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It's no trick to make a lot of money, if all you want to do is make a lot of money. Rich Preach is a compendium of financial awareness. This is an attempt to ignite financial literacy and demystify the tricks of making money. The approach is not a short cut but knowledge driven. The author has tried to keep the vital information crispy and understandable to a common individual. 27 March, 2008 Value stocks? Investment guru, Benjamin Graham, has talked much about value investing and value stocks in his book “The Intelligent Investor”. Let us simplify the concept so that you do not have to browse entire book. Value stocks have characteristics like: - These stocks are available at a bargain (cheap) price, i.e. the stocks are trading at a lower price than their valuations. The ratings of such stocks are very handy these days and available in financial magazines, blogs, newspaper or company websites. Now you have rather simple task in terms of finding such value stocks. But yes… Don’t fall in love with these stocks. Sell them once the valuations seem stretched. Don’t be greedy. OK? 27 March, 2008 Sectors set market trajectory Sector specific trends lead the market to mew heights. During early 2000s we witnessed IT, Oil, Banking and Pharmaceuticals leading the market. Thereafter, Telecom, Real Estate, Power and Brokerage Firms drove market to 21000 marks. If we do a scrutiny of Union Budget 2008, sectors such as Automobile, FMCG, Agriculture based businesses and Steel will shine. While following this principle, do not forget to switch to next market leader sector. Also, keep a tab that you do not invest in a sector or a stock in leading sector which is overstretched. In a nutshell, if you want to beat the market and book a better profit than market rises, ride on the sectoral vehicle. Investing in equities seems very simple now. Isn’t it? 25 March, 2008 7 myths of retirement planning In general, saving for retirement takes less precedence over meeting day-to-day expenses. You should start investing for retirement as soon as possible. You must overcome all of the following myths: 1. Age: Young people (25-35) do not appreciate the idea of planning for retirement. Let us consider an eye opener scenario. Assuming you do not plan to invest for retirement till the age of 35 years. With growing life expectancy, people survive till around 80-85 years of age. You work aggressively till the age of 55-60 years of age. So effectively you have 20-25 years to earn and save for next 20-25 years when you just have to spend. Wake up! The earlier you start investing, the merrier your retirement life would be. 2. Expenses: People assume that they would lead a plain life post retirement. So, the expense would be less compared to working era. Biggest myth! There are several expenses such as medical, gifts for children/ grand children and travel are not accounted for. 3. Inflation vs fixed returns: People tend to forget that inflation might eat-up all the returns if it is kept in fixed return schemes. Due to inflation, purchasing power diminishes. Offset this! Before it is too late. 4. Children: There is a natural tendency to depend on children post retirement. Don’t forget! In today’s nucleus family system, your wishful thinking may disappoint you. If your children can take care, let that be bonus for you. But do not count on that factor. 5. Equities: People feel stock market is very risky avenue to tackle as it rises and falls irrationally. But, if you look at historical data equities in BSE Sensex give a compounded return of about 20% per annum. Whereas, FDs around 9%! Equities are best inflation busters. It is observed that when inflation rises, share prices also rise. 6. Bank deposits: Many a times, people feel that bank deposits are adequate to survive throughout the retirement. Again, they forget inflation factor and do not realize that their fund might diminish with diminishing purchasing power of the currency. 7. Earning: Last but not the least, retirement planning is not that scary. You do not need a huge sum if you start early to put in retirement fund. You just have to save a little extra. Trust me! Only a little extra for a relaxed retirement life. 22 March, 2008 7 point checklist for a wealth management product These days we come across a myriad of wealth management products. Banks and other financial companies are more than eager to manage your money and promise handsome returns. Wealth managers and relationship managers of these companies may not be ethical and trustworthy always. You should equip yourself to judge their capability and knowledge about their own products. The idea is to prepare a checklist and be fully satisfied before investing. Commit only if the wealth manager/ relationship manager scores to your satisfaction. 1. Qualification and experience: Nothing really can beat a good experience. Pick a manger who has gone through multitudes of troughs and crests of the money market. Ask their methodology to handle such situations. A certified financial planner or any degree/ diploma/ certification which is recognized internationally shall be evident of his/ her professional and ethical demeanor. 2. Value added services: Shortlist only those managers who have end-to-end financial planning services, comprising of tax planning, diverse investment avenues 9equity, debt, commodities, insurance, real estate) and financial education programs/ seminars. The plan offer complete solution under one umbrella. 3. Personified plan: every individual has different financial goals, income generation, family size, liabilities, lifestyle and expenses. The plan should be flexible enough to suit your needs. The manager should not push a product from a limited pool. 4. Commission and fees: Identify all the scopes from where the manager charges you. It could be regular fees, commission on capital gain or a combination of both. 5. Investment avenues: Ask for the areas where the manager plans to invest your money. It should be diverse enough that risk can be minimized while achieving the maximum capital gains possible. Manager must be transparent enough to tell you the avenues, expected capital gains and risks associated. 6. References: Can your wealth manager give you some references of his/ her clients? Ask. If you get the reference ask question to these clients on the similar lines we discussed above. 7. Exit criteria: If you are dissatisfied, the exit route must be smooth. Get clarification on exit process too. 20 March, 2008 Consistent philosophy for inconsistent equity market There are certain proven philosophies for investing in equities. We must keep this as checklist while taking crucial decisions of investing in equity market. The principles are applicable to all kinds of market conditions. Invest regularly: Do not fall in dilemma whether to buy or sell at any moment. Market keeps dancing at certain tunes, which is difficult to decode. Still you should invest with extra caution in stretched market and leverage buying opportunity during dips. Do not magnify the risk tremendously and certainly don’t expose much on mere speculation. Reinvest Profits: Reinvesting profits help you maximize gain through compounding. Do value investing: Invest in growth oriented companies, irrespective of size or past performance. Such data is readily available in magazines, newspapers and Internet. Beware; do not fall into the traps of rumors. Trust only authentic sources. With experience you would be able to weed out rumors from news. 19 March, 2008 Retail investors loose money while trading Traders, barring stock brokers, tend to loose money by playing for short term in the equity market. If you book handsome profit while trading, it is by dint of luck and not due to smartness. Let us dig further why you may loose money this way: 1. Commission costs: Frequent buying and selling means more commission paid as brokerage. Almost 2-3% money is gone both ways. 2. Entry barrier: Traders create an entry barrier in a share themselves. For example you buy a stock at X price and sell it at 1.2X price. In next few days it goes further up and touches 1.5X price. Now, you will not feel motivated to put money in this stock and you missed the entire rally. 3. Indiscipline: On few occasions greed motivates the conscious decision making process. In expectation of big rallies of a share we keep holding while the stock price is going down. You must maintain a stop loss and ceiling associated with each stock you buy. 4. No preparation for volatility: In rising market, when the market is overstretched, trader might forget that market corrects by a huge margin at times. They tend to invest entire money when market rises. Now, if the market corrects traders are handicapped and do not leverage the fall in absence of liquid money.17 March, 2008 Consistent philosophy for inconsistent equity market There are certain proven philosophies for investing in equities. We must keep this as checklist while taking crucial decisions of investing in equity market. The principles are applicable to all kinds of market conditions. Invest regularly: Do not fall in dilemma whether to buy or sell at any moment. Market keeps dancing at certain tunes, which is difficult to decode. Still you should invest with extra caution in stretched market and leverage buying opportunity during dips. Do not magnify the risk tremendously and certainly don’t expose much on mere speculation. Reinvest Profits: Reinvesting profits help you maximize gain through compounding. Do value investing: Invest in growth oriented companies, irrespective of size or past performance. Such data is readily available in magazines, newspapers and Internet. Beware; do not fall into the traps of rumors. Trust only authentic sources. With experience you would be able to weed out rumors from news.16 March, 2008 Leverage recent fall in equity market A steep fall and volatility in BSE Sensex over the past two months have created panic among retail investors. They feel they did blunder by not exiting at the right time, when market soared till 21000 points. These feelings are more associated with new investors who never faced such mayhem. Seasoned investors have undergone such phases and are more equipped to deal with them. Trust me, this is a litmus test for you and will certainly help you becoming an accomplished player if you handle it smartly. I know it is natural to become emotional after loosing huge sum during the fall of market. Most of you might have quit the stock market altogether out of fear. But, if we look at the larger picture and a broad horizon (at least one year), current situation is an excellent investment opportunity. Sooner or later the market will bounce back. When the market bounces back in near future and you did not invest in trough, another feeling might hit you. That you did not leverage the opportunity! 10 March, 2008 SEBI to reduce gap between opening and listing of an IPO SEBI has shown willingness to reduce the time gap between opening of an issue and the listing of securities on the bourses. This is a welcome step as it will cut short the duration for which millions of rupees remain blocked. This will solve the liquidity problem for retail investors too. 07 March, 2008 Ladies! Take a lead in family financial matters Indian women, even working ones, give less precedence to finance related matters in family. While a housewife does not see her scope beyond household activities, working women feel themselves exhausted amidst job and domestic activities. They depend mostly on husbands and other male members in the family for managing money. Naturally, men, while investing for long term financial decisions, might miss out women specific needs. In life time though, women might undergo several transitions when no financial planning might pinch. Transitions like marriage, child birth, career break and retirement are natural ones. In case of casualty like divorce or fatalities, the situation becomes even more critical. Keeping such scenarios in mind, Indian women must change paradigm and start taking charge in domestic financial matters. But what really stops them from taking a lead in financial matters? Maybe, they feel it too be too complex to handle or maybe they do not afford to take risks and want better to keep them away or simply because they have seen male members doing this job for a period of time and do not want to break the trend. Whatever the case be! At least, they need to keep a tab on such matters, if not a lead role. It will do a balancing act as male members will get wise and concerned second opinions. They can opine on issues such as: 1. Letting male members know appropriate distant financial goals from a woman's perspective 2. Keeping a check whether male members are exposing a large sum of money to very risky avenues. 3. Instilling right spending habits in the family. Also, by discouraging exposure to credit cards and loans. 4. Maintaining, reviewing and projecting appropriate household budget 5. Prompting for saving habits and retirement planning. Trust me, if these principles are applied, they will experience at least two changes: 1. They will start enjoying the active participation in domestic financial matters. They may even get converted into leader in such matters. 2. Family will see growing money exponentially! 04 March, 2008 Yahoo! (Company, not jubilation remark) India sacks 45 employees IBM, TCS and now Yahoo! Why do they want to get rid of poor performers? Yahoo has asked its 45 employees to quit from their Bangalore development center. The reason quoted is bad performance of these employees and as a routine Yahoo will sack more professionals in near future. 04 March, 2008 Grey market? Cause of mayhem on IPO listing day 1. Leveraged bets: Leveraged bets are very dangerous trend in IPOs. There are HNIs and retails investors who borrow money from to invest in IPO. They bank upon listing gains to repay the borrowed money as well as book profit. Such investors can make money only if listing gain is substantial. Many banks offer loans for subscription to public issues. At times, effective rates of interest can be higher if the investor gets partial allotment due to oversubscription of the share. No allotment id a nightmare! Anyhow, they sell all their holdings on listing day, causing extreme volatility. SEBI to cap the listing gain 27 February, 2008 IPO woes in Indian equity market After a good phase of aggressive pricing, huge oversubscriptions and decent listing gains, IPOs are now in big trouble. The demand for aggressive listings looks gloomy now, as investors have lost faith on pricing strategy in current bearish market. Classical examples are big IPOs of Reliance, Power, Emaar MGF and Wockhardt. Reliance Power listed at lower price than its issue price and went down by 15-20%, despite grey market rates of twice the issue price. As it is backed by the giant Reliance ADAG, investors can still hold and expect good returns in medium to long term. However, to avoid such an agony, Emaar MGF, after reducing its issue price band twice and deferring deadlines, withdrew its IPO. Wokhardt IPO also followed the same path and withdrew its INR 674 crore offer. 27 February, 2008 Railways sheds lands for commercial purpose The Rail Land Development Authority has recently invited bids for development of its 10 sites. RLDA will allow developers to exploit the land for building group housing societies, hotels and other commercial complexes. When RLDA opened the bid, they received 250 bids from companies like DLF, Omaxe, Unitech and Emaar MGF. Going forward they will auction more such sites.27 February, 2008 Visa woes for Banglore junta Bangalore is regarded as one of the biggest IT hubs across the globe. In all possibility, techies from Bangalore contributes maximum when it comes to fly abroad. Ironically, when you want to travel to US from Bangalore, you need to travel all the way to Chennai for a visa. Despite the large number of IT companies in Bangalore, it has no US consulate. In India, so far, the US issue visa from its embassy in New Delhi and consulates in Mumbai, Kolkata and Chennai. Why Bangalore can’t too have a US consulate? Point to ponder! 27 February, 2008 Re 1/- face value of all shares-Help, Detriment or indifferent? SEBI has decided to keep the face value of all the shares, which trading in BSE and NSE, at rupee 1. The table below captures the various school of thoughts in this regard:
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