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Equity Risk

How We Use What Time We Have

Have you ever wondered how you spend the time that you have in this life? With so many tasks and distractions 
in our daily lives, time often passes without being accounted for. Today’s infographic breaks down how much of our lives we actually spend on routine items and other life essentials.

During an average lifespan of 78 years, you will end up sleeping away around 28.3 of those years? That is 1/3 of your entire life! Doing house choirs will rob you of a further 6 years of your life, while making yourself look neat and presentable will consume around 2.5 years. Sounds exhausting just thinking about it.

Eating and drinking will take you a total of about 4 years of your total life, and sitting and doing pretty much nothing (watching TV, playing video games and social networking) is said to consume about 9 years of your life.

It might be pretty hard to account for, but I suspect another few years is taken up by caring for others.  Especially if you have little ones, which is practically a full time job!

That leaves us with roughly 9 years to accomplish our goals, according to Funders and Founders.  While you contemplate that, find inspiration for how to live your life from your favorite childhood entertainers.

source:http://www.dailyinfographic.com/how-we-use-what-time-we-have

Corrections don't cost you, it's the way you handle them that does

It is amazing how the conversations around markets can change so quickly, and whether it is social media, blogs, or any advisor forums, the most common word I seem to hear these days is “correction”.  The word correction of course poses the standard set of questions about macros, valuations, the India story, 2008, and the best one being, “Are we in a bubble?”  It is a funny question, because every time we have a small correction, there is a tendency to clutch our heads, and say, “We should have never done this, it was all wrong in the first place.” The truth is everything that corrects is not a bubble bursting, but rallying markets do lead to their share of bubbles. An interesting team discussion later, we put down what we thought were the 5Cs of an investing bubble.

The first C is that bubbles are creamy, at some level they appeal to the greed in an individual. There are some basic laws of financial gravity and bubbles often challenge those, for instance, the ability to earn much superior returns than fixed income with the same risk profile and consistency. One of the important questions to ask ourselves, and I think corrections truly test this, is that what returns do we actually need – what is enough to meet our own definition of manageable risk. For instance, in the context of new investors who have just invested in fixed deposit, perhaps the risk profile of an aggressive hybrid fund is not correctly suited, when the more conservative, but still tax efficient, equity savings fund category exists.

The second C is that bubbles can offer a strange kind of consistency, which is hard to replicate. Taleb has a beautiful theory about consistency called the “Turkey Theory”.  The Turkey is a bird in US tradition that is typically fed all year – in some sense it is the happiest animal in the world.  And then one day, on Thanksgiving in November, it is slaughtered. Excess consistency – like the turkey – can carry tail risk. Consistency and tail risk is very important to understand and evaluate in the context of very high yield fixed income for instance, where accruals are consistent but funds are subject to tail risk.

A third C is that bubbles thrive on complexity and stories and narrative are more attractive, often than hard facts. Frothy markets do create complex structures and confusing products, and it is important to peel those layers of complexity. Narrative also leads to heightened return expectations and sometimes, just going back to simple data points – like the 10 year return on the NIFTY, inflation, basic GDP growth – helps us anchor back to reality.

A fourth aspect of bubbles is they are popular, prone to what I call the cocktail party syndrome. When a large number of people invest in a concept, whatever it may be, it is a natural motivation for hordes to flock. The truth is what may be sustainable at a certain size becomes too big to fail at another size, and if there is one lesson from 2008 that I remember is that if something becomes too big to fail, it often does. Capacity is very important to watch for particularly in segments like mid and small cap funds, because liquidity does dry up in certain market conditions, leading to sub-optimal outcomes in the case of redemptions.

Finally, bubbles are subject to cuteness, particularly around communication. One of the big temptations in frothy markets is that the tendency to stretch the boundaries of risk, whether it is credit, market cap range or anything else, which is why at Edelweiss AMC we have constantly talked about the importance of True to Label funds. For instance, arbitrage funds are meant to take arbitrage risk, with the balance 35% being vanilla fixed income. If they venture into large credit or duration views, without adequate communication, they are delivering higher returns at the cost of cuteness.  

I'll end by saying that a lot of conversation about markets tends to be focused on forecasts, around predicting the onslaught of a correction. The truth is, predicting corrections is a bit like predicting World Wars. The sample size is small and the outcomes large, and preparing rather than predicting is an easier outcome. Understanding what drives bubbles can cause us to prevent bubbles from occurring in our portfolio, and being insulated from them bursting. On a lighter note, one of my favorite lines from advertising is Airtel's “Har ek friend zaroori hota hai!”

Relax, keep doing the basics and remember, “har ek correction bhi zaroori hota hai”.

Radhika Gupta is the Chief Executive Officer of Edelweiss Mutual Funds and the views expressed above are her own.

Source : http://cafemutual.com/news/edelweiss-insights/12380-corrections-dont-cost-you-its-the-way-you-handle-them-that-does

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As a Registered Investment Advisor, we are a fiduciary and we will provide you with independent advice regardless of what investment product or family of funds you use. We are held to the highest standard of care and are always required, and always will, act in your best interest.

We are a fee-only investment advisor - we do not receive compensation from anyone other than our clients. Our compensation is based on a combination of hourly fees (which may be structured as a fixed fee) for tax and financial planning services, and a percentage of assets under management for investment advisory services.

Working on a fee-only basis allows us to:

• Act in a fiduciary capacity on your behalf, limiting potential conflicts of interest.
• Help you realize short-term and long-term investment goals through customized financial planning and investment portfolios.
• Make it easy for you to monitor your accounts through simplified performance reporting and use of on-line tools.
• Support you with ongoing professional advice, timely information about accounts, and updates on the world’s financial markets.
• Manage your portfolio and make investment changes as your objectives or the economic climate changes.

If you would like to learn more about Gold Edge Financial Consultants, please contact us below.

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Best Practices

"It is not just WHAT or HOW you do things that matters; what matters more is that WHAT and HOW you do things is consistent with your WHY. Only then will your practices indeed be best. There

is nothing inherently wrong with looking to others to learn what; they do, the challenge is knowing what practices or advice to follow." Simon Sinek

Retail investors should realise 2017 was an aberration

source:http://alphaideas.in/wp-content/uploads/2018/03/DXmk-NuVwAEbmv5.jpg

4 often repeated investing mistakes

What you are doing wrong can severely affect your portfolio. Here are some measures you should protect yourself against.

To err maybe human, but it is also a critical part of any learning process. This is applicable in the realm of investing too. While it’s impossible to always make the right choices, the best that investors can do is avoid common investment mistakes which could hurt their investments and hamper their prospects of long-term wealth creation. Fortunately, most of these investment mistakes are well documented. Unfortunately, they continue to be often repeated. Here we discuss four common ones that investors must avoid.

Investing without planning
Planning is the foundation of investing; the first principle, and sadly the most flouted one. Investing demands discipline and that requires planning. This involves - setting tangible goals, assessing one’s risk appetite, creating an investment plan and then executing it. 

Unfortunately, most of the investors believe that the investment process begins with making investments, which is essentially the last step of a financial planning exercise. Many investors mistakenly believe that planning is required only when they have substantial monies to invest. What they fail to understand is that this is exactly the reason why one should plan their investments. 
The pitfalls of not planning while making investments are huge. This results in making investments in an ad hoc manner and such investments are directionless often failing to achieve desired results. It should be well understood that investments are not an end, rather they are means to achieve an end. Hence, it is critical to plan one’s investments at the onset. 

Making an investment decision based on market levels
 This is apt in the current scenario. With the Indian stock market witnessing almost a secular bull run for some time now, investors are confused as to how to proceed with their investments i.e. whether to invest, redeem or wait. While those wanting to invest are wary of high valuations and waiting for a correction, those wanting to redeem are waiting for the markets to move up further. But then there is no certainty where the markets are headed. This uncertain nature of the market is exactly the reason it is an unreliable factor to base one’s investment decision on. Simply put, consistently timing the market accurately is impossible. Therefore, instead of doing that, investors should divert their energy towards setting their investment goals, selecting the right strategies and spreading their investment risks. 
Systematic investment plan, or SIP, is an effective investment method to counter the temptation of market timing. Apart from instilling a sense of discipline, rupee-cost averaging can help investors benefit from downturns as well. 

 Chasing trends Let’s first understand what it means.
 The mutual fund industry has often witnessed various trends emerging at different points in time. A trend here could be an investment pattern when a segment or sector suddenly hits a purple patch, catching investors’ fancy and leading to substantial inflows. For instance, during 1998-99, technology stocks started doing well resulting in many fund houses launching technology sector funds thus attracting many investors. Similarly, 2004-07 was the period when infrastructure sector became a fad resulting in many fund houses launching infrastructure funds. The problem here is that, these trends which are widely marketed and talked about, however, rarely is their suitability for investors discussed or understood. For example, irrespective of any sector’s popularity, a sector fund is apt only for investors who understand the underlying sector’s dynamics and can time their entry and exit from the fund. 

Similarly, huge inflows into mid/small-cap funds don’t make them apt for all investors given their high-risk high return nature; or gilt fund’s doing significantly well during down interest rate scenario doesn’t merit an automatic entry in the portfolio of every investor.

 Investing based on these trends is risky as it ignores the product’s aptness for investor, thereby making it a poor strategy. While these trends may look like hot tips, they can have disastrous results and hence they are better avoided.

 Investing and forgetting 
Investing is a dynamic exercise. It’s not a one-time activity that one can do and forget. Hence, conducting periodic reviews is critical to ensuring the veracity of the investment portfolio. Further, the review should be conducted in a timely manner, so that deviations (if any) can be identified and rectified.

 Review process is also conducted to understand the weak link in the portfolio. For instance, if a fund fails to play its role in the portfolio for which it was included, it needs to be replaced. Also, a change in the fund’s strategy may render it unsuitable for the portfolio warranting, a replacement. Change in the investor’s needs and risk appetite also necessitates a portfolio review process. With passage of time, a new set of needs may emerge; also, the investor’s risk-taking ability might change. The portfolio should be suitably modified to incorporate these changes. Ideally, the investment advisor must play a significant part and aid the investor in the review process.

Source: http://www.morningstar.in/posts/42984/4-often-repeated-investing-mistakes.aspx

10 Gems from Buffett’s 2018 Annual letter

In a world where investors are drowning in information but starving for wisdom, we are incredibly lucky to receive an annual doze of distilled investing wisdom straight from one of the greatest masters of the craft, that too free!

They say the greatest education is watching the masters at work. One such master piece comes in the form of Buffett’s annual letter to shareholders. I honestly believe there is much more wisdom packed in those 20 odd pages than that can be found in many books put together.

I poured over Buffett’s latest annual letter. Here are 10 nuggets / gems of wisdom which I could find. I have made no attempt to write my thoughts / commentary on these gems as this would be a futile exercise diluting the distilled wisdom delivered with a perfect choice of words.

So sit back, read these gems slowly, pause and reflect on each one of them. Hope you find them as useful as I found them to be.

1.  In our search for new stand-alone businesses, the key qualities we seek are durable competitive strengths;able and high-grade management; good returns on the net tangible assets required to operate the business;opportunities for internal growth at attractive returns; and, finally, a sensible purchase price
2.   Our aversion to leverage has dampened our returns over the years. But Charlie and I sleep well. Both of us believe it is insane to risk what you have and need in order to obtain what you don’t need.
3.  The less the prudence with which others conduct their affairs, the greater the prudence with which we must conduct our own.
4.  Betting on people can sometimes be more certain than betting on physical assets.
5.  Charlie and I view the marketable common stocks that Berkshire owns as interests in businesses, not as ticker symbols to be bought or sold based on their “chart” patterns, the “target” prices of analysts or the opinions of media pundits.
6.  There is simply no telling how far stocks can fall in a short period. Even if your borrowings are small and your positions aren’t immediately threatened by the plunging market, your mind may well become rattled by scary headlines and breathless commentary. And an unsettled mind will not make good decisions.
7.  Performance comes, performance goes. Fees never falter.
8.  Though markets are generally rational, they occasionally do crazy things. Seizing the opportunities then offered does not require great intelligence, a degree in economics or a familiarity with Wall Street jargon such as alpha and beta.
9.  What investors then need instead is an ability to both disregard mob fears or enthusiasms and to focus on a few simple fundamentals. A willingness to look unimaginative for a sustained period – or even to look foolish – is also essential.
10.  Stick with big, “easy” decisions and eschew activity

 Knowledge comes from learning, wisdom comes from living. Let us strive to apply this investing knowledge.

Happy investing!!!

Source: https://stockandladder.com/10-gems-from-buffetts-2018-annual-letter