Posted tagged ‘broker’

Politics and Money

July 10, 2008

I normally do not write about politics but this are special times! There is a chance that the government will fall (this is a defeat for Anil Ambani) or the government will survive (there is enough that AS and AA can do to irritate Mukesh).

However, there is a good chance that if the UPA government survives this scare, it will call for elections as soon as they announce some populist schemes. However in the meanwhile both the brothers will take a few millions from their market capitalisation, and this will hurt the sensex.

Congress and SP need to collect money for the elections (and for 5 years of unemployment perhaps) so you will find some shocking policies, and this will hurt. Badly.

Anil’s fight will mean Mayawati will not clear any proposal of his in UP. Reliance Power has quoted prices which are difficult to achieve in the best of situation. In a revised situation like this, I guess you will be able to get his share at the same price at which he took it.

If there is a “windfall tax” on Reliance, will Mukesh hit with a “you got cheap spectrum tax” on Reliance Communication? A good idea.

Uncertainty, political (business) fights, snatching Mukesh’s plane (posturing?), Chidambaram at his giving best – he telephones people to reduce prices while giving salary hikes to govt employees,…will see the market swing sensationally. So, like a broker told me buy puts and calls – both will make money if you do not panic!!


Choosing the financial adviser..

June 30, 2008

This is arguably the most important financial decision in your life you will ever make! Not too long ago life was simple. You wanted a bank account, you went to a bank. If you wanted to buy shares, you went to a sub-broker (a broker was out of reach till about 15 years back). If you wanted a life insurance, a LIC agent sold you some policy which you hoped was good.

Today you find bankers who actively discourage you from coming to a bank. Insurance agents who sell you anything buy a life insurance product. Bankers who sell you mutual funds, life insurance, broking accounts, and real estate!

And the companies that sell you financial products are dime a dozen – Reliance (Mukesh) has a loyalty card, Reliance (anil) has a credit card. A call from Reliance Money says “Reliance Bank” and offers you a loan! Airtel offers you money transfer, cell phones can be used for paying utility bills. Why do I need a bank, a cheque book, a relationship manager? I do not know!

Now into this mess comes in a financial adviser. He should tell you the difference between information and noise. He should encourage you to write down your goals. He should be able to understand the difference between a 3 month track record of a scheme and a 3 year performance. He should be able to FORCE you to buy life insurance MUCH BEFORE you need it. Your pension plans and medical insurance plans should be in place when you CAN rather than when you must. He should be able to help you prioritise your goals. He should have the guts to tell you that your goals make sense only when you allocate resources for the same.

HOWEVER, he should not sell any products to you EVEN if it is a zero load mutual fund. Because then, he loses credibility. It is like a rep of a pharma company – I cannot trust him like i trust my family doctor. Sorry, I know this is an old world view.

SIP: works or not? Caveat about direct equity SIPs!

May 5, 2008

SIP creates wealth in the long run, however it gives no immediate gratification. Equity trading (what the common man thinks is investing) gives immediate gratification and does not create wealth for the client. The broker wants him to trade so that broker’s wealth goes up.

So what is the solution?

Sell SIP in equities as a fantastic product. The call goes something like this – “Sir in volatile markets you should be investing in small lots instead of lump-sum, so we have an EQUITY SIP …it works like this. Every month you invest Rs. 5k in a scrip that we choose, thus you create a portfolio”

Sounds good, well it is not. Averaging works only in a portfolio – rupee (dollar) cost averaging – which is what SIP helps you do DOES NOT WORK IN CASE OF A SINGLE SCRIP. Imagine if you had bought silverline at Rs. 1300 ….and you are still averaging, you would have been wiped out. In case of a large cap mutual fund, the ups and downs are not so steep, so you can do an SIP.

With a single scrip you can average, but requires tremendous amount of information, and skill. Do not fall for such sales pitches. You will be red in 3 years time!

This actually reminds me of a Ben Graham quote:” The individual investor should consistently act as an investor and not as a speculator”

Warren Buffet’s lessons

April 24, 2008

It is customary in film circles to say “i was inspired by Kishore Kumar or S D Burman or …” what have you and then copy their song – either partially or in toto.

In fund management too you can copy and the advantage is your money in the bank, is yours.

Your money does not tell you “Oh, so you copied Peter Lynch or Warren or Prashant Jain or a Vallabh Bhansali” – and that is a huge advantage. And since we are comfortable with this concept let us look at what we can learn from Warren Buffet – after all if you are copying, you might as well copy from the greatest business manager. Warren Buffet.

Think 10 years, rather than 10 minutes.

Not too many brokers who read this will like this post. Warren Buffet, luckily, is a business manager and not a fund manager. In case he were a fund manager he would be worried about soft dollar commissions, asset management expenses, etc. There would also be a brokerage firm breathing down his neck to transact!

Clearly when he says think 10 years, the main thing that he is saying is “Create wealth for yourself, not for your broker”.

So be an investor and have patience. Thanks to compounding, success will follow!