Tag - #Personal Finance

Beginners’ guide to investing…

“Bro, suggest me some good stocks please.”

“Hey, I heard stock X is going to go up, should I buy it?”

“I want to start an SIP, how to do it?”

“So, like can you double my money?”

As a 20 somethings guy working in the financial advisory industry, I have had my fair share of interactions mentioned above. Somehow you become the de-facto person in your circle whom people confer for financial advice. In this series of articles, I’ll be sharing some of the very basics of Investing for any beginner who has very little information about how the system works. Be advised that this is a very generalised heavily simplified version and the actual actions may differ on a case-by-case basis. Let’s take a dive into the world of bulls and bears, shall we?


  • The Difference Between Saving and Investing: A common misconception amongst first-time investors is that both are the same. However, there’s a critical difference between the two. Savings, in essence, are any money that you don’t spend from your earnings. For eg. On a salary of Rs. 50,000/- per month, a person is left with around Rs. 20,000/- every month, those are their savings. Investing is when you allocate these savings with the expectation of generating income and wealth. An example, of the Rs. 20,000/- saved the person buys Mutual Funds of Rs 10,000/- and Rs. 10,000 in a bank FD, only then can it be considered investments.
  • Set Goals: It might feel like a boring and tedious task, but a lot of investment decisions are based on the person’s financial goals, their risk appetite. The first step before investing is asking questions, why am I doing this? when/how will I be using this money? To appropriately assess investment options.
  • Safety Cover: A critical aspect before starting the investment journey is deciding on an adequate safety cover. It is generally advised to have at least 6 months of your expenses stored away in a rainy-day fund; any unexpected setbacks should not deter an investor from their investing goals. Unexpected illnesses/ accidents or death are the biggest threats to an investor’s long-term investing goals as they can cause wealth erosion pretty quickly. Investors should adequately Insure themselves before investing.
  • Discipline: Investing has very little to do with markets and everything to do with behavioural impulses. It’s easy to start investing, it’s difficult to keep investing and it’s hardest to stay invested. Many first-time investors lack the discipline to consistently keep investing, but persistence is the only thing that generates wealth in the long term. Another trap most first-time investors fall for is consistently checking their portfolio for gains and losses, which is as unpredictable as the wind blowing and are tempted to cash in on their investments for short-term gains or stop investing altogether because of losses. Discipline wins in the end.
  • Uncertainty: Like all things in life, Investing too is unpredictable and difficult to understand at times. Not every investment will give an investor their desired returns, nor does an average investor have the time and skills to analyse their investments periodically to take corrective actions. In order to mitigate the risks, it is recommended that investors confer with SEBI registered Investment Advisors to guide them through their investing journey.

This is the 1st Part of the Introduction to Investing Series, which will discuss critical aspects of investing aimed at first time investors. Stay tuned for more.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

Discipline and Investing!

Discipline and Investing!

An investment philosophy contains the core beliefs that guide an investor’s actions and decisions.  How many times have people heard people say “Meditation has changed my life” or “Running has changed my life”.

Is it true that meditation, running, cycling, or going to a gym can change a person’s life? Well, it is the whole process that helps – not just the act itself. Let us say someone starts meditating 3 times a day for 10 minutes each. Once at 7 am, once at 1 pm, and once at 7 pm. Breakfast, lunch, and dinner? In the first week, they do 4 days and miss 3 days. Next week they do 5, then 6 and in 3 months they are meditating for 15 minutes at each session. Now, this ensures that they go to bed at say 11 pm at least – so that they can get up at 6 am and do their meditation at 7. This means no late-night parties – no drinking binges, etc.

So the activity of meditation has brought a lot of discipline to their life. That helps as much as the meditation itself! Ditto for running, cycling – the process helps. After 6 months or 1 year, they go around saying “meditation helps”. True, but partially.

When it comes to investing, again the first step is discipline – to start saving money. That is the toughest part. Once a person learns to save, doing a SIP is not so tough. The discipline of saving says 20% of a person’s salary is a good target to start with. Doing a SIP in an index fund is ideally recommended till one starts learning about investing.

So doing a SIP is about the discipline of taking money away from an investor as soon as it comes. It is one of the best ways of investing for a young person just starting to invest. It works just as well for a seasoned investor who does not want the need to think every day about where and what to invest.

Like meditating, once someone decides to think of saving and tell themselves that Rs. 10,000 per month should be the SIP amount – it can happen. Investors need not fret over missing one or two installments as it takes time to build in the discipline.

Creating wealth is a long-term, multi-year, multi-decade, multi-generational process. Somebody needs to make a start. The ideal age of course is 22, but it is even better if an investor’s father or grandfather had started the process. If they have not, anyone could. We hear such stories very often. Of SIPs started in 1999, 2008, …and continuing. The amount of wealth created is amazing.

On the other hand, we regularly read about celebrities who earned Millions of Dollars going bankrupt. Being driven to suicide. Yes, discipline is boring – especially when investors are young. However, at a later date, the same discipline gives you Financial freedom. Ironic is it not? Discipline leads to freedom!

Source: subramoney by P V Subramanyam

Asset Multiplier Comments:

  • Investing has very little to do with finance and a lot to do with human behaviour. Sticking to an investment strategy in a disciplined manner ignoring other temptations is the easiest way to build wealth over time.
  • Disciplined investing also gives the added benefit of staying invested over the long term ignoring the short-term fluctuations and volatility in the market. Acting during volatility is one of the most prominent reasons for wealth erosion for investors.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”


The Get Rich Slowly Investment Philosophy









The Get Rich Slowly Investment Philosophy

An investment philosophy contains the core beliefs that guide an investor’s actions and decisions when saving for the future. It’s like the money blueprint for the stock market. Without a defined philosophy, the choices become arbitrary. Investors buy and sell based on whim and emotion. When there’s a clear ideology, the options become limited to strategies that fit the investment beliefs.

Back when I was doing stupid stock-market tricks, I didn’t have a coherent investment philosophy. Today, I do. After a decade of reading and writing about money, I’ve come to believe that a smart investor should:

Start early. “The amount of capital you start with is not nearly as important as getting started early,” writes Burton Malkiel in The Random Walk Guide to Investing. “Every year you put off investing makes your [goals] more difficult to achieve.” The secret to getting rich slowly, he says, is the extraordinary power of compounding. Given enough time, even modest investment returns can generate real wealth.

Spread the risk. Another way to smooth the market’s wild ups and downs is through diversification, which simply means not putting all of the eggs into one basket. Own more than one stock, and own other types of investments. When investors spread their money around, it decreases risk while (counter-intuitively) earning a similar return.

Keep costs low. In Your Money and Your Brain, Jason Zweig notes, “Decades of rigorous research have proven that the single most critical factor in the future performance of a mutual fund is that small, relatively static number: its fees and expenses. Hot performance comes and goes, but expenses never go away.

Keep it simple. Most people make investing far too complicated. There’s no need to guess which stocks are going to outperform the market. Average investors probably can’t. For the average person, it’s much easier and more profitable to simply buy index funds.

Make it automatic. It’s important to automate good behavior so that investors don’t sabotage themselves. You want to remove the human element from the equation. It is recommended to create a monthly transfer from a savings account to an investment account.

Ignore everyone. Everyone might think that a smart investor pays attention to daily financial news, keeping his finger on the pulse of the market. But they are wrong. Smart investors ignore the market. If someone is investing for twenty or thirty years down the road, today’s financial news is mostly irrelevant. Decisions should be based on investors’ personal financial goals, not on whether the market jumped or dropped today.

Conduct an annual review. While it does zero good to monitor investments daily, it’s smart to look things over occasionally. Some folks do this quarterly. The author recommends once per year. An annual review lets the investor shift their money around if needed. And it’s a great time to be sure if the investment strategy still matches the goals and values.

Source: The Get Rich Slowly investment philosophy and strategy by J.D Roth

Asset Multiplier Comments:

  • Simplicity is often key to prolonged success having a simple investing philosophy limits the number of investment strategies at disposal. Adopting an investment philosophy that slowly compounds wealth will help investors outperform most other individual investors over the long term.
  • Investing based on emotions and whims may result in some lucky gains but it cannot be a sustainable basis for creating wealth.

Don’t invest like a Billionaire…

“If you want to learn how to shoot a cover drive, emulate Sachin Tendulkar. If you want to learn how to cook, watch Sanjeev Kapoor. If you want to get rich, do what rich people do…right?”

This is a often repeated fallacy that imitating rich and famous people’s investing strategies will result in success, however nothing could be farther from the truth. The intuition is obvious—if that person is rich, they must know how to handle their finances. And if they’re doing something with their money, I should probably do the same thing. 

The problem with this strategy is that their investing goals might be completely different than yours, aside from growing your wealth, there might be nothing common between your financial dreams and theirs. The rich and famous make investment choices that align with their lifestyles. 

A famous renowned mutual fund manager that can, and does, change strategies in a heartbeat. If he’s bullish on electric motorcycles on Monday morning, he may sell the entire position by Thursday afternoon. Within the last few months, he may have short sold the stock of any automobile company, and called for “the mother of all crashes” in crypto. You’ll see plenty of articles about what Mutual Fund Managers may be trading at any point in time because “Guess what this ace investor is Buying…” is a click-inducing headline. But it’s impossible to track his whipsawing strategy by following the headlines—you’ll only know his next move well after it’s made. You can follow him into the halfpipe, but you might end up in traction.

the CEOs and insiders—is it possible that these folks are selling because they know disaster is around the corner? Sure. But let’s remember that these people sometimes just need cash, too. Most of a CEO’s pay doesn’t come in the form of a biweekly salary; it comes in stock-based compensation. So, whether they want to buy a boat or need to pay their kid’s tuition, selling stock will be the primary way to get cash. They might also be selling as part of an ongoing plan to reduce their concentration in their company’s stock. Diversification is a tenet of Investing 101, hardly an ominous sign of impending doom. You can follow them into the halfpipe, but you might be misinterpreting their motives.

The lesson is simple, the right investing strategy can’t be found by blindly imitating rich people or by listening to “experts” on the news channels every morning. Investing is a very personal discipline, and you don’t know their time horizons, motivations, or even their personal finance acumen—plenty of rich folks end up going broke.   

Ultimately, you can’t find the “right” strategy by following anyone in the world because the search begins within YOU. Your goals, your saving and spending habits, and your personality are unique and crucial inputs to your investment strategy. If you need help matching YOU with your investments, it’s time to talk to a financial advisor. The best advisors aren’t the smoothest talkers or those with the most expensive suits. The best advisors are those who truly listen to understand you, then devise a strategy that fits.     

Source: Don’t invest like a billionaire by demystifyingmarkets.com

Asset Multiplier Comments

  • Investing is a deeply personal exercise that is based on a lot of parameters which differ from person to person. Blindly following rich people or investing gurus for financial advice is not the best approach to investing.
  • Everyone’s income, savings, goals regarding investing, expectations from wealth generation is different, so the best way to start investing is consulting a financial advisor who can help us with a tailor-made plan for investing.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”


Performance Chasing and Outcome Bias

“Money flows into most funds after a good performance and goes out when bad performance follows.” (John Bogle)

We have all seen the wording discretely appended to mutual fund marketing stating that ‘past performance is no guide to future results’. Despite the ubiquity of this message, we struggle to heed its warning. This leads to the damaging behaviour of performance chasing, where we sell our holdings in laggard fund managers and reinvest in recent winners.

The tendency of mutual fund returns to experience mean reversion shows that our propensity to sell strugglers and buy recent winners is not just pointless; it is often the exact opposite of what we should be doing.

This damaging behaviour is driven by outcome bias.  Attempting to mitigate outcome bias and prevent performance chasing behaviour means overriding our instincts and also having a willingness to fail unconventionally.  Neither of these is simple, but that does not mean there is nothing we can do.

How Can We Prevent Performance Chasing?

Outcome bias cannot be switched off.  Whilst awareness is a starting point, it is evident from our continued performance chasing behaviour that it alone is insufficient.  We need to make clear and focused interventions to change our behaviour:

Stop Using Performance Screens: Mutual fund performance screens are ubiquitous across the investment industry. Everyone uses some form of historic performance screen to rank funds. Outcome bias and the performance chasing behaviour that follows are difficult enough to avoid even if you are not actively employing tools that encourage it. So, it is best avoided.

Create decision rules: A simple step to avoid performance chasing behaviour is to create fixed decision rules that strictly prohibit it. On average, it should be an effective means of avoiding the cost of purchasing active managers with a high potential for severe mean reversion.

Go Passive: The best behavioural interventions are the simple ones. Anything that requires behavioural discipline or continued effort raises the prospect of failure. Given this, what is the best way to avoid performance chasing in active mutual funds?  We can restrict ourselves to buying only passive market trackers.

Specify the activity in which you believe skill exists: When investing with an active manager, we are taking the view that the underlying manager has some form of skill. We tend, however, to be very vague about what we mean by this.

Extend your time horizons: Our susceptibility to outcome bias is greatly influenced by the time horizons involved. If we assess investment performance over one day it can be considered to be pure luck, but as we extend the period skill can exert more of an influence.

Performance chasing behaviour is, of course, not isolated to our selection of active fund managers.  It is also not entirely driven by outcome bias. This is not to say that outcomes do not matter.  Of course, all investors are seeking better long-term results for their clients. If we want to invest in active managers, we need to think far more about decision quality and process, and far less about yesterday’s performance.

Source: Why Do We Chase Past Performance and What Can We Do About It? By Joe Wiggins

Asset Multiplier Comments:

  • Selecting funds based on past performance is like driving a car by looking in the rear-view mirror. There’s very little correlation between past performance and future returns.
  • The best way to overcome outcome bias is to focus on passive index-linked funds, which remove the variability of performance chasing.
  • If investing in actively managed funds focus on investment thesis and stock selection process rather than past performance.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”



#Truth about investing 102-Efficiency and behavior

This is taken from a presentation by Howard Marks Co-Founder of Oaktree Capital. This is the second in the series of articles. Mr Marks makes concise and incisive comments about the art of investing that can help amateur and professional investors alike.                                                      

Most investors behave pro-cyclically, to their own detriment.

In a rising market, even fundamentally weak companies look great technically. Fear of Missing Out (FOMO) kicks in, making people more optimistic and causing them to purchase at market highs. When the inverse is true, their pessimism grows, encouraging them to sell at cyclical lows. As a result, the retail investor is left with equities with high purchase prices but poor fundamentals.

Cyclical ups and downs don’t go on forever. But at the extremes, most investors act as if they will.

At market extremes, emotions- fear and greed are at their highest levels. People buy at market highs and sell at market lows. When people start believing in trends rather than market cycles, that’s when behavioral mistakes occur. It is usually best to ignore the current market and stick to the fundamentals at sky high emotions.

It’s important to practice “contrarian” behavior and do the opposite of what others do at the extremes.

Market does not trade at extreme ends for a long time. When there is a widespread notion that there is no risk, investors believe it is safe to engage in dangerous behaviour. Acting contrary to the market during phases of soaring emotions might provide us with optimum entry and exit points. As a result, we must sell when others are greedy and purchase when they are fearful.

While not all markets are efficient – and none are 100% efficient – the concept of market efficiency must not be ignored. In the search for market inefficiencies, it helps to get to a market early, before it becomes understood, popular and respectable.

Humans are predisposed to identify patterns and exploit them; however, these patterns and trends are already priced in by the markets. Higher the efficiency of the market the faster are the patterns and trends priced in. In established markets, however, efficiency diminishes the frequency and scale of opportunities to overcome the consensus and identify mispricing or inefficiencies. The sooner you invest in an inefficient market, the easier it is to profit as markets become more efficient. If the other investors are few, inexperienced, or prejudiced, you will have the first mover advantage; as Warren Buffet correctly stated, “First comes the inventor, then the imitator, and last the fool.”

Source: Howard Marks- Truth About investing.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

Luck Vs. Skill in Investing

Jeremy Chia reminds us that investing is a game of probabilities. In any game where probability is a factor, luck undoubtedly plays a role. This leads to the age-old question of how much of our investment performance is impacted by luck?

Is an investor who has outperformed the market a good investor? Similarly, is an investor who has underperformed the market a lousy investor? The answer is surprisingly complex.

Long term stock prices tend to gravitate toward the present value of the company’s expected future cash flow. However, that future cash flow is influenced by so many factors that result in a range of different possible cash flow possibilities. Not to mention that on rare occasions, the market may grossly misprice certain securities. As such, luck invariably plays a role.

Skill is one aspect of investing that is hard to quantify. However, there are a few things Chia looks at. First, we need to analyse a sufficiently long track record. If an investor can outperform his peers for decades rather than just a few years, then the odds of skill playing a factor become significantly higher. Although Warren Buffett may have been lucky in certain investments, no one can deny that his long-term track record is due to being a skilful investor.

Next, focus on the process. Analysing an investment manager’s process is a better way to judge the strategy. One way to see if the manager’s investing insights were correct is to compare his original investment thesis with the eventual outcome of the company. If they matched up, then, the manager may be highly skilled in predicting possibilities and outcomes.

Third, find a larger data set. If your investment strategy is based largely on investing in just a few names, it is difficult to distinguish luck and skill simply because you have only invested in such a few stocks. The sample is too small. But if you build a diversified portfolio and were right on a wide range of different investments, then skill was more likely involved.

Mauboussin wrote: “One of the main reasons we are poor at untangling skill and luck is that we have a natural tendency to assume that success and failure are caused by skill on the one hand and a lack of skill on the other. But in activities where luck plays a role, such thinking is deeply misguided and leads to faulty conclusions.”

Chia concludes that it is important that we understand some of these psychological biases and gravitate toward concrete processes that help us differentiate between luck and skill. That’s the key to understanding our own skills and limitations and forming the right conclusions about our investing ability.

Learn to love momentum

Joachim Clement writes on his blog that the global bull market in equities is seemingly never going to end and investors wonder about what they should do who have missed the boat and only partially invested in the current bull market.

The usual fear is that if they invest now, they might be investing at the top of the market. Another argument is that every asset class seems overvalued. Given extremely low-interest rates, bonds don’t seem a viable option, stocks aren’t cheap either and many alternative asset classes like infrastructure or REITs have become expensive as well. There comes a point when avoiding an asset class on valuation grounds or for fear of an imminent bear market becomes counterproductive. By standing on the sidelines for too long the opportunity costs in terms of foregone returns can become so big that it may take you years and even decades to make up for them.

Value investors and long-term investors, in general, tend to look down on traders, but there are a few things that long-term investors can and should learn from them. First of all, they should learn that time in the market is more important than timing the market. One can only make money if one is invested. But being invested comes with the inevitable risk of drawdowns, which can be short-term in nature like in the US at the end of 2018, or a massive global bear market like in 2008. To deal with these risks of decline in share prices it is important to learn from short-term investors to respect and even love momentum. If price momentum goes against your position for too long, you should sell the position and buy it back at a later point in time when price momentum is more favourable again.

The maximum declines between 1998 and 2019 have also been massively reduced, showing that these momentum-driven strategies can help you avoid severe losses. If you are worried today about high valuations or the possible end of the current bull market, then the most important thing for you is to get into the market with a sensible plan to get out when momentum turns. But this is fine-tuning. The most important thing for investors today is not to be afraid of the bull market.