Why another stock market crash may be a once-in-a-lifetime chance to buy bargain shares

 Why another stock market crash may be a once-in-a-lifetime chance to buy bargain shares

 

Since the March stock market crash, investors globally have been wondering if another stock market crash is imminent. So far, we’ve avoided it, and some stocks have enjoyed an incredible rally, particularly last month. But despite November’s excitement at the prospect of a vaccine rollout, the end of the year is looking less and less promising. So, does this present an opportunity to buy bargain shares? I think it does.

FTSE 100 falling

It seems a mutated version of the virus is rapidly spreading across the UK. So Boris Johnson and his government have responded with an emergency Tier 4 lockdown in some areas. Unsurprisingly, the FTSE 100 is falling. It appears the only reason the index has not fallen further is that the pound is also being hammered as Brexit continues to drag on and on and on. Many of the companies present in the FTSE 100 have an international presence with earnings reported in dollars. This means they benefit from a weak pound.

Nevertheless, among the battered remnants of a stock market crash, some shining gems can be found. These are the FTSE 100 and FTSE 250 companies that have the means to survive and emerge resplendent from the wreckage of market crash doom.

 

Bargain shares

For retail investors like me, it provides an opportunity to buy bargain shares. In a bull market, favourite companies get so much recognition, they often become overvalued. This has been illustrated by Tesla’s recent run of good fortune. It’s also been apparent in some UK stocks, such as Games Workshop and Frontier Developments. I’d like to own shares in either of these companies far into the future, but I’m put off by their high price-to-earnings ratios. A market crash provides an opportunity for savvy investors to buy good quality companies at knock-down prices.

The risk of declining share prices is something all investors face, but it’s easy to overlook this during a bull market. As such, a market crash is a panic-inducing moment for even the most experienced investor. But keeping a level head can create a once-in-a-lifetime chance to buy bargain shares.

Suppressed share prices in the FTSE 100

In the FTSE 100 this morning, International Consolidated Airlines Group (IAG) has fallen nearly 10%, Rolls-Royce is not much better crashing over 8% and BP is down nearly 5%. The price of oil is slipping because many countries have banned air travel to the UK as they try to prevent the mutated virus from spreading too rapidly.

I think a market crash could provide a bargain hunting opportunity of a lifetime. Not just for high-value stocks at knock-down prices. But also for the suppressed stocks like BP and Rolls-Royce that have a competitive advantage in their sectors. I think these former FTSE stars have a chance at sustained recovery over the long term.

A market crash is never a pleasant event to witness, but with cash at the ready, it can be a great chance to build a stronger portfolio on the path to financial freedom.

The post Why another stock market crash may be a once-in-a-lifetime chance to buy bargain shares appeared first on The Motley Fool UK.

 

Happy Investing

Source: Yahoofinance.com

Young Indians in 2021. Are they prepared?

Young Indians in 2021. Are they prepared?



Never does a person feel as invincible as in his/her youth. Life is just beginning and the world is at your feet. Retirement seems far away. Savings are not part of your vocabulary. Insurance feels like someone else or older should be buying it. But in a bid to live it up, are you forgetting to build a life? We analyse...

“In youth and beauty, wisdom is but rare!” said Homer, the presumed author of the Iliadand the Odyssey. Hilarious and something that the older generation would furiously nod their heads at. Although to be fair, it is tough to be young in the current day.

A current lot of over 1.5 billion youth across the world has a plethora of options and a surplus of challenges to navigate life through. Sometimes, taking charge of life seems nothing more than a Social Media post. But leaving something as important as financial planning for later is not an ideal way to start.

Is it time yet?

It is never too early to start thinking about investing. If the change triggered by the pandemic has taught us anything, it is that nothing can be taken for granted. And even the most powerful economies can be bought to their knees with a virus.

Anytime is as good a time to start investing. Today, investors have an array of options to choose from. Thousands of products and services and hundreds of firms and vendors. If the choice is turning out to be difficult, HDFC Life has financial tools that can help with the planning, just one of the examples from plethora of online choices available today.

Warren Buffet, once famously said: “You don't need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beats the guy with 130 IQ.” 

 Deciding should be based on simple criteria: Which products offer solid returns and help beat inflation. When you start investing young, the greatest financial asset is time⁠—and compound interest. Don’t wait too long to start, or skimp on investing enough when you have the resources. But be smart about it. The primary investment objective for long-term savings should be growth. Investors in their 20s will have at least 40 years over which to accumulate retirement savings.

Is it enough?

Retirement experts and financial planners often tout the 10% rule. But the truth is you will need a substantial nest egg after retirement, and saving just 10% of your income is probably not enough. When starting as early as in the 20s, you can get by setting aside at least 10 to 17 percent of your current income in the retirement fund. It is imperative to be able to increase your purchasing power in your retirement savings throughout your life. The amount does not include any short-term savings or emergency fund.

Several reports suggest that the common stock and the real estate are the only two asset classes that have grown faster than the rate of inflation over time.

What is the right thing to do?

The right investments for you are going to depend largely upon your investment objectives, risk tolerance, and time horizon. Automate your investments, then learn to live on less. Setting up an automated savings plan will help condition yourself to save consistently, without having to decide between delayed gratification and instant gratification. It's also a lot easier to build real wealth when you've made saving and investing a priority instead of an afterthought.

Are you forgetting something?

Life insurance should be an important part of everyone's financial toolkit. It is meant to complete your financial plan. With a life insurance plan, you are offered security and cover against three uncertainties - death, disability, and disease. Riders covering other risks such as accidents are available and can be attached to term plans to provide much wider protection for an insurer’s family.

What about short-term needs?

An idle fund is money that is not invested in anything. It's not participating in the economy and therefore not earning investment income. Keeping your money idle is as good as losing it. Even low-risk, short-duration financial products can often offer a higher yield on cash as compared to traditional checking and savings accounts.

Money market funds, savings accounts et al, can all provide safety and liquidity. While you need to keep some cash handy for emergencies, instead of letting the money sit idle in a savings bank account, you can up your investment portfolio. The amount that you keep in these investments will depend on your financial situation, but most experts recommend investing more aggressively as you have time on your side to withstand the ups and downs of the stock market.

Are you waiting for a sign?

Leading English novelist, poet, journalist, George Eliot, was quoted as saying: “If the youth is the season of hope, it is often so only in the sense that our elders are hopeful about us; for no age is as apt as youth to think its emotions, partings, and resolves are the last of their kind. Each crisis seems final, simply because it is new.”

Doing things right in your 20s offers the chance to set yourself up for life. While investing in your 20s may sound boring, starting young is easily the best way to get ahead. It all starts with recognizing the money you earn is nothing more than a tool you can use to create the life and lifestyle you want via smart choices regarding spending, savings and investing.

What’s the bottom line?

Investing works best when it's done early in life. If you can get into the habit of saving and investing automatically during your 20s, you’ll never have to worry about money or retirement savings again. The most important decision that you can make as a young person is to get into the habit of saving and investing regularly.

Happy Investing

Here are 3 options once your PPF account matures after 15 years

Here are 3 options once your PPF account matures after 15 years

If you do not require the entire PPF account balance in one go, it’s best to extend it


The PPF (or Public Provident Fund) continues to be a solid debt product, despite the recent rate cuts. Given the sovereign safety and investor-friendly exempt-exempt-exempt (EEE) tax-free status, it is a product suitable for all investors, and certainly for those who do not have access to the EPF (employees’ provident fund) via their employers.

As you already know, PPF has a tenure of 15 years. But what happens after the end of 15 years?

You have three options. Let’s discuss them in detail.

Close the PPF account after 15 years: This is as simple as it sounds. Once the initial block of 15 years is over, you can close the account and get the full PPF kitty tax-free.

Extend the PPF account by five years without further contributions: This option allows you to extend your account maturity by 5 years. That is, the corpus will continue to earn interest. And you don’t have to make any fresh contributions during this extended five-year period. But what if you need some money during these five years? You can withdraw any amount as partial encashment during the five-year period.

The only catch is that you can make only one such withdrawal per financial year. So let’s say your PPF account completes the 15-year period and has Rs 25 lakh. Now you extend it for five more years. After two years, the balance is Rs 28.6 lakh (after 7 per cent interest accumulation). Now you can withdraw any amount lower than this sum once a year. So, you have complete flexibility. It is like having a five-year FD with full tax benefits and savings account like liquidity (at least in theory) once a year. In case you do not inform the bank or post office about your preference after 15 years, this is the default option that becomes applicable to your PPF account.

Extend the PPF account by five years with contributions: This option is similar to the previous one in the sense that it allows you to extend the PPF account maturity by five years. The only difference is that you now need to make fresh contributions every year. How much? The minimum is Rs 500 per year, which isn’t much to be honest. By the way, you need to inform the bank (or Post office) of this choice as in absence of intimation from you, it will be treated as PPF extension without contribution and any deposits you make in the account in this five-year period will not earn you any interest.

And what about making withdrawals during this five-year period? You can withdraw a maximum of 60 percent of the account balance that was prevailing at the start of the five-year extension period. So let’s say your PPF account has Rs 25 lakh at the end of 15 years and you extend it with contributions for five more years; then, you can withdraw a maximum of Rs 15 lakh (i.e., 60 percent of Rs 25 lakh).

So these are the three options you have when your PPF account matures after 15 years. By the way, you can extend your PPF account by five years any number of times. So you can push your PPF account’s maturity to 20 years, 25 years, 30 years and so on.

One more thing about the calculation of the 15-year period.

The maturity period for the PPF account is 15 years from the close of the financial year in which the initial subscription was made. It is that simple. Let’s say you opened your PPF account on Nov 4, 2014. So, your PPF account would mature on April 1, 2031.


What should you do?

Generally speaking, if you do not have the requirement for the entire PPF account balance in one go, it’s best to extend it. That too with contributions. Why? It is a great tax-free, EEE status instrument, in which you can park funds if you receive them during the five-year period. And for people who are still young when their PPF account completes 15 years, it is is strongly advisable to extend the account.

Happy Investing

Source: Moneycontrol.com

Disruption is here to stay; learn how to thrive in it

Disruption is here to stay; learn how to thrive in it

Post the pandemic crisis; consumers will only come back to physical stores only if they are entertaining and fun.

M MUNEER
DEC 2, 2020



Disruption and change are everywhere. Even before this year of pandemic. Technological disruption is changing business models and even industries. India is in the cusp of this change given the huge young population and the high tech adaption. Look at the proliferation of smart phones, apps and e-commerce here. Rural areas are also becoming tech-savvy. More orders for e-tailers are happening from tier 2 and 3 towns than from the metros. Smaller businesses should not be left behind on this.

Take consumer business as an example. Consumers are embracing self-service facilities more now than in the past, as they have less time and the special offers from the e-tailers don't hurt either. My clients n the brick and mortar side of retailing are paranoid about the massive discounts offered by e-tailers. Just as it is in the West, sales from e-commerce will soon outgrow brick and mortar sales, at least for till 2022. In fact many people `who ha1ve used web for their purchases feel that it offers a much superior shopping experience. You do not have to waste time driving down to a mall in congested roads, hunt for parking space, pay for it, and then walk around aisles searching for products and stand in a long queue for payments.

When technology has disrupted the traditional shopping habits, why is it that marketers and retailers don't look at web- and mobile-based technologies to improve customer experience?

Internet-based commerce delivers better information on products and services, and enables comparison of the same based on consumer-set criteria. In the normal shopping world this is impossible till now. When you are in a retail outlet, the comparison is only as good as the knowledge or motivation of the sales person there. Sales person could be motivated by incentives from a specific brand or overall store push. A web or mobile-based technology can offer consumers better comparison of products and even video to give a 360-degree view. The comparison can be extended to price and features too. This will help consumers identify the best solution for their needs. With technology, you could link YouTube videos of actual users who belong to a particular segment. Then there are always the regular features like chats with an expert to toll free numbers for 24X7 interaction. Can real stores innovate here?

Research shows that third party reference is a crucial element in the final purchase decision. Internet and mobile technology can actually drive real-time peer reviews of products and services. Businesses could do much more than what a mouthshut.com might do. Companies can also use mouthshut.com comments to convert customers who were deeply dissatisfied. I have yet to see a company doing that even today!


For marketers and retailers Internet is very useful, as they need not stock physically all items in every store. ERP systems can help manage warehouse stock and distribution more efficiently. Consumers too will see more in-stock items than they would in a physical store for the same reason. Whether the store would be able to ship out as promised is a big question as a recent experience with FlipKart indicates. They promised shipping in 4 days but kept on apologising for a delay till it became 30 days!

A few years ago who would have thought majority of travellers would purchase air tickets online? For long, banks and airlines have been trying to reduce costs and wishing more and more customers to avoid human touch and try more self service. ATMs and Internet banking took off because of increasing appetite for self-service by consumers. Perhaps this is because of the disappointments and inconsistent services they suffered at the hands of humankind. One of the things hotels in India can try out is self-checkout and touch-less check-in and entry to rooms.

Why are not physical stores providing Internet access to consumers when they are shopping? This would help a consumer decide on purchasing an item quicker than normally. Retailers could even provide interactive kiosks with web access to help consumers do what they would do at a web store. One of the most important advantages marketers will have in web-based stores is the amount of quality data, which will improve the management of the stores. From entry to search to selection and final purchase, they can track everything a consumer will do online at their store. In a real store, the footfall to conversion is not precisely measurable. Although to some extent real stores can customise offering for a broad set of customers, precise tailored offerings are impossible unlike in a web-store.

Big retailers are waking up to the changes consumers are wishing for. For instance, Wal-Mart has started reconfiguring its mega stores to suit these changing needs – Like replacing existing sales floor with a smaller showroom, and expanding the store backroom into a warehouse. Many stores abroad have also installed several self-service kiosks to enable customers to browse, order, and pay for items using mobile apps. Another thing possible is a drive-through pick up for consumers who orders online – Without even having to get out of the cars. They are all trying to improve the customer experience almost as good as what they can get online.

Post the pandemic crisis; consumers will only come back to physical stores only if they are entertaining and fun. Marketers could design digital media into the store floors to improve the entertainment value. They could also put touch screen displays providing product and service information and comparison, and for in-store promotions. There are opportunities for small businesses everywhere if only they see it differently.

Happy Investing

Source: Moneycontrol.com

Why the 10:90 plan is a big hit in the real-estate market now, and what homebuyers should be aware of

Why the 10:90 plan is a big hit in the real-estate market now, and what homebuyers should be aware of

The scheme requires homebuyers to pay 10% upfront and the remaining amount only at the time of possession. While many builders are boosting sales through the scheme, especially during COVID-19, buyers should go for it, only if it does not involve taking loans at the booking stage itself.

VANDANA RAMNANI
DEC 2, 2020



This festive season, several real-estate developers pitched in with a 10:90 scheme to boost sales. Mumbai-based Nahar Group offered the scheme, under which the homebuyer needs to pay only 10 percent at the time of booking and the rest on possession.

Hiranandani Group offered a flexi-pay scheme for its 1BHK units in the Regent Hill project, under which the buyer is required to pay only 5 percent at the time of booking and no EMI for the next 12 months.

Bengaluru-based Embassy Group offered the scheme for its luxury homes. NCR-based Ajnara India Ltd offered the payment plan in Ajnara Daffodils.

While sales are indeed increasing, Moneycontrol looks at how these schemes work, their benefits and the risks involved.

Are 10:90 schemes good for buyers?

According to Vaibhav Suri, partner, L&L Partners, schemes like 10:90 or 20:80 are very good for buyers as they reduce monetary exposure on account of possession-related defaults and gives them flexibility to arrange the remaining funds. They are always better placed from the buyer's perspective as there is no loan liability from Day One.

However, the sale price in such schemes will always be higher than conventional construction linked or time-linked plan or subvention plan, he said.

“The price is locked in and the risk for buyers (under the 10:90 scheme) is minimal. Even if the builder does not deliver the unit, the buyer would have paid only about 10 percent and he would not have to service pre-EMIs until the apartment is ready,” says Anckur Srivasttava of GenReal Advisers.

“Therefore, from a cash flow perspective, a 10:90 scheme is comfortable for a buyer,” he says.

Do indirect subvention plans only include 10:90 schemes?

No. NCR-based Ajnara India Ltd also offers the 30:40:30 payment plan in Ajnara Ambrosia, and 20:20:20:20:20 plan in Ajnara Fragrance projects.

Oberoi Realty has a scheme, under which the customer has to pay 15 percent upfront and 85 percent on possession, and in the developer subvention scheme, the customer pays 25 percent upfront and the remaining 75 percent on possession.

Customers who paid up and registered units before December 31 also benefited from 100 percent refund of stamp duty and registration charges, which were being offered on these schemes.

For the ready-to-move project Esquire at Goregaon East, the company offered a scheme wherein the buyer could pay 25 percent to move into the new unit and then pay equal instalments of 15 percent for five years at zero interest.

So, what is the problem?

Well, 10:90 payment plans are relatively new and have not yet faced challenges as is the case with full-fledged subvention plans. However, buyers should be wary of plans that involve taking home loans at the booking stage itself. That’s when these schemes become an indirect form of subvention schemes, which have landed many buyers in trouble.

Under subvention schemes, homebuyers have to pay the initial amount, and the bank pays the loan amount to the developer, according to the construction stage. The interest portion on the loan disbursed is paid by the developer until possession (generally three years). What this means is that real-estate developers pay pre-EMIs (equated monthly instalments) on behalf of homebuyers for a certain period specified in the contract or till the date of possession.

However, in the event of a builder default, the homebuyer, since he is the actual borrower, is held liable and it is his credit history that will get impacted.

The problem is with subvention schemes which have landed many buyers in trouble.

Under subvention schemes, homebuyers have to pay the initial amount, and the bank pays the loan amount to the developer, according to the construction stage. The interest portion on the loan disbursed is paid by the developer until possession (generally three years). What this means is that real-estate developers pay pre-EMIs (equated monthly instalments) on behalf of homebuyers for a certain period specified in the contract or till the date of possession.

However, in the event of a builder default, the homebuyer, since he is the actual borrower, is held liable and it is his credit history that will get impacted.

Then, why didn’t the govt ban subvention schemes?

In 2013, the Reserve Bank of India had advised banks to exercise caution while financing interest subvention schemes “in view of the higher risks associated with such lump-sum disbursal of sanctioned housing loans and customer suitability issues.”

It had advised that disbursal of housing loans sanctioned to buyers should be linked to the stages of construction of the housing projects and that upfront disbursal should not be made in case of incomplete or under-construction or greenfield housing projects.

In 2019, the National Housing Bank (NHB) also asked housing finance companies (HFCs) to "desist" from offering loans under interest subvention schemes after complaints of default.

Though several banks and HFCs stopped funding under the scheme, no ban has been imposed. Some buyers who had signed up with subvention plans earlier continue to suffer because some builders have stopped servicing the loan (as promised under the tripartite agreement) during the pandemic.

Can subvention or indirect subvention schemes attract punishment?

Adverse action from RBI and/ or punishment can arise if schemes like 5:95 and 10:90 have an element of subvention, i.e., from Day 1, the homebuyer takes a home loan and builder assumes interest liability, on behalf of the buyer, till possession, says Suri.

“If schemes like 10:90 or 5:95 do not involve buyers taking home loans (to arrange for remaining 80-90) at the booking stage itself or otherwise, there is no assumption of interest liability thereon by the builder. Then such schemes cannot be equated with subvention and cannot be held illegal,” explains Vaibhav Suri, partner, L&L Partners.

If it’s not illegal, what’s wrong with subvention schemes?

Several cases have been filed in High Courts and Supreme Court against developers who have stopped servicing the loan signed up as part of subvention plans earlier.

Take the case of Shaji Sarma. He had bought an apartment for Rs 1 crore way back in 2013 through a subvention scheme, wherein the developer was liable to pay the pre-EMI till the possession of the flat. Post the COVID-induced lockdown, the developer stopped making the payments.

He has also not yet given possession of the housing unit. The bank started sending demand letters to him two months ago and asked him to pay up the pre-EMIs. Sarma and a group of other buyers have filed a case against the builder before the Maharashtra RERA (Real Estate Regulatory Authority).

What are the chances of builder defaults?

As far as subvention schemes are concerned, “contractually, the developer is bound to pay subvention on behalf of the homebuyer to the bank but the issue here is whether the developer has the financial ability to continue paying,” says a developer who does not want to be named.

In fact, the problems associated with subvention schemes have increased during the pandemic. With no cash flows, some builders resorted to the force majeure provisions and others tried to annul any commitments on agreements signed with buyers in the past, especially those facing major liquidity issues, according to industry experts.

Indirect subvention schemes, such as the 10:90 schemes, are often launched for very few units to lure the buyer right at the inception / launch phase or near the completion stage (last 8-10 months). Understandably, these schemes are not popular for builders during the construction phase, when they need steady revenue flow, explains Suri of L&L Partners.

How many subvention schemes are there now?

A banker Moneycontrol spoke to said that while it is difficult to estimate the quantum of subvention loan sales versus disbursement of conventional home loans, the scheme was an additional selling proposition for developers. Of 25 deals that a developer entered into with buyers, at least 10 were under this category. “They didn’t come cheap by any standards, since the buyer only had to pay at the time of possession,” he says.

Happy Investing

Source: Moneycontrol.com

Lucknow becomes first city in UP to list municipal bonds: Here's why cities need municipal bonds

Lucknow becomes first city in UP to list municipal bonds: Here's why cities need municipal bonds

In COVID times, Lucknow Municipal Corporation will progress towards achieving the ‘Aatmanirbhar’ goal with the listing of municipal bonds worth Rs 200 crore, the chief minister said


Lucknow Municipal Corporation bonds on December 2 became the first municipal bonds from North India to be listed on Bombay Stock Exchange (BSE). Uttar Pradesh Chief Minister Yogi Adityanath attended the listing ceremony in Mumbai.

The chief minister rang the bell at BSE at the listing of bonds of Lucknow Municipal Corporation.

“It is a matter of pride for UP that the Lucknow Municipal Corporation has raised Rs 200 crore through its bond issue which got listed on BSE today. It is the trust of the investors which UP has earned during the last three and a half years of governance. It will augment our effort to improve infrastructure in urban areas and it shows the improvement in the Industrial climate of the state and the trust the investors have reposed in the state machinery,” Yogi Adityanath, chief minister of Uttar Pradesh said on the occasion.

In COVID times, Lucknow Municipal Corporation will progress towards achieving the ‘Aatmanirbhar’ goal with the listing of municipal bonds worth Rs 200 crore. The Corporation is committed to improving the lives of the citizens living in its jurisdiction, the chief minister said.

With this, Lucknow becomes the ninth city in the country to have raised municipal bonds and the first city to issue such a bond after the launch of AMRUT Scheme.

The funds raised through the bond will be invested in various infrastructure schemes in the state capital, including the water supply project and housing project being implemented under the Atal Mission for Rejuvenation and Urban Transformation (AMRUT) Scheme.

The Rs 200 crore LMC bond, which was launched on November 13, was 4.5 times oversubscribed and closed at 8.5 per cent coupon rate for 10 years, which is the second lowest rate of all the municipal bonds launched till date.

The chief minister also said that Ghaziabad municipal bonds will be listed in the next three to six months followed by Pragyaraj, Varanasi, Kanpur and Agra.

Lucknow Municipal Corporation (LMC) on November 13 raised Rs 200 crore by issuing municipal bonds on private placement basis using BSE BOND platform, the exchange said. The municipal corporation received 21 bids on BSE BOND platform for Rs 450 crore, which is 4.5 times of the issue size, BSE said in a statement.

The city of Lucknow is the ninth in the country to have raised municipal bonds that have cumulatively touched around Rs 3,600 crore. The next city to raise municipal bonds will be Ghaziabad, followed by a joint bond by Varanasi, Agra and Kanpur.

Under the Atal Mission for Rejuvenation and Urban Transformation (AMRUT) scheme, cities have been encouraged to mobilize resources by issuing municipal bonds. These are issued when a government body wants to raise funds for infra-related projects like roads, water among others.

SEBI had circulated detailed guidelines for urban local bodies (ULBs) in 2015 to raise funds by issuing municipal bonds.

Why cities require municipal bonds to raise funding?

Municipal bonds are bonds issued by urban local bodies to raise money for financing specific projects such as infrastructure projects. The Securities and Exchange Board of India regulations (2015) regarding municipal bonds provide that, to issue such bonds, municipalities must: (i) not have negative net worth in any of the three preceding financial years, and (ii) not have defaulted in any loan repayments in the last one year.

A city’s performance in the bond market depends on its fiscal performance and one of the ways to determine a city’s financial health is through credit ratings.

Happy Investing

Source: Moneycontrol.com

Why we rush to buy goods during a discount sale, but won’t lap-up stocks when markets crash

Why we rush to buy goods during a discount sale, but won’t lap-up stocks when markets crash

The same value-conscious shopper feels more comfortable entering the financial markets when markets are at their highs rather than at the lows. 


We are now well into the festival season. In normal times the celebratory environment would be visible, through the familiar sights and sounds associated with it. Elaborate decorations, , the colours and fragrances of flowers decked over homes, vehicles, shops, roads, as well as the cacophony of sounds, loud yet welcome during this time.

This time around though, things are different. The colours, the sounds, the people: they are missing! It has been more than seven months now, this new way of living, with lesser physical contact, masks replacing sun-glasses, sanitizers gaining primacy over deodorant and the thermal gun more ubiquitous than the metal detector.

But one thing hasn’t changed much and that is us waiting with bated breath for the sale season. Normally, by this time, we would be shopping with a frenzy, buying clothes, home items, gifts, even new capital goods, having patiently waited for the “festival discount.” Offline or online, there is something about discount sales that get us going. We are inherently deal-seekers, and good deals get us all pumped up. We plan in advance, create elaborate wish-lists, and watch multiple sites to seek the best possible price. We also discern value well, since we look at and compare the features and benefits, after going through the details of the offers well, and choose what gives us the best overall value for our money.

This behaviour of ours is not restricted to smaller-ticket purchases such as clothes and accessories. We equally, if not more, eagerly anticipate sales on our desired car, phone, smart TV and even dream house. We do the math repeatedly and well, including planning for the number of years we intend to keep the purchase for and the replacement costs, whether to purchase cash-down, or on EMIs, and while we are conscious of the ticking clock, we do not rush into a decision before we are sure. Lastly, while we rarely also end up splurging on something that we do not necessarily need, we in general prioritize well, and allocate our monies during Sale Season smartly, to get us the best bang for the buck, while keeping our needs well in mind.

Not discount shopping in the markets

All these actions speak very well of us as shoppers, since they are rational, explainable logically. Unfortunately, the same cannot be said of our actions when it comes to our investments in the markets. The stakes are similar – we are using our incomes to purchase assets which are cheaper than their perceived value. So why is it different? Why does the same shopper as an investor feel more comfortable entering the financial markets when markets are at their highs rather than at lows? And why the panic to sell assets at a loss when there is a market crash, rather than buying more?

Of course, there can be many arguments to justify this behaviour.

-Financial assets are more transparent, so value is seen every minute. And so is the volatility.

-Our ability to identify value in real goods is better vs that in financial assets.

-People are generally risk-averse and hence “visible” losses cause them to panic.

-Financial assets are in general far more liquid, so the exit barriers are minimal.

All of these reasons are valid, but still don’t explain why the same person behaves differently when purchasing a real good/service vs a financial asset. After all, even cars and phones depreciate the moment one purchases them, and many a times one even sees better prices available after the purchase is done. Of course, it creates dissonance, but we don’t rush to offload our purchases, and that’s because we know that the value of what we have purchased is higher than the price we paid for it!

If we pause to think a bit, every one of us can learn to become better managers of our money if we can just learn from our own behaviour during Sales!

Be clear about your needs and which financial asset will fit your need well

Have a plan to prioritize what comes first. And be clear about the horizon of purchase and what therefore would be right asset class in terms of fit.

Do your research well on the price and the underlying Value

Keep your wish-list ready. Do your math and be clear as to what would be a good “Sale price” versus the long-term value you are getting.

Wait patiently for the “Sale” price to come

Don’t jump in just because you feel everyone else has and fear that “stocks will get over.” Just like the real world, even in the financial markets, “Sales” come frequently.

If prices fall further, don’t panic; instead, load up

The best way to prevent panic sales during a crash is to go back and do two checks – one, whether the underlying value is intact and two, is the time horizon of purchase still suitable. If answers to both are yes, then treat this as a bonus Sale if your asset allocation permits.

I know this is easier said than done, but what can be more credible than our own right behaviours to correct our wrong actions? And in this case you don’t even have the excuse that “his temperament is better than mine!” So next time a “Sale” hits the financial markets, don’t panic or sit on the side lines. Rather see it as a “lightning sale” and an opportunity to purchase some good long-term assets.

Happy Investing

Source: Moneycontrol.com

Are there parallels in how we assess risks in life situations and manage our money?

Are there parallels in how we assess risks in life situations and manage our money?

Here are four real life stories on how these people managed personal situations and money decisions


Are real life situations and financial decisions assessed for risks in a very similar way by investors? Not always, but there are parallels. Here are some anecdotes with pertinent personal finance lessons.



The choices people make 

Gomati firmly believes that doctors play con games. She believes in reading up and self-prescribing any medical requirements, and has the confidence that she has the ability to take care of her health needs.

When I came to know about this, I asked her why she doesn’t want to go to a doctor. Her response was an assertive “I don’t trust doctors; after all, they don’t have any skin in the game. I would rather self-medicate and take the risks attached, rather than go to a doctor who charges a fee for prescribing a medicine, which he probably doesn’t take himself.”



I chanced upon a discussion with Krishna recently. I knew he had been looking for a groom for his daughter who is well-educated and has just started on a decent paying job.

When I asked him how things were going on that front, he was very happy when he told me, I have finalized the groom. I congratulated him and asked him the details and how he found the match.

He replied, “I came upon this smart boy one day when I was surfing Facebook. He and his family are all in the US. I spoke to him and his family on a video call; they seemed very nice and I think he suits my daughter very well. His LinkedIn profile seemed quite impressive. I decided to go ahead and give my daughter’s hand to him in marriage; the engagement is next week, online.”

Ronita is a fairly high-level corporate executive. She called me one day to take some advice regarding an insurance policy of hers. We got talking and I ended up asking her how the lockdown was treating her.

Her interesting take was, “Work is fairly good; I have joined a new company recently, but I think I am fine. I seem to have a lot of spare time, so I have decided to try my hand on playing poker online.

I know what you are thinking, but don’t worry. I intend to read up enough to learn the tricks and I am also taking enough care to not allocate more than a certain percentage of my liquid money towards this. I find it exciting and will hit the jackpot sooner than later.”

Amrut is a widower and an ex-colleague of mine who moved to live in the outskirts of Mumbai. He now has a small business of flowers and vegetables that he grows in his small garden. He is financially not very secure and depends on this business income for his lifestyle.

After the lockdown was eased, I desperately wanted a break, so I went to his place for a couple of nights with my family. When there, I saw that he was not comfortable with anyone else tending to his garden (though his knowledge about this was limited, and he needed help). Strangely, his garden needed upkeep, as there were lots of weeds as well as some plants that were clearly not flowering and nearly dead. 

On enquiring, his response was “I don’t trust this gardener with my garden. I am very worried that his actions will ruin my garden completely. As for these non-flowering plants, I am tending to them. I am sure that someday they will flower.”

All of you must be quite surprised with these behaviors, maybe even shocked? After all, who would take such personal risks without properly thinking, and cause emotional/financial harm to themselves and their families? They need help, right?

Now, what if I tell you that these stories are real, but are slightly modified? And that these strange behaviors are to do with how they handle their money? The real stories are given below.

Real Story 1

Gomati prefers investing directly rather than through intermediaries since the fund manager has no skin in the game. She would rather lose money herself rather than let someone else to lose her money. She does her own research and has been managing her entire (fairly-large) corpus herself the last few years.

Real Story 2

Krishna needs money for his son’s education two years from now. He follows this star PMS fund manager on Twitter and the firm is suggesting global diversification for him, which he thinks is a good idea. He has decided to invest in the PMS this month and is confident that the money will be available and intact in 2022.

Real Story 3

Ronita has just joined a new job. She seems to have time on her hands and has decided to try her hand at equity trading. She doesn’t have any prior experience but she is reading up on the subject and is confident of succeeding. She plans to set aside a fixed sum from her income towards this every month.

Real Story 4

Amrut finds it difficult to trust his advisor and hence researches every time he gets some advice and ends up modifying the advice with his own views. He is also very risk averse and feels that his capital might be at risk if he were to completely trust his advisor. He holds on to losers in the hope that they will recover one day.

Now, these stories make more sense, don’t they? In fact, you might now be thinking, “I know this person!” And that is so true. The above stories may be about specific people, but these behaviors are ubiquitous.

So, what is it about us that causes us to behave so differently with our money? If a similar risk were to be taken with our life situations, we would find it crazy behavior, but when it comes to managing our money, we coolly take such risks and get on with it.

A popular proverb goes “It takes a wise man to learn from his mistakes, but an even wiser man to learn from others.” I would proffer that wisdom also comes from our own successes. Learn also from the mistakes that you don’t make with yourselves, and apply it when it comes to managing your money.

Happy Investing

Source: Moneycontrol.com