How Long Term helps

23/05/2009

Some Wealth Inspiring thoughts

Ø      Timing is vital. It is much more important to buy cheap than to sell dear.

Ø      Time in the market is more important than timing the market.

Ø      It is never your thinking that makes big money, it is sitting.

Ø      Success in market usually comes to those, who are too busy to be looking for it.

Ø      Managing money requires more skill than making it.

Wealth as they say is like old wine. The more time it takes the longer it stays for you to savor it!!

Stock Market is generally feared by all! And may be rightly so!! Investors usually see – or rather made to see—the short term fluctuations rather than the long term upside potential which comes steadily but without much of an announcement! It’s the short term upheavals are talked about in every newspaper—much to the contrary!!!

Stock prices are a matter of individual perception and every investor has his own views on a particular stock and its target price. Unfortunately we fail to sell a stock even if our target price is met. For example at Rs. 850 levels (November 2007) TISCO was not that great a company and it is indeed worth much more than Rs.150 levels it fell to in November 2008. In fact we get so carried over by our emotions and views expressed by so called "experts" on business channels that we do just the opposite -- buy at Rs.900 levels and sell off at Rs.150 levels.

Hence we at AIMS believe it is better and much safer to access the stock market through mutual funds rather than practice do-it-yourself equity and burn a big hole in your bank account.

It is not that we despise or discourage direct equity—direct equity is preferable only if you have the habit of digesting the fluctuations and also have the time to do your research because investing in shares without proper research is like playing cards without looking at them.

Another compelling reason for investing in Mutual Funds is highlighted in the last wealth inspiring thoughts stated above—managing money requires more skill than making it!

There are very few options currently available where the real returns -- returns in excess of the inflation—are positive. Hence investments in PPF, Post Office; RBI Bonds or bank deposits tend to depreciate your retirement corpus in real term rather than appreciate. They will in all likelihood not see you through your retirement or even be able to fund your child’s higher education! Only Equity has the power to give you inflation adjusted returns to provide you with the retirement corpus to enable you to “SAR UTHA KE JIYO”. Consider this :- a monthly investment (on 1^st. of every month) of Rs. 1,000/- in DSP Merrill Lynch Equity Fund(Dividend reinvestment option) from 02/05/1997 till date would have grown from Rs. 1,43,000 to about Rs. 7,75,000/-( valuation as on 27/05/2009) -- a compounded annual growth of 25.83% (Source DSP Black Rock Mutual Fund). AND THAT TOO TAX FREE!! AND THAT TOO after all the downfalls over the years.

The thought now looming in your mind is “What Now”? “Where will the market stabilize”? Whether this is the right time to invest or not??

We must admit frankly that we are unable to forecast the index level from where the markets would start climbing up! No body in this world – not even the legendary Warren Buffet—will be able to predict the index level!

As for “WHAT NOW” – we can only say that the India story is very much alive and with a heavy discount sale currently on – GRAB IT—before it’s too late!!

At the end we would only repeat what Lord Krishna said to Arjun during Mahabharata – tum karm karo, phal ki chinta mat karo (Do not worry about the results, just do your duty!)

Investing is your duty today!

Happy Investing!!

 

 

A Simple Way

A couple of days ago, I watched a short interview with the legendary investor Warren Buffett on an investment news channel. The interview was conducted shortly after the annual general meeting (AGM) of Buffett’s company Berkshire Hathaway. Buffett said many interesting things—as he always does—but the really educational part of the interview was the contrast between the world that Buffett inhabits and the world that his interviewer seemed to come from. It was like listening to members of two different species talk. If a fly (which lives for perhaps a few hours) and a tortoise (who can survive for a hundred years or more) had a conversation, it would probably sound like Buffett and that interviewer. 

At one point, the interviewer asked Buffett to comment on how his companies would cope with the downturn. Buffett replied that things were certainly down at the moment but he expected them to be OK in three to five years. I could see that the mere mention of a time scale like three to five years had derailed the interviewer’s thought process. Coming as she did from a world where three to five hours or at most three to five days is the standard unit of time; the idea of an investor talking in years seemed to have thrown a spanner in her works. 

Next, she pulled out the day’s newspaper and drew the old man’s attention to a news item that US unemployment was up to 700,000. She wanted to know what he thought of the news. Buffett said that he was sure that five years from now, the employment situation would be much better than it was today. Again, this epic timescale put an end to that line of questioning.

However, this Methuselah of investing had reserved his best shot for the last. When the interviewer asked him about whether the economy was getting any better, Buffett upped the ante sharply. He said that the Dow Jones index had started the twentieth century at 66 points and ended it at 11,000 points. During these hundred years, there had been two world wars, a great depression, an oil shock and countless recessions. But in the end they had all worked out so he wasn’t really worried about the future. 

There is simply no meeting point between an investor who is comfortable with such long time periods and the modern investing ‘process’. As you can see from the stock markets, there is no one around who actually takes the long view. Curiously, the normal investment-industry types frequently express scepticism about what Buffett stands for. 

Some time ago, I read a newspaper article which quoted some investment managers on Buffett. Many of them suggested that Buffett's approach to investing was unrealistic— real investors need to be more 'flexible'. They seemed to suggest that Buffett is a hermit living in a cave whose teachings are too impractical for the real world. Except that Buffett lives in the same real world and his real world investors have made returns of some 5,000 times. 

Taking the arguments in the Indian context, our good old sensex came into being in 1985 with 1979 as the base year. Since its launch the sensex had reached a level of 21000 levels on 09/01/2008. The sensex has given a compounded annual return of roughly about 20% since inception. During this period we have witnessed catastrophes like wars, flood, famines, assassinations, et all. Can we say that the next two, three decades will be any different? The signs of growth are already visible. What requires is the conviction. The question we should be asking ourselves is do we have the same level of conviction as foreigners have about our economy? 

Far from being impractical, Buffett’s success suggests—or even proves—that the only practical way of making money is to do a handful of straightforward things and keep doing them for decades.

Strange Facts -- for a change

In the 1400's a law was set forth in England that a man was allowed to beat his wife with a stick no thicker than his thumb. Hence we have 'the rule of thumb'
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 Many years ago in Scotland , a new game was invented. It was ruled 'Gentlemen Only...Ladies Forbidden'...and thus the word GOLF entered into the English language.
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The first couple to be shown in bed together on prime time TV were Fred and Wilma Flintstone..
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Every day more money is printed for Monopoly than the U.S. Treasury.
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Men can read smaller print than women can; women can hear better.
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Coca-Cola was originally green.
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It is impossible to lick your elbow.
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Intelligent people have more zinc and copper in their hair.
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The first novel ever written on a typewriter: Tom Sawyer.
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The San Francisco Cable cars are the only mobile National Monuments.
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Each king in a deck of playing cards represents a great king from history:

Spades - King David Hearts - Charlemagne Clubs -Alexander, the Great Diamonds - Julius Caesar
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111,111,111 x 111,111,111 = 12,345,678,987,654,321
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If a statue in the park of a person on a horse has both front legs in the air, the person died in battle. If the horse has one front leg in the air the person died as a result of wounds received in battle. If the horse has all four legs on the ground, the person died of natural causes.
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Q. Most boat owners name their boats. What is the most popular boat name requested?
A. Obsession
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Q. If you were to spell out numbers, how far would you have to go until you would find the letter 'A'?
 A. One thousand
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Q. What do bulletproof vests, fire escapes, windshield wipers, and laser printers all have in common?
 A. All were invented by women.
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Q. What is the only food that doesn't spoil?
A. Honey
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In Shakespeare's time, mattresses were secured on bed frames by ropes.

When you pulled on the ropes the mattress tightened, making the bed firmer to sleep on. Hence the phrase......... 'goodnight, sleep tight.'
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It was the accepted practice in Babylon 4,000 years ago that for a month after the wedding, the bride's father would supply his son-in-law with all the mead he could drink. Mead is a honey beer and because their calendar was lunar based, this period was called the honey month, which we know today as the honeymoon.
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In English pubs, ale is ordered by pints and quarts... So in old England , when customers got unruly, the bartender would yell at them 'Mind your pints and quarts, and settle down.'

It's where we get the phrase 'mind your P's and Q's'
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Many years ago in England , pub frequenters had a whistle baked into the rim, or handle, of their ceramic cups. When they needed a refill, they used the whistle to get some service. 'Wet your whistle' is the phrase inspired by this practice.
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At least 75% of people who read this will try to lick their elbow!
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 - Now....

Don't delete this just because it looks weird. Believe it or not, you can read it.

I cdnuolt blveiee that I cluod aulaclty uesdnatnrd what I was rdanieg. The phaonmneal pweor of the hmuan mnid Aoccdrnig to rscheearch at Cmabrigde Uinervtisy, it deosn't mttaer in what oredr the ltteers in a word are, the olny iprmoatnt tihng is that the first and last ltteer be in the rghit pclae. The rset can be a taotl mses and you can still raed it wouthit a porbelm. This is bcuseae the huamn mnid deos not raed ervey lteter by istlef, but the word as a wlohe. Amzanig huh?