How to save yourself from Mis-Selling?

Cobra Post Video disclosing Anti Money Laundering Activity by some leading banks has put a question mark in my mind “Growth at cost of Goodwill”.

When “Growth” bypasses “Values”, customer’s unrest arises.  Shareholder (Owner) asks for Growth in earning. Earning comes from customers. More earning is a result of aggression in Selling means more charging or find new ways of earning. So some “Not to do” (mis-selling) is being done to achieve the target growth.

Let us discussion this mis-selling first, then we will show you the way to overcome the hurdle.

Firstly, in last ten years we have seen various new investment opportunities have been introduced in the market. Investors now have experience that more the complicated product, more the chances of wrong investment decision. Initially investors should try to buy pure vanilla product. Jumping in to market to chase returns may be dangerous.

Secondly, Investor is not serious about his/her future goals. Some survey reveals that the young generation investors are investing just to save the tax. So the basic of future financial planning is not known to even highly educate young persons. They are more aware on new ways of spending.

Thirdly, the seller is not investor centric. Either he is loyal to his employer or his sales targets. Sometimes he tries to sell the well accepted products of the market and saves himself from blame game.

SEBI, RBI and IRDA have introduced various systems for consumer complaints redressal. However we always find news on mis-selling though intermediaries whether it is a bank or even individual advisor.

The introduction of Complaint Channel is welcome move. But can we dream the world of educated investors who understand at least basics of products? Before the seller makes any selling statement the investor should learn to understand the untold facts which seller intentionally or unintentionally hides. This can be possible by education. Investors should attend “investors Awareness Program” known as IAP. IAP is an initiative of SEBI and AMFI to educate investors to understand Inflation, Risk, Diversification, Benefits of Long term investing, Goal Setting, Asset Allocation, Taxation implication, liquidity etc. By attending IAP seminars, investors can avoid wrong investment decisions. The important part of such seminar is Question and Answers session. Sometimes question of other persons gives lot of knowledge as learning from experience of others will reduce wrong investing.

We find need of such IAP seminars and have decided to arrange sequence of Seminars throughout the month of August, September and October at the various locations of Ahmedabad city.

Such Seminars will be held on “No Sales Talk” basis. Talks will be in Gujarati, Hindi, and Easy English as per convenience of participants. Industry experts will deliver lectures and It will cover all aspects where mis-selling happens. Focus will be given on wrong talks, double talks and hidden facts by seller. Important discussion point is to understand Risk, Features of various Asset class and Importance of diversification through Asset Allocation as per risk appetite for optimum return.

At the end of every IAP, We are happy to invite you to join us for dinner so that individual questions can also be handled during one to one interaction. We will be happy to see you to attend the seminar with your spouse. You have to register with us to attend the seminar. We will offer you different dates and Locations. You have to select a suitable date for you.

So friends, join us in this educative IAP seminar. You can spread this message to your friends too and let us move forward from mis-selling to smart investing.

Gold - The metal in hearts of every Indian

It is a belief that gold is hedge against inflation. It is a safe haven investment in a mismanaged world. Let us understand myths & facts of gold that will clear your mind.

The current options for Indian investors to buy Gold is; Jewellery, Gold Coins, ETFs or Gold Savings Funds of Mutual Funds. All was going good till the morning of mid April 2013 when the gold prices suddenly saw a fall of nearly 12% in dollar terms.

Commodities (including Gold), Real Estate and Equity run on cyclical movement. Any of this traded at hype will suffer periodic bursts of sharp rise and bouts of steep decline.

The buyer of gold has theory in his mind. Investors buy gold because of the ‘greater fool theory’ (the next guy will buy it at a higher price). The second popular belief is that gold prices are supposed to rise, as it had always happened in the history too.

It is a general belief that Gold is a hedge against inflation.

Looking at the historical prices of gold and consumer price inflation, In the 1980s, inflation in the US was around 6%, and gold lost more than half its value. This myth of gold being a hedge against inflation has been bunked by researchers many times in the past.

What is fair value of Gold?

At Rs. 27,000/10gm, gold is higher or lower than the ‘fair value’? Gold does not generate income. It does not pay dividends. A good business generates profits, a property generates rent and a bond generates interest income. Since gold does not generate any return of its own, it can only be new buyers with expectation of gold price to go up. This is just a speculative approach.

So, what really drives gold prices?

Money and commodities are moving around the world with improved technology in the financial interconnected world. 

1. Gold is priced in US dollars. Gold prices will go up, if the dollar is weak. 
2. The price of gold is measured in rupees in India. If the rupee is weak against the dollar, the price of gold will go up to that extent.

Indians don’t remember gold prices crashed from a high of $ 850/ounce in 1981 to $ 250/ounce in 2001 over 20 years. In 1981, Exchange rate was $1/Rs. Rs. 8; in 2011 it became Rs. 45 now around Rs. 54. Weakness of the Indian currency pushes the price of gold up. The economic mismanagement in India is remained favorable to gold buyers.

Gold in Indian Context:

In India, Gold has monetary value and social value too. Showcasing ownership of quantity of Gold is a proud statement in Society. Gifting Gold in family celebration is a must custom. Why Indians are so close to gold? While looking back to history of 400/500 years back, United India has always been attacked by outsiders like Aryas, Sikander, Taimur, Allaudin Khilji, Portuguese, Dutch, English and many more. During war, people required to run away with handy wealth (gold) to other places. This insecurity has developed a social custom of possession of Gold. This still remains in the mind of every Indian, every corner of India.

In fact, buying gold is buying fear. So whenever fear is high, the gold will outperform. The fear may be war, currency weakness, economical uncertainties, countries at risk and lot more. More the fear, high the prices will be.

Those who have cash on hand prefer to buy gold as investment. That seems a simple statement but holds too much quantitative importance.

The BIG players’ Equity Game

The Sharp shooters of BSE/NSE equity market platform (they are operators, fund managers and of course FII) are focusing on macros of economy in their investment strategy. Interest rate, Inflation, IIP data, GDP growth, corporate earnings, trade deficit, fiscal deficit, global economy trend, Global currency trend, commodity price movements and lot more….

They analyze the data of all above macros and predict a market move and accordingly take position in equity market. Since market moves on various factors, above macro analysis may not work in short run. However, market players know the market cycle and continue their position. The stocks acquiring activity is at ease and there is no hurry to pick the stocks at once. Let the investors sell the stocks and the players are ready to catch it.

We all know that market cycle will turn after some time. So at an appropriate time market starts moving up which was all expected and the great thing for operators is, they have acquired lot of stocks at throw away prices.

The layman investor is reading the newspaper which is full of negative news like political uncertainties, unrest among various classes of society, various agitations, various scandals, high living cost and so on…

Reading such disappointing news, the layman investor becomes negative and never thought to enter in to market. Instead he sells his stocks in desperation. He ignores macros, fundamentals of economy, market cycle and opportunity of acquiring stocks at cheap market level.

At the second stage, as the turn of macros / fundamental becomes strong, slowly economy recovers and other positive news comes out. The investor is now hopeful but avoids buying at this stage and wait for the gone “Low” to buy stocks.

At the third stage, result of economy recovery is seen in GDP growth rate, consumer buying data, corporate sales growth and higher earning of companies. The investor is now reading high growth data of corporate earnings and tempted to buy the stocks. Initially he earns. Excited by high earning in short run, he enters in the market with more funds.

More the earning in short run, more the investor invests at high prices, such a level where the corporate earnings are known to all. Investors are busy buying the stocks on good news inflows. The operators has now chance to offload the acquired stocks at their decided price and layman investors crazily buying stocks on receipts of ‘short term earning stock TIPS’

This is the main difference. The front runner in the market always looks in to opportunity at future date, will look at macros / fundamentals. They visualize what can be good and what can go wrong at certain time frame and accordingly they take risk. That is calculated risk. The common man invests looking to current situations/reading corporate results and hence his transaction price is discounted by prevailing news. He is late entrant and so he always pays premium for the news which is known to all.

So always try to understand fundamentals of economy which is basis of equity market growth. Before buying a stock understand market price history of the stock. Purely entering in to equity market after reading P&L and balance sheet may be proved to be a shocking loss by entering at higher price. The operators successfully sell their holding during market hype making handsome profits.

Ending this write up, I think next boost to Indian economy will be through crude oil prices. Once the crude prices eases, all the macros listed above will become positive. FII was strong buyer in equity market in last year and the same is continued even now, my instinct says there will be easing in crude oil prices in current calendar year. The positive news may put the Stock market on fire.

(Important Note: This article is a write up to provide information. The predictions may go wrong. This is not invitation to invest to any scheme.)