English and Economics: Absolutely Hilarious

We will begin with a box, and plural is boxes

But the plural of ox becomes oxen, not oxes.

If I speak of my foot and show you my feet

And I give you a boot, would a pair be called beet?

Then the masculine pronouns are he, his and him

But imagine the feminine: she, shis and shim!

Let’s face it- English is a crazy language.

There is no egg in eggplant or ham in hamburger

Neither apple nor pine in pineapple.

English muffins weren’t invented in England.

We take English for granted, but if we explore its paradoxes, we find that boxing rings are square, and a guinea pig is neither from guinea nor is it a pig. And why is it that Grocers don’t groce and hammers don’t harm?

If teachers taught, why didn’t preachers praught?

If a vegetarian eats vegetables, what does a humanitarian eat?

And in Closing…….

If Father is pop, how come mother’s not Mop???????

(Taken from “Dignity Dialogue” June 2012 Issue from “English: Absolutely Hilarious” by KRK Moorthy)

Yes, we have lot more funny things around us, even in our daily market gossip.

Let us look to the world of Indian economy. We are now surrounded by various 24*7 news channels and flooded with lot of information, most of them are unnecessary.  The “Experts” delivers opinion; interestingly very basic things are forgotten by these experts. Let us give a look to it.

Our country’s Foreign Exchange surplus is invested in US treasury which earns around 3 to 4% per annum. However, FII inflow of equity market, in around half year, makes profit of 10 to 15% from equity market movement with tax benefits & goes back to their home country. During the same period our government makes funny 3-4% from the US treasury investments for full one year investment. Interestingly, still we all are very happy when we see FII positive inflow data.

Experts are happy with IIP Growth data of various sectors including growth of Auto sector sales. Interestingly, the increase in traffic, air pollution, time consumption on road & burden by crude oil import bill is not at all the point being talked.

Those who earn money & pay tax, have good money (accounted money) on hand. The post tax returns from FD and Equity of last couple of years is not sufficient enough to cover inflation. Because of anti money laundering law, only two sectors (gold & real estate) are left for investment of unaccounted money. Real estate has multiplied by 3 to 4 times in last 5 years and gold has also delivered handsome returns. It is funny to observe that those who hold unaccounted money have been able to earn good returns compare to the honest tax payers.

The bankers (global scenario) lend money to earn good interest income. To grow, lending is extended to sub standard category of assets. Over a period of time, the books of banks lending moves from safe to risk, but as soon as banks reach to such default position, government enters & helps bank to survive. As per government opinion, this is important to sustain investor’s (public) confidence in bank. As banks do not default even though their bad workings, a general opinion prevails in the public that nothing to worry while investing in bank. Interestingly, nobody bothers that the government which supplies money to banks may itself come in to trouble on any day.

Our investment market (or environment) is as funny as English language we speak.

One and forever advice – “Give time to the market”

In a meeting with my investor clients last week, there was long discussion regarding which asset class is the best?

As currently all real estate investors are very happy with their real estate investments. Almost all agreed to one asset class. I.e. Real Assets

I am happy if investors earn from whatever asset class they have invested in…..

In conclusion of the meeting, my statement to all was as per below:

In 1980’s BSE SENSEX was introduced with reference to 100, which is now around 17000 level. It shows 170 times growth in 32 years. A very good performance indeed!!! The gold and real estate have also given very good appreciation to the investors as well taking the same period on account.

So my advice to all was very simple.

The asset class whichever is preferred by investors performs only after given time. If investor fails to wait, than he gets disappointed with the poor performance which is for a time being only  or he sells the asset in desperation & jump in to other shining asset & try to chase the returns which is already left & may miss earning opportunity of both asset class & most possibly he may loose the money.

The key take away is “Give time to the investment instead of timing the market “

In last 10 years,

There was great time for all asset classes like

2003-2007 – We have seen 5 times growth in Equity Sensex.

2008-2012 – Gold & real estate have given great returns.

If investor understands the Economy cycle of ups – downs & if he rides this curve smartly, he can earn smart money. Others with patience & cool and long term investors will also earn handsome returns. Those who try to chase returns & entering at top price of assets are most likely losers.

Even at current sensex level of 17000, investors are in panic & in no mood of investing in equity. Most of their funds are invested in fixed investment opportunities & thankfully there are very good interest rate opportunities available for investing in Fixed Deposit like HDFC Ltd. & GRUH FINANCE and Debt MF schemes like FMPs & BOND FUNDs are also getting attention of investors.

SBI DYNAMIC BOND FUND, UTI BOND FUND & TEMPLETON INDIA CORPORATE BOND OPPORTUNITIES FUNDS are also some schemes where investors are looking investment opportunities due to tax advantage & its fixed income nature.

However the burning issue is, should one invest in equity now?????

I think one should invest in equity at current sensex level in the range of 17000 to 17500. However, investor should first see his risk profile, better not to jump in equity in single stroke & he should try to understand the possible loss if invested in equity.

The equity has not performed in last 5 years. Equity sensex is at a level where it was before 5 years. So, it is better for investor to find out how much risk he can take & then he can enter in equity.

As advised earlier “Give time to market”.

Too much borrowing is damaging

We receive sales calls trying to sell us a credit card. There is a lot of meaning to the economy of credit card buying habits. When a person wanted to buy something that was in excess of his available funds, he can use someone else’s savings and buy it. Now, on repayment he reduces his monthly savings and increases more spending. However, if collectively, a society went on a shopping mood, it would result in serious events: 

• As a result of higher sales and profitability, the companies would be happy. The companies will expand capacities in anticipation of demand. Immediate positive result of this is, Jobs will be created, more factories built, more revenue to Government and a fill good factor will also felt.

• Banks would be happy as they would expand Loan book, higher profit and large balance sheet. Then recruitment of more people, pay hefty salaries, giving them sales target to be achieved and believing that this growth is for real.

• As Government has more tax revenue, will spend more. The Governments subsidy spending on social sectors is not productive and do not create an asset.

• Increase in asset prices. More people buy assets, they leverage, and buy more assets. This leads to an asset inflation, which increases core inflation as input prices increase. Agricultural land gets converted into construction and investment land, increasing pressure for food prices.

• Society as large feels good that they spend more, earn more, and save more. Everyone feels good till the party ends because events starts turning reverse. Such as price spike of a commodity or maintaining the living at higher costs. Governments in turn try to “simulate” the economy by reducing interest rates, but this hardly works.

Government has choice of taxing and using it to spend on infrastructure or paying pension, subsidies and loss incurring companies to save them defaulting.

The bad part is the debt trap of borrowing to keep the fire burning which starts in the government and the society.

• Governments have the power to print any amount of currency and hence can pay down any debt. This creates a false impression that governments are AAA.

• This false belief has been perpetrated to such an extent that government believed in false power. Hence currencies depreciate and cause inflation, and erosion of buying power.

• Government then try to reduce own responsibility by saying that the private sector will do the work more efficiently and with less corruption. So we “invite” private and foreign companies.

• The central bank is an authority allowing restructuring loans to avert a banking crisis, and banks generously utilize the window to restructure.

Looking to India, we consume more, import more, export less and have a trade deficit. Downward pressure on the currency and its impact on inflation, The country funds its trade deficits using long term FDI, repatriation of earnings by NRIs and welcomes FII inflows. However, the inflow is of the nature of short run. Strong decisions are yet to be taken by the Government. In absence of firm actions, this situation will continue until a strong leadership takes control.

After discounting the negative factors and hopefully encouraging steps from government, economy will make U turn. Optimism will improve in market and the first runners will earn high returns and laymen will follow them. It is rightly said that “Only unexpected is expected from the market”.

Dare to Dream

Greetings to Readers,

At Current market level investors are not enthusiastic to invest in Equity Mutual funds. The market is under pressure of lot of negative news. One can see current market situation with following dimensions.

• Indian Equity Market has seen tough times before on various occasions, even though the sensex Long-term return is 15%+.

• When an investor is entering in equity at lower sensex, his probability of loss is low or the quantum of loss is low (and higher possibility of earning good returns).

• Almost all domestic & international negative news are discounted / factored in sensex. So buying at current level means buying stock of all those investors who are throwing away stocks at cheap prices.

• Investors should consider share prices V/S corporate earnings of stocks. When corporate earnings is expected to grow or remain at parallel level but the stock prices are going down, means stocks are available at cheap levels, Is this a time to grab the opportunity?

• Investors should put together performance of all economies. The possibility of revival of Indian economy is very high compare of other economies.

• The most dangerous challenge to Indian Economy is inflation & current a/c deficit. They are not lifelong issues. The main culprit is crude oil prices.

• The crude oil price itself is very volatile & in last 4 years we have seen the range of $ 60 to $145 & down to $35 & now near to $100. It is purely on speculation. All speculations are always settled over a period of time. It never lasts forever. That is main relaxing fact.

Surrounded by all negatives, even single positive indication may spark. Sir John Franklin Templeton has rightly said “Only unexpected is expected from the market”

This market crash is an investment opportunity for investors having 3 years+ horizon & expect good returns from equities in time to come. At least it is wise to enter in equities when others are afraid of market. Logically at downward market there are few sellers. They believe that why to sell at bottom? They prefer to hold equities for some more time. Slowly market stabilizes & all of a sudden market takes upward move at Rocket speed. The general trend of investors is mostly on herd mentality. Only smart investors take smart decisions and ride on the market.

This has proved for several times. Will this repeat once again? Would you “Dare to Dream”? Would you like a ride at Rocket speed?

Investors must be aware with the risk / benefits attached to the investment schemes in which they are investing. The key to success is to identify the risk / return attached at the time of investment.

There is always risk associated with equity market, but at current level, the difference is, the quantum of risk is less.

Our strong advise for Equity Investment.

• We advise you to invest in Dividend yield MF Schemes. Investor is comfortable with regular dividend income from good cash rich dividend paying companies. (With possibility of capital appreciation when market takes U turn).

• During the Mandi, investor prefers to protect the investments and to earn parallel regular income like fixed deposits and so prefer to buy Dividend Yield stocks.

• Even the existing investors are not interested to sell the Dividend Yield Stocks, because at least they earn regular Dividend income from the stocks.

What have we learnt from History?

Namaste to Readers.

There is a good saying : I do not recollect who said it but it is worth to mention here…

“I learn from the history that the world did not learn from the history”

Good!!! How nice to learn something from somebody’s mistakes or at least from our mistakes?

I think we should visualize a situation where we are given a chance for a flashback in our life and suppose we have options to reverse what we did in our childhood, in our young age, as parents, as the head of the family, in our job/business/profession, in education, in career and lot more areas. Now going forward to the initial thought, how many of us will regret for our previous deeds and try to reverse it? What will we try most to reverse?

If we give one more phase to the thought, imagine that this is a year of 1980 and how many of us will like to invest in gold, Fixed deposits, Real estate or equity for a long period of 25 or more years? This is an exercise. Ask yourself.

I did this exercise with some of my keens. Out of 28 persons I asked, 75% chose to invest in equity (should I understand that this 75% feels that they missed the equity investment opportunity in 80’s?)

I come to a conclusion, I cannot claim it that it is perfect but I request all my friends to look at it seriously.

As a decision maker, one should always take a chance in all available options.

Do you know the great saying?

“Regret of Commissions” and “Regret of Omissions”

What is best?

When you are left with only one option to choose from to do or not to do… My opinion is very clear: opt to do it. Because if you will do it and if it proves to be a good, it is great, it is your success. If it is proved to be wrong, at least you will have an experience to share with others and a doubt is cleared and now your mind is not in dilemma.

Most of us have the psychology to remain in an ideological box (it is a psychological barrier box). Consider it this way. We have one life; we live the whole life within that closed box and missed the fantasy of this colorful universe. So most of the time we feel of missed out something or regret for holding closed ideas and force others to follow your path which is not acceptable to them.

It is important for all of us to welcome new ideas, challenges and opportunities. Either we can do different work or we can work differently. If we continue doing the same thing of what we have done previously, we will be the same personality in coming time too.

So what calls us? Are we ready to change yourselves?  Psychologists say that 70% of the mind (personality) of a person is developed before he attains age of 7 to 8 years. Very few are successfully challenge themselves and come out of this built up and only those persons become FRONTRUNNER.

In last 3 months, stock markets have remained in extreme volatile condition. In this period, Sensex have moved in between 15,800 and 17,100 mark.

Those investors who feel that it is not time to invest in this volatile market might regret for their omissions in future. Valuations are attractive and volatile market has its own potential of growth through systematic investments. Same way if market goes further down, investors might regret for their commissions. 

However, at current point of time in discounted market, important commissions are necessary to avoid "Regret of Omissions".

Understanding US credit rating downgrading logically.

Greetings to readers,

Let me discuss on recent issues of USA.

The USA downgrading is major global shock to investors. I have gone through various articles and speeches of experts in industry. I want to briefly discuss the issues here.

We all like money. We are pleased when money has inward flow. So in order to welcome new funds, most of the fund managers speak / write positive out of USA downgrading event. Very few accept that it is hard to predict what can happen in short and long run. The financial downgrading of such a large country is very rare event. For almost all, it is the first time experience. This has not happened to USA ever in history even during Great Depression (1929-1933) or during Dot-Com bubble (2001) or during recent recession (2008-2009).

I am jumping in to express views this crowd, but differently.

As I said, I cannot predict much on financials and economics; I prefer to submit my views with applying logic. So my following views are based only on logic and no weightage is given to other factors. (I believe that in long run logic exists).

• The downgrading of USA is shocking for USA administration too. It is possible that some soft/hard actions being taken by them to ease the situation. Even a minor outcome will be cheered by all.

• The money is with government (which is in debt) and the money is with financial institutions (received as investment from investors). I believe that financial institutions have their own goal to give higher returns to their investors. So on short run, they are expected to remain in cash to meet possible redemption pressure from investors (this has happened during Dubai and Greece crisis). But in long run, they will eye on opportunities available in emerging countries. I believe that there will be first major detachment of financial institutions from USA market. (Weightage to US is likely to reduce).

• The US market is still trading at high PE level, which I believe will rationalize. In such condition, US market will squeeze and emerging market will grow.

• The downgrading will have pressure on government mechanism. Strict policy decisions are expected. The likely hit will be US citizen, the economies mostly depending on export to US and industry depend on US consumption. I believe that too strict actions will harm other economies.

• The US government will become strict on financial discipline. The possible areas are US import, outward investment and unnecessary consumptions / spending.

• The non US rich economies will eye and search for more safe growth opportunities. Emerging economies seems to be best market destination.

• The dominance of US dollar as international currency will be at shaken position. Euro itself is in poor condition. Chinese currency Yuan is not acceptable to all due to non transparent policies of china. Then which currency will trade primarily? Is Gold prices still boom? All very hard to predict.

In conclusion, if few lines to be said, I would say,

“Nothing will be zeroed down. The best act at panic situation is to cool down. Nobody knows what will happen. Everybody predicts for their own benefit and within their knowledge circle. So it is better to believe in God. The world is not going to end.

My best wishes to all of you and apologies for the dark side of future which I don’t know but dare to write some lines.

The negatives of conditioned mind and turning into positiveness.

Greetings to readers,

Last week, I had a talk with group of MBA students. The subject was career in finance industry. Among other topics, I had a brief discussion on Genuine Investment Strategy and Conditioned Mind. Post session, there were questions which realized me that lot of knowledge is required on Genuine Financial Planning and not that what is being sold popularly.

However this time, I will start discussion on Conditioning of mind. Psychologists claim that the new born child starts developing acceptance of atmosphere around him. So when he do not speak and do not express, He can observe and store the images in his back of the mind. It is said that 70% of the people’s nature/attitude is built when they attains the age of 7/8 years. That is why when parents ask/shout to the kid to not to do something (say, NO to TV) or to go for studies and he hardly listens it. Instead, he observes that what is being denied to him (to watch TV) is interestingly done by the parents themselves.

So when we say, it is a sanskar, swabhav or habit, in fact, it is a conditioned mind which put a man in to a box.

The conditioned mind is like a strong belief for religion, eating habits, brand consciousness, expression attitudes, argumental nature and lot more.  The conditioned mind put one in to comfortable in favored situations and vice versa. He is comfortable with some people and has discomfort with other set of people. Comfort with particular brand, Food, clothing, perfumes etc. This conditioned mind’s comfort puts one in to exploitation mode. When a person loves a brand lot, he is ready to pay higher price for his comfort. And that is the successes of big brand. With overdose of advertisement, media nuisances, and celebrity endorsements the mass (even a common man from very poor class) develops conditioned mind for the brand. The celebrity claims/endorses for a product (Soap, for example) is mostly an untruth and endorsed for advertisement/financial contract only. (We all know all soaps are more or less made with same material than why so much variation in different brands.)

This conditioned mind applies to various areas too. It may be for medical assistance (for a doctor), for a chocolate, for a filmy hero, for an airline, for toothpaste, for a religious guru or hundreds of areas….

The main point one has to understand that his love towards anything (under conditioned mind) should not lead him to his own exploitation.

If one overcomes the above negatives of the conditioned mind, it is a strong positive also.

A strong belief to own idea leads to a straight success. Those who were considered Paagal or dhooni, etc. have achieved great success. Their inventions with life have shown different ways to the society.

Better is one starts observing own attitudes, find out own conditioned mind and its positives and negatives.

Investors also have their mind conditioned. Many investors see Bank FDs and insurance as only investment options. History says that only those who came out of their box have given exceptional results. One has to think about Mutual Funds, SIP and asset allocation in various investment sectors to get good financial strength through investments.

We only need to think differently and have to stick on it to get out of conventional box thinking.