and retain your purchasing power.
9. We see past bear markets as missed opportunities. However at the same time we do not have guts to think of future bull markets. Strange investor psyche.
10. We question someone’s mental health if s/he keeps reviewing value of his house every day. But that’s what we keep doing with our equities.
11. Equity investments are subject to behavior risks.
12. Always keep a check on your emotions while investing.

At a time, Tightrope Walking was widely famous and was practiced by many as adventure.

A similar tightrope walker started to walk on a rope tied between two tall towers at several hundred feet above the ground. He wanted a point to prove to the audience. He was slowly walking & balancing a long stick in his hands. The most dangerous thing was he had his son sitting on his shoulders.

Everyone down were watching him in bated breath and were tensed. He slowly reached the second tower. Everyone clapped, whistled and welcomed him. They shook hands and took selfies.

He asked the crowd, “Do you all think I can walk back on the same rope now from this side to that side?”

Crowd shouted, “Yes, yes, you can.”

“Do you trust me?”, He asked. They said, “Yes, yes we are ready to bet on you.”

He said, “Okay, can anyone of you sit on my shoulder? I will take you to the other side safely.”

Everyone became quite. There was stunned silence.

Moral: Belief is different & Trust is different.

For Trust you need total surrender. This is what we are lacking towards God in today’s world.
We believe in God. But we don’t trust Him.

In Investment, we never want to give away previous time for wealth to create similarly what that tightrope walker gave in practice for perfection. In fact, we bet on other’s success to make it ours. We make ourselves betting community.

Instead of betting here and there, we have to trust on ourselves and our Financial Advisor. That is the main reason why a robot can help you make a transaction but will not be able to understand the hardships you have put behind earning it. Choose your Advisor well.

A young professional just started his career, earned handsome amount of money and had decent standard of living. He got married and had children. He continued to provide great life standard to his family. Now the story starts…

Scenario 1. He met one of his “Hello” friend who was extremely fascinated by movie ‘Zindagi Na Milegi Dobara’. His priorities were Mobile / Bike / Car / Travel to exotic places, expensive gadgets etc. As per his “Hello” friend’s advice, he spent in life style expenses in short period and left with no Savings.

Scenario 2. He met his “Wise” friend who was fan of Bollywood movie but never let fictional movies decide his future and had proper list of priorities in place. As this “Wise” friend’s advice, he opted a Goal based Financial Planning Approach which is a boring process but sure enough to establish financial strength.

Now Real Story: Just think about those unfortunate thousands of Jet airways employees. They had fantastic Job with decent salaries. Many may have burden of EMIs. A nightmare, which they never have thought for.

We all have good intentions when it comes to saving money, right? In reality, you’ll only start saving money when you develop healthy money habits and your future needs become more important than your current wants.

“It’s good to have money and the things that money can buy, but it’s good too, to check up once in a while and make sure that you haven’t lost the things that money can’t buy.” – George Lorimer

Goal Based Financial Planning is the first step towards becoming your “Wise” friend.