How to get best "Return on your overall Portfolio with lowest possible Risk" !!

It is easy to get distracted in today's age, but when we are talking about "Money/ Investment", it becomes one of the most important decisions of our life, so i would request your attention for just 10 minutes.

To explain in the best possible way, i am writing this article "End to End".

Let us start with understanding "What is financial planning" !!

It includes mainly 6 points :

• Tax planning.
• Insurance planning.
• Investment planning.
• Retirement planning.
• Estate planning.
• Goal planning like Child's education, Child's marriage, Buying a car, Buying a home etc.

 Below are a "Number of factors" which affect the "Risk profile" of an Investor :

• Age.
• Employment.
• Nature of job.
• Psyche.
• Earning members in the family.
• Number of dependents.
• Capital base.
• Regularity of income.

Now let us understand "What is a Financial life-cycle" !!

In "India", Children are dependent on their parents till the age of 22 and don't have any income stream generally. During these years, the focus should be to"Save" from the pocket money.

After graduating from college, one needs to "Save money from the salary received and start Investing".

The Investment, at this point of time can be made towards "Buying a car or going to a vacation".

When one gets married around the age of 25 or so, the salary would increase by some amount and the portion of "Saving & Investment" should also be increased by some percentage. At this stage in life, one needs to think about "Insurance" as-well.

As a person starts family, he/she witnesses growth in career along with higher salary and more experience. The expenses also rise, so one needs to "Save & Invest" some more percentage of the amount received and start thinking about "Tax planning, Retirement planning & Goal planning".

A person needs to be cautious about the "Financial situation & Budget" at all times.  

While making a "Financial plan", people generally tend to ignore a very important part of it which is "Inflation rate".

"Inflation" basically means that "The price of Goods & Services increases over a period of time".

Below is a simple example to show the "Impact of Inflation" :

As the "Inflation" increases, the cost of goods & services increases.

If a person could have bought 2 apples for 10 rupees in the year 2000, then in 2015, he/she would only be able to buy 1 apple for the same 10 rupees.

Thus we say can that "As inflation increases, the value of money goes down".

This is why "Investing" is important.

Now that we understand all this, let us take a look at "How we can get best Return on our Portfolio with lowest possible Risk" !!

There are over 45 Asset management companies (Mutual fund companies) in India which have over 900 schemes but broadly all of them can be categorized into following :

1. Liquid funds or Cash management funds (Very low "Risk", very low expected "Return").

2. Arbitrage funds (Low "Risk", low expected "Return").

3. Bond funds/ Debt funds - These are further categorized into 3 parts based on the "Holding period'.

* Tenure of 3 months to 1 year (Low "Risk", low expected "Return").

* Tenure of 1 year to 3 years (Medium "Risk", medium expected "Return").

* Tenure of over 3 years (Higher than medium "Risk", higher than medium expected "Return").

4. Equity funds (High "Risk", high expected "Return"). 

The longer the "Time horizon" for a goal, the more suitable "Equity" becomes for an "Investment".

Equity funds can further be categorized into [Sector, Thematic or Diversified] and each of these can also be further categorized into [Small-cap, Mid-cap & Large-cap/ Blue-chip].

5. Gilt funds (These funds invest in Government or Government backed securities).

6. Balanced/ Hybrid funds (These are a mix of Debt and Equity funds).

7. Index funds (These funds track the broad market and have a underlying benchmark to an "Index").

8. Income funds.

All this being said, let us take a look at all the "Asset classes" one can invest in :

• Mutual funds.
• Real estate.
  
• Gold/ Precious metals/ Minerals.
• Art/ Antiques/ Collectibles.

To get the best results on our overall "Portfolio", we should have different allocations to each "Asset class" based on what best suits our "Risk" profile & "Return" expectations.

When we construct our detailed "Portfolio" keeping all these things in mind, we can say that we have put our "Money" to the best use and we can expect to benefit from the "Power of compounding".

Just to give a brief idea, below is an example to show "How much a small change in return percentage" can affect our "Portfolio" :

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The famous "Monkey business" story in Stock market !!

Forget “The intelligent investor”.

If you are a beginner then this is the first thing you should read !!

Once upon a time, a rich man from the city arrived in a village. He announced to the villagers that he would buy Monkeys for ₹ 100 each.

The villagers were very happy, after all there were hundreds of Monkeys in a nearby forest.

They caught the Monkeys and got them to the rich man. He bought hundreds of Monkeys and paid ₹ 100 for every monkey the villagers gave him.

They began to make a living out of getting Monkeys from the forest and selling it to the rich man.

Soon, the forest began to run out of monkeys that were easy to catch.

Sensing this, the rich man offers ₹ 200 for every monkey. The villagers were ecstatic.

They went back to the forest, set up traps and caught the monkeys and got them to the rich man.

A few days later, the rich man announced he would pay ₹ 300 per monkey.

The villagers began climbing trees and risking their lives to catch monkeys and get them to the rich man who would buy them all.

There were no Monkeys left in the forest.

One day, the rich man announced he would like to buy more monkeys, this time for ₹ 800 each.

The villagers couldn’t believe this. They were desperately trying to get more monkeys..

Meanwhile, the rich man said he had to go back to the city due to some business work and until he returns his manager would deal on his behalf.

Once he left, the villagers were unhappy. They were making quick and easy money from selling monkeys, but the forest no longer had monkeys.

This is when the manager of the rich man stepped in.

He made an offer the villagers could not refuse.

Pointing out to all the monkeys that the rich man had caged, he told the villagers he would sell the monkeys for ₹ 400 each.

Sell them back to the rich man at ₹ 800 each when he comes back, the manager said.

The villagers were over the moon. Buy for 400 and sell for 800 in few days. They had just found the easiest way to double their money.

The villagers collected all their savings and even borrowed money.

There were long queues and within a few hours, almost all the monkeys were sold out.

Unfortunately, their happiness did not last long, as the manager went missing the next day and the rich man never came back.

Many villagers kept the monkeys with them, hoping the rich man would come back. But soon, they lost hope and had to let the monkeys back into the forest as feeding and taking care of the noisy monkeys became extremely difficult.

This is exactly what happens when you buy low-quality companies in the stock market.

There will be a low-priced stock which no one is interested to buy. A few rich men will suddenly start buying it.

The stock price will rise, because there are suddenly a lot of buyers and very few sellers. Classic case of huge demand and no supply – like the Monkeys in the forest.

The stock gets plenty of coverage on business channels and newspapers. These rich men will also use tricks like sending out bulk SMS, asking people to buy the shares for huge returns, giving free tips.

New and inexperienced investors, hoping to double and triple their investment, get lured into them.

And finally the big players who had bought the stock early when no one wanted it, sell it back to inexperienced investors at high prices.

Don’t be greedy, there is no quick money in the stock market or in life.

It takes time and effort to become wealthy and there are no shortcuts. 

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Investing in the "India" story !! Revealed !!

The country must overcome many Economic, Social and Political problems before it can be considered as a "Super-power".

"Yes" like any other country in the "World", "India" has a few problems of its own to deal with before it can steal that coveted "Super-power" tag from a "Behemoth" like USA.

Also, it has to compete fiercely with "China - The Dragon" in order to achieve that.

To understand the complete "Big picture", we have to understand where "India" is coming from, where "It" is, What needs to be done & then we can talk about Where it is headed".

• When "India" declared its independence in 1947, its GDP was a mere 2.7 lakh crore rupees, accounting for a paltry 3 % of the world's total GDP. As of Fiscal year 2020-2021, the "Indian" economy was clocked at over 125 lakh crore rupees. That is a 42 multiple jump since its Independence 73 years ago.

• Thought to only be a land of "Snake charmers" till few years back, "India" has taken many leaps forward in terms of Pharmaceuticals, Technology, Infrastructure and Space exploration.
  

"India" in terms of "Sectors" :

• "Agriculture" - Constitutes only 18 % of the Total GDP at "Current prices" and employs 53 % population of "India".

• "Industrials" - It includes "Construction, Water supply, Gas, Mining & Manufacturing". It is contributing about 30 % of the Total GDP at "Current prices".

• "Services" - This sector has become the "Backbone" of "Economy" and given the statistics of population it makes sense as-well. It is currently contributing 52 % to the Total GDP.

Let us talk some "Numbers" :

• Average per capita income of an "Indian" is only 1850 $ per year.

• Estimated "National savings" for the year 2019 were 940 billion dollars.

• Fiscal year 2021, the fiscal deficit is pegged at 18.4 lakh crore rupees or 9.5 % of GDP.

• The "Trade deficit" with China is at 45.9 billion dollars, down almost 11 billion dollars as compared to last year.

• The "Current account deficit" stood at average of 2.2 % of GDP.

• The "Debt" stands at around 80 % of GDP.

• The "Market capitalization" is at 104 % as compared to the GDP.

• Forex reserves stand at all time high of 580 billion dollars.
  

Challenges for the Economy :

• Poverty - As per the "World bank poverty line", the rate declined to 37 % in 2018-2019 from 57 % in 2011-2012.
  

• Unemployment - The rate is clocked at 7 % but many say that it is in the "Formal sector" otherwise the rate is a bit higher.
  

• Education - Literacy rate stands at 74 % but the percentage of skilled workers is lower.
  

• Healthcare - India stands at "42 rank" in the "World healthcare ranking index" and for private treatments the cost has gone significantly up.
  

• Rising "Inflation" - When combined with weak demand, the unemployment figure does not paint a very rosy image at the moment to be honest.
  

• Weak demand - Overall "Consumer confidence" is shaky as the country is dealing with numerous challenges.
  

• Lack of "Fiscal stimulus" - Due to the concern of widening "Fiscal deficit".
  

• Corruption/ Black money.
  

• Lower than needed "Tax collections" - Salaried middle-class is bearing the burden of both "Rich & the Poor" on its shoulders. Many people refrain from "Honestly paying taxes".
  

• Average "Infrastructure". Projects showing "Cost over-runs".
  

• Poor "Air & Water quality".
  

Factors in Favor :

• The journey of "Sensex" from 100 in 1978 to 50,000 in 2021.

• Increasing "Domestic investor" participation in the "Stock market".

• Steady FDI (Foreign Direct Investment), FII (Foreign Institutional Investors) & FPI (Foreign Portfolio Investors).
  

• Recent spurt in minimum wages intended to increase the "Personal disposable income" to boost "Consumerism".
  

• Shift from "Agricultural sector" to other more productive sector's of the "Economy".

• Among "World leader in Milk, Sugar, Information technology".

• Focusing on "Renewable energy".

• Large young enthusiastic population leading to no shortage of workforce/ manpower.

• High percentage of "Salaried middle-class people".

• Diverse geography.

• Foreign language skills.

• Good foreign relations.

• Mass transit system.

• Tourism.

• Powerful "Army, Airforce & Navy". Equipped with "Nuclear weapons".

• Focusing on Social unity.

• Working on literacy & skill development.

• Focusing on Healthcare & Infrastructure.

• Habit of "Savings" now turning into "Investments". 

• Urbanization.

• Shift of workforce from "Un-organized" to the "Organized sector".

• Focusing on "Manufacturing & Services".

• Global brands entering "India" should help in "Job creation".
  

Sectors likely to benefit going forward :

• Exports.

• Banking, Finance & Financial services.

• Online education.

• Low cost services.

• Automobiles.

• Real estate/ Construction.

• Renewable energy.

• Water supply.

• Gas.

• Metals & Minerals.

• Media & Entertainment.

• Information technology.

• Biotechnology.

• Gaming.

• Fast moving consumer goods.

• Consumer durables.

• Pharmaceuticals.

Economists & Scientists both agree that in this Century, we will see more Technological advancements than we saw in the past 500 years.

More insights are available in the books like "Wealth of Nations", "Capital in the 21st century" & "The Great Super-cycle" where Top economists have said based on their research and analysis that if 19th century belonged to the "British", 20th century belonged to the "USA", late 20th century belonged to "China", then the 21st century surely belongs to "India".

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17 Reasons why Retail investors & Traders are not able to make money !!

It is well known fact that over 97 % people lose money.

According to me following are the reasons :

• Not having enough knowledge.
  

• Lack of experience.
  

• Catching a falling knife.
  

• Getting out of a profitable idea too soon & not riding the trend.
  

• Inadequate position sizing & risk management.
  

• Taking leveraged margin trades without knowledge or experience.
  

• Investing with borrowed money.
  

• Averaging when the price is falling continuously.
  

• Looking only at silly indicators.
  

• No strong trade logic.
  

• Acting on tips provided by others without learning a thing.
  

• Trading based on a news or business channel.
  

• Trading on every other setup made by a "You-tube/ Social media" market expert.
  

• Investing without doing proper research.
  

• Not having a thorough idea about Fundamental & Technical analysis. 
  

• Falling prey to stop-loss hunting by Market makers and Operators. 
  

• "Buying" High & "Selling" Low.

 

After you get through this process, you can see your portfolio grow as an investor or as a trader.

Below are a few "Swing trades" which i also shared with trade logic in our telegram group.

Disclaimer : No recommendation to "Buy" or "Sell".

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7 Reasons why "Investing" is more important than ever before !!

Talking about "India", as a country we are witnessing that many people have started doing "SIP or Systematic Investment Plan" as a route for their "Investing" journey.

We have seen many TV commercials saying "Mutual fund sahi hai".

In 2013, the regulatory authority of Securities market known as "Securities exchange board of India (SEBI)" issued out a notice mentioning the "Investments" on "Direct plan" for the investors who have knowledge about where they should invest according to their goals and risk profile.

It is a good initiative for reducing the dependency on "Distributors" who receive some portion of the money invested in return for their service to guide people on "How to invest, Where to invest, Why to invest, For how long to invest". They gauge the risk profile of the person, the financial condition of the person, understand what are the goals that a person has, understand what is the time horizon to achieve those goals and suggest a place to invest.

If i go by my personal experience then over a duration of past 4 years i have seen many Retail investors opting for the "Direct plan" but i am assuming that not all of them completely understood the process of selecting a particular "Mutual fund" or an "Equity scheme".

Cannot blame them for the lack of knowledge because the "financial literacy" in "India" is poor.

The education system does not teach these things at the root level. 

I saw people writing online after "Investing at a direct plan" asking others for their opinion on their personal portfolio.

I have received a certification on "Mutual fund distribution" so i know what the process should be, what factors should be considered before making an "Investment decision".

There are about 44 Asset management company's. There are over 500 schemes to choose from and each scheme has 4 different options.

At first i also had difficulty understanding the "In & Out" of this Industry despite of the reading which i was doing and working with a distribution firm.

Just so nobody gets me wrong i am all for "Direct plan" and people making an informed decision by themselves.

What could be better for the "Economy" ?

If people are literate on the topic, educated about it, aware of the pro's & con's and have the ability to make a right decision then there is no problem.

People even invest more if they understand what they are doing.

As an "Investor", there is no better thing for me considering how much we "Indians" save and the strength that lies in our population.

I am not working for any "Distribution company" anymore nor i am a "Distributor" myself.

Somewhere i feel that maybe people are heading about the "Investments" in a wrong direction and "Boy ! It almost never ends well". I cannot even imagine going "Wrong about my Retirement planning".

Let us take a look at the "Reasons why Investing has become more important than ever before" :

1. Savings are decreasing because of increase in expenses and wages have not grown by much since the past decade.

2. Education of children is becoming more expensive.

3. Healthcare cost is rising rapidly.

4. Doing a "Fixed Deposit" hardly beats the "Inflation rate" which means "Net annual return" is below 3 %. It means that 10,000 rupees which are sitting in the bank FD will only compound to become 18,600 rupees after 20 years. Yikes !! Forget the "Retirement". It maybe a bit "Harsh" but it is "True".

5. Planning for your Child's marriage which in itself is a costly affair in "India".

6. National savings certificate, Commercial paper, Certificate of deposits, Post office schemes, Unit linked Insurance plans & 10 year government backed sovereign bonds don't yield much return anymore.

7. Creating some wealth for the next generation which as "Indians" we all want to do but very few are able to achieve that. 

10,000 rupees compounded for 20 years at the rate of 9 % excluding inflation can yield 56,000 rupees but seeking the right advice is absolutely "Necessary" for achieving that.

Going by today's standards, i personally don't think that many Mutual fund's are hand-holding "Retail investors" that well.

Also i don't think that "Many people" have the adequate knowledge or understanding to rightly make the decisions themselves.

That is the problem i see.

Above are a few stocks from my "Investment" portfolio since November 1 2020.

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Everything you need to know about Gold/ Precious metals/ Minerals, Oil & Currency !!

Let us talk about everyone's favorite shiny "Gold" first.

Have you ever wondered about "How the price of precious metals is decided" ? 

Be it Gold, Silver, Platinum, Diamond, Copper, Aluminium, Zinc, Nickel, Graphite, Uranium, Lithium or Plutonium !!

In layman terms, the answer is "Demand & Supply".

But what factors are involved in concluding that "Demand & Supply" conditions ?

• Usability (The more the number of uses a material has, the higher the price).

• Durability (The longer period of time a material is available for the usage, the higher the price).

• Rarity (Minerals & Precious metals are considered as "Natural resources" and in most cases they have to be mined). 

• The harder it is to mine a mineral or metal, the higher the price.

• The lesser the supply of mineral or metal, the higher the price.

• The higher the demand of mineral or metal, the higher the price.

Simple economics !!

What many people do not realize is that the "Price of a Commodity" is also dependent on the "Rate of Inflation".

Much like any other "Asset class" or "Market" or "Industry", "Inflation" is also "Cyclical" in nature.

"Gold" as an "Asset class" can be seen as a "Safe haven" & it is a Universal fact that a safe instrument cannot yield much "Return on Investment".

Adjusted for the "Inflation", from the period of 1990-2020, "Gold" has given an average return of measly 360 %, while over the same period the "Dow jones industrial average" has given an average return of 991 %.

Hence "Gold" should only be looked as a "Short term investment" with the perspective of it providing a hedge against inflation or when the "Equity market" seems to be extremely risky.

Now let us take a dive into "Oil".

"Crude oil" as we know has to be "Refined" in order for it to become usable as "Fuel".

The prices are determined according to the "Demand & Supply" conditions.

• When the "Oil producing" nations cut or clear or release the stockpiled "Inventory", assuming that the "Demand" is stable, this activity impacts the price of "Oil" negatively as it "Increases" the "Supply" in the market.

• When the "Oil producing" nations hold or stockpile the "Inventory", assuming that the "Demand" is stable, this activity impacts the price of "Oil" positively as it "Decreases" the "Supply" in the open market.

For a country like "India" which is a net importer of "Oil", the lower the price, it is better for the economy.

But it is an isolated parameter.

Considering that we all live in a "Global economy", the low prices of "Oil" might hurt the economy of Oil producing nations and have a negative impact on the overall "Global economy" and hence on "India" as well. 

That is why according to many reports and surveys it is believed that 45-50 $ per barrel is the "Sweet spot" price range for the "Oil" in order to maintain the balance of economy between "Oil exporting and oil importing countries".

Finally, let us jump into the "Currency" section for all the "Forex" lovers out there.

In terms of "Traded volume", the "Currency or the Foreign exchange (FOREX)" is the biggest market.

Why not, after all it is involved in everything we do. 

From "Banking system" to "Trade deficits" to "Purchase of goods & services" to "Imports & Exports" to "Political campaigns" to the "Soap we take a bath with" to the "Toothpaste" we use to brush our teeth, everything depends on the "Exchange of value" between two parties and all of it is based on "Currency".

Yes, i know digital currency and all but for now the world is operating on "Dollars" so let us talk about that only.

Disclaimer : No offence to "Elon Musk".

I track only 1 pair of currency and that is "USD/ YEN".

For one who did not understand, "It is the value of 1 Dollar to 1 Yen".

In even simpler terms, "It is the value of 1 Benjamin Franklin to 1 Yukichi Fukuzawa".

Right now, the "Currency pair" is trading at 108.92, so it means that for "1 Dollar you get the value of 108.92 Yen".

• The US Dollar is considered to be a "Risk-on" currency which means that in the case "Dollar is going up against the Yen", investors/ traders are willing to the take the "Risk" and are not averse to it.
  

• The Japanese Yen is considered to be a "Risk-off" currency or a "Currency safe haven" which means that in the case "Dollar is going down against the Yen", investors/ traders are in a cautious mood and are not willing to take much "Risk". Hence we can say that the general sentiment is being "Risk averse".

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What is "Artificial liquidity" ? How do "Operators/ Manipulators fool Retail Investors & Traders ?

Let us just start by saying that “Yes” there is such a term and it is pretty much real.

When i see the deals section in terms of Trading activity of some stocks, it is quite visible that some XYZ company/ proprietary firm bought 1 crore shares at say 100 rupees and sold 1 crore shares at rupees 99.70 or 100.30 on the same day or the next day.

Now that to me indicates something fishy and that is What i call “Artificial liquidity”.

Why does anyone do that ?

The stock exchange has many criteria for listing a company and even after the shares are listed, there are a few criteria which need to be fulfilled in order to remain listed on the stock exchange.

Basically some percentage of the free float shares of a company must be traded every 6 months or so for that company to stay listed on the exchange.

Moreover, the companies that are looking forward to become eligible for a higher standard of grouping on the stock exchange can hire a proprietary firm or firms behind the curtains to do so.

Companies that aim to be eligible for their stock to be included at the “Futures & Options” segment also have to fulfill these kind of liquidity criteria to show it to the stock exchange that secondary market for the company's shares is strong and the turnover meets the requirements.

However there is another factor of delivery percentage but that can also be managed between a few proprietary firms or brokers.

This activity is known as "Market making" to the broad audience.

It is more of a service provided by some rather than anything else. 

This “Artificial liquidity” sometimes confuses Retail investors and traders who think that there was some major buying or selling in particular script when in reality there was nothing like that, we got bulk deals and block deals to figure that out.

On some days, the real trading does take place and due to the nature of speculation on the prices by Retail investors and traders they get stuck into such low liquidity/ low volume stocks.

Thinking of making money by buying a good chunk of penny stock with a sizeable portion of your savings does not seem to appeal to me.

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Under which circumstances "Technical analysis" does not work ?

I am sure if you ask any Decent qualified "Technical analyst" which conditions they fear the most, you would most probably hear them say “When market is Range-bound”.

In case of news and events there is un-certainity, it may not work in those situations as-well.

The simple logic behind it is that a "Trending market" is visible and people know “What to do”.

• Buy the corrections in an Up-trend.
• Sell the rises in a Down-trend.

No rocket science there.

However, when the market is "Range-bound", one cannot simply understand what to do.

People try to "Sell" and market starts going up, people "Buy" and market goes down.

One can "Sell" when market turns down from the range top and "Buy" when market turns up from the range low but doing so is not as easy as it sounds.

It can keep on happening for months or a few years in extreme cases.

So what does one do ?

• Look for Internal patterns in that range.
• If the range is very narrow in terms of percentage movement it is best to avoid trading.

The problem with using Indicators alone in this type of market is that you will mostly get mixed signals and hardly make some money that too if you are either lucky or smart to understand what is going on.

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