15 Jun 2011

Why We Should Invest in the Indian Stock Market...

The stock market is one sector which a lot of us want to avoid. We’ve heard terrifying stories of people losing money like never before and going bankrupt. We have conditioned ourselves to believe we are not capable of understanding financial markets and decide to stay away. But FDs give us about 10% interest annually, MFs something like 12 – 13% after all fees being cut and inflation is consistently rising; it’s currently at 10%. Are we really making enough money to secure our futures?

We have geniuses of minds when it comes to professions. We come up with ideas that sometimes make crores for the company and also those which save costs and increase efficiency. But we believe we don’t have the financial wisdom needed to earn, and that alone prohibits us from venturing into unchartered territories of stocks & equity. We mostly invest in Mutual Funds to save on taxes without understanding how much potential they have for us rather than commissions for the agents.

The Stock Market gives us a chance to see a lot more of this
It does not take an Einstein to invest and make profits in the stock market. Yes, derivatives and intraday trading need some practise and understanding. But to start with, long term investing is no rocket science. One can look at current & future trends, company management and potential, valuations, Price to Earnings, etc. and make an estimate. These terms can be explained by any stock broker and do not take much time to comprehend. There are shares which have grown 3 – fold in as many years, and some have experienced a little lesser growth (some even more) but shown solid performances. So if you had invested Rs. 10,000 in ITC Ltd. in 2006, it would have grown to roughly around 40 grand by now, including bonuses and dividends, etc. The same amount invested in Page Industries (licensed marketers of Jockey) and Jubilant Foodworks (distributors of Dominos Pizza) would have become 150,000 and 72,000 respectively. There are patterns to technically analyse stocks (Wedge, Head & Shoulders, etc.) which allow understand what the possible movements of the stock prices will be. A little practice, experience, etc. will enable one to be able to perform much better in the markets. Technical analysis will even help in intraday trading and money making. Of course, if one loses money in the market, he/she analyses his/her mistakes and gains an even better understanding of this volatile market. Spend 30 minutes lesser a day reading novels and invest in reading in a business paper or watching a business channel with the experts speaking, and see the difference.

Mutual Funds are actually much better performers over a longer period of time; more than the 3 years we park our funds in them. MFs like HDFC Top 200 have given almost 30% returns over 10 years vis – a – viś 11% over 3 years. Systematic Investment Programmes (SIP) over a period of 7 years or more (the more the better) with a little bit of R&D on the fund will give much better investment returns than short term investments. Factors to look for are fund manager reputation, returns over the last few years, sectors and companies the fund invests in, how often they change investments (that’s a bad sign), whether the agent himself invests in the fund, etc. Try applying the concept of Compound Interest with an average of 25% over 10 years to the amount invested via SIPs and compute the returns you get at maturity. For any queries about it feel free to leave a comment or e-mail me.

India is still in its infancy when it comes to investment. The penetration into equity is less than 2% in India, while our country contributes to only 0.63% of the worldwide MF assets. More and more foreign and Indian investors are bullish on the market growth. This temporary hiccup of inflation will soon be sorted by whichever government wants to stay in power. Why should we lose out on the party? Yes, there will be instances when we will lose out on money invested (even experts lose money after playing in the market for decades) but that will make us only more seasoned. Try starting with virtual stock games like www.khelostocks.com and http://money.rediff.com where the movement is real but the money is virtual. One can afford to take more of risks when one is young (portfolio can comprise of 70% equity and 30% debt in one’s 20s and change inversely as age and responsibilities increase). So don’t wait for long. There is a huge bull run still to be witnessed in the Indian stock market. Try and make sure you are a part of it for a more financially secure future.

5 Jun 2011

"I Don't Want It."

This is probably the most powerful sentence in today’s environment; exactly opposite to what people believe gives them power i.e. “I want it!” How often do we use these words today? And do we know what results it yields?

Google exposes us to new things almost every day. The world has become a much smaller place. New Apple/Android phones can be purchased even before they are officially launched in a country. Our desires have increased, and so have our wants i.e. our desire to own something backed by the ability to purchase it. But this increase in disposable income for us has also been beneficial to manufacturers and service providers. Not just because their sales have increased, but also because the surplus demand has gradually allowed power to shift to their hands. Impatience has become an innate tendency amongst buyers and sellers are cashing in on this.

Scarcity of a particular item has led to, amongst others, rise in prices, increase in waiting periods and outrageous demands by the providers of products and services. Sometimes these demands include extra charges we consumers must pay for issues which they (sellers) create. I have come across 2 such examples in the past 2 months. The 1st one was when I was buying a new cell phone. The shopkeeper increased the price saying it included various taxes. When my friend said we were getting a better deal elsewhere and got ready to leave, all their taxes vanished and we got the handset cheaper than what was quoted at the other store. The 2nd one was when I was buying a new car. The dealer told me about 3 – 4 ridiculous clauses and said I had to adhere to them as it was part of standard procedure (Details of those may prove very boring). Since I was not desperate for the car, I told them I didn’t want the car. They kept saying I would have to follow the procedure and that it was for my own good, and I told them I would approach another dealer who could see things the way I do. Once again, all clauses were done away with and my terms and conditions were accepted.

We pride ourselves on being the impatient generation. TVs, cars, durables, laptops, consoles, mobile phones, etc; we want them at the push of a button. Sometimes, maybe out of desperation, we pay a premium and also may end up being harrowed by sellers for more money under the pretext of ‘setting’. All this extra money is pocketed by sellers while we are made to believe they united heaven and earth to get our work done. Similar is the case of telecom service providers (TSPs) also. They do not care how much we complain about poor service or billing issues (as long as we are adding to their ARPUs). If one threatens to leave the service, they don’t mind; they believe they’ll find many more. But the same applies to us too. True, it is an oligopolistic market (few sellers, many buyers) for TSPs, but we have the option of other providers too. MNP just makes it that much more convenient for us.

India has evolved, or rather revolutionized, since the early 90s when we had to wait years for everything. Barely any company has a monopoly in the market now; the market is far more competitive and there are people implementing good business models to meet our needs. So we do not need to depend on someone for selling us what we can buy from anywhere. If our desires have increased, so have the options to fulfil them. Let’s use the best information source – Google, to find alternate people/places/techniques that will fulfil our needs without us having to cater to their whims and fancies. If we can induce some patience in ourselves and remove the cap on the time limit to fulfil our needs and wants, we will end up realizing we got what we wanted and it was a bargain. We save money, are more knowledgeable and feel good about it. Besides, it will once again dawn upon sellers that the customer is king. We just need to know how and where to prudently use the words “I don’t want it!”
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