Posted tagged ‘inflation’

Shankar Sharma: You are wrong!

September 1, 2008

“Sensible soundbytes” is an oxymoron. This is what a great author has said. So if most of you know what is a black swan, you know who I am talking about.

I normally do not watch much TV – except for Ramayan or Animal Planet with my daughter. However, I am many times under great pressure to watch the business channels – from friends in the media.

Yesterday, I believe, Mr. Shankar Sharma came on NDTV Profit and said “The index will not reach 100,000 – not in my life-time – and may not be in your life time too, and you are much younger than me.” Frankly, Mr. Sharma you look young, and maybe you are about 45 years of age. However, for our purposes may I please assume you are 50? May I also assume that you will live to the age of 72 years? i.e. we are talking about 22 years. May I also assume that India will grow and there will be inflation in India? i.e. we are talking of 6% growth + 6% inflation. That is we will get a growth of at least 12% p.a? I know about standard deviation, and I also know that we will not grow at this constant rate….however 12% over the next 22 years will happen.

On this assumption Mr. Shankar Sharma the index will grow as follows:

50 16,307
51 18,753
52 21,566
53 24,801
54 28,521
55 32,800
56 37,720
57 43,377
58 49,884
59 57,367
60 65,972
61 75,867
62 87,248
63 100,335
64 115,385
65 132,693
66 152,597
67 175,486
68 201,809
69 232,080
70 266,892
71 306,926
72 352,965
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Inflation? Counter it! Tips to reduce your cost of living!

July 25, 2008

How to reduce your cost of living

The basic needs of man are food, clothing, shelter and circus (entertainment?). However, most of us have today graduated from needs to wants and luxuries.

However, when the headline inflation numbers hit 11.9% there is a serious worry about people not being able to meet even their basic needs – and that is a worry.

While shopping at a discount store instead of the mall generally takes care of the clothing issue, and living in a small apartment instead of a huge house, if you can live in a less fashionable area – like Vikhroli instead of Powai, can address your housing situation. Rising world food prices can lead to some significant challenges in the food department!

Everything from rising transportation costs to the development of biofuels, push up the cost of food and put a pinch on consumers’ wallets.

While reducing your eating to one meal a day is good for yogi’s and is a good way to cut down costs, that is not what I am suggesting. Instead, I am suggesting something much simpler.


1. Eat at Home
Eating out is expensive. Apart from food even coffee made at home is inexpensive. And you get the added benefits of nutrition, hygiene, etc. Small numbers do add up – if you are spending Rs. 200 a day eating out, and it costs you Rs. 50 to eat at home – you save Rs. 150 a day. A systematic investment plan of Rs. 150 a day done for 30 years can give you returns in excess of 5 CRORES! Toast butter, vegetable sandwich, Tea, coffee, curd rice, salads – are really simple to make 🙂

2. Know what you are buying
You need a plan for almost anything you do! Shopping is not very different – if you stumble around the grocery store and fill your cart with everything that catches your eye, chances are you will spend a lot more money that you needed to spend. Plan your meals for the week ahead, and make careful note of what you need to buy. Once the list is made, purchase only the items on the list, and avoid impulse buys.

3. Buy what you need and then put on Blinders!

Stores are designed to make you go through a long walk to get to the most basic items you need. ON the way you will pick up a lot of things that you do not need, and in quantities that you do not need. Though there is no research in Indian conditions, clearly people do not use all the things that they buy – refuse to be bullied into buying! Most necessities and basic cooking items are found along the outside perimeter of the store, start there and work your way around the edge of the store.

4. Shop on a full stomach

On a hungry stomach you are likely to pick up a lot of things that look like food! You might also pick up a lot of food – which is perhaps un-necessary. On a full stomach on the other hand, you will most likely
be tense and pick up unnecessary stuff.
6. Do you really need bottled water?

A water filter works far cheaper, compared to bottled water in terms of costs.

7. Shop sans the Kids
Hungry, tired, cranky kids increase the amount of time it takes to get your shopping done. Kids can really bug you into buying things which are bad for your health and for your purse – leave the kids at home / crèche / school before you venture out shopping.

8. Buy in Bulk
Bulk buying can save you a significant amount of money. Pay attention to the prices and pick up the family size package if the per-unit cost is lower and you have a place to store it. However, you need to realize that bulk buying has a dark side too! If you are not a big user of any particular product, and storage is an issue be careful of bulk buying – the Indian weather does require refrigerators for most products.
9. Use Store Reward Cards
If the store that you visit most frequently has a reward card, sign up. In some cases, stores raise their prices when they offer reward cards, and without the card your bill will certainly be higher. If the reward card offers other benefits, such as a preferred (or free) parking, some free schemes, etc. be sure to maximize your benefits before they expire.
10. Buy Local products
Whenever I step into a big branded store, they do try to push “American grapes” – I fell for it once, and realized only on billing that it was Rs. 400 a kg! The Indian variety is normally available for Rs. 40. Locally grown or produced food is often available at a cheaper price because you don’t pay for long transportation costs. In the place I live I also see farmers coming and holding an exhibition / sale of seasonal vegetables and fruits – common to see a mango mela or a fruit and vegetable exhibition. You cannot do your weekly purchase here but you get a good price indication.

11. Choose unbranded goods!

There is a huge, huge cost difference between a branded product and an unbranded one. Even in case of “expensive” items like dry-fruits if you buy it from a wholesale-retail shop you will find a 20% price difference. Some branded foods like cornflakes, hold your breath – are more expensive than dry fruits on a per kilogram basis J. If you thought potatoes were selling at Rs. 12 a kg., you are correct, but when it gets converted to branded chips, it becomes a little expensive – about Rs. 300 a kg!

12. Men are bad shoppers?
It is not so much a gender issue – but men do not have much patience and that shows while shopping. So if you are a man, realize that shops know and understand this. So things are arranged in such a way that when you are in a hurry you will find the most expensive items. So look in the corners, look at levels lower (and higher) than just at the eye level. To find less expensive items, look down. Also, looking around your brand-name food can find you a cheaper generic alternative.

13. Avoid Checkout Temptations

Normally you have some high priced crackers, chocolates, shaving blades – and the cheaper alternatives are just a little further away, so walk a few steps. Picking up things at the check-out counter surely spoils your health – like the chocolate that you eat on the way to the car! Most of the times it also spoils your wealth.

14. Compare Prices and Stores
I personally do not compare prices and stores but my wife has a doctorate in this! She knows which shop is good to buy vegetables, which shop for branded goods, and which shop for unbranded goods. And she plans her shopping accordingly.

15. Sales offers
I
n Indian conditions September to December are what we call “Festive season” when most of the buying happens. Surprisingly, Hindus, Muslims and Christians have some festivals for which they buy new clothes in this period. So shop keepers do a pre-festive sale in July-August and a post-festive offer in January. Use these sales to build your wardrobe – you can get good deals.
16. Shop less frequently
The lesser the number of trips you make to the shop, the lesser the things you will end up buying! So if you are making more trips to the store, it is time you reduced the trips.

17. Pay In Cash

When you buy your day-to-day requirements with your credit card, and do not pay off in full, you pay interest. Apart from this, when you see cash go out of your hand, you tend to be more careful about how much you spend. So paying by cash is a good option.

18. Check Your Bill
You should check all the statements which have a financial implication – whether it is your credit card statement, you mutual fund statement, your bank statement, your insurance statement or even your bill at the Store where you buy. Scanners are fine, but sometimes there could be a mistake. There could be one item scanned twice. Sometimes the prices are not changed – maybe carelessly but you MUST see the bill before you pay. Or go home, check and then scream if things are wrong.

19. Buy leather goods in monsoon and umbrellas in Winter!

During the non-season prices of goods are lesser. If you are in a monsoon area check out for sale of leather goods. There must be one going on somewhere near your office / house. Be alert to such offers. If you are buying things for your kids this is more true. So be awake.

Keep watching this space, i will keep adding points here….

Longevity : prepare for it

July 21, 2008

This is not a debate on whether you will live long or not live long. It is simple and easier to assume that you will live long – pretty long if you ask me. If your grand parents are pushing 85, your father is in his 2nd innings, but still holding a job at the age of 64 years and you are in your late 30s or early 40s, come to the world of longevity.

Most of the “killer” diseases have been eradicated or a cure found for. If you are in a household mentioned above, at your age of 72 years, you will still have to worry about inflation!

You will have to worry about – inflation, a long term care insurance (which will take care of your hospitalisation bills, day care, etc.), and a pension that takes care of all your needs – even if it needs a manager to take care of your money. I know one 72 year old who likes to keep all his money in savings accounts and bank fixed deposits. Asking him to invest in any other asset class is a nightmare and another 80 year old who happily keeps all his money in equity – his dividend income is far, far greater than his requirements. Both may be extreme cases, but a 72 year old has a serious possibilities of living till the age of say 90 – in such a case – inflation is a serious worry. May God bless his soul, but I hope he dies by the time he is 78, because I expect him to exhaust his savings – and he is not at all keen to take anything from his children.

Best channel for investing?

July 17, 2008

Which is the best channel to watch if you are an investor?

Cnbc? Ndtv Profit? Zee Business? …

Well what about Animal Planet?

O.k. Okay…I am wrong, but please read ahead especially if you are asking me …

Will watching Animal Planet help me answer the following questions?

Will inflation touch 17% six months from now?

Where will oil be six months from now?

And where will the sensex be?

What about real estate?

Fact is, investors who try to time the market are fooling themselves. Jumping in and out of the market isn’t a reliable strategy for wealth creation, and it isn’t successful – period.

Fact is, you are trying to fool yourself by hoping to get answers to these questions by watching the business channels.

You cannot get an answer to these questions by watching Television, or by doing a PhD in Finance. So stop attempting to answer these questions. Period.

Generally in any sport or in real life activities you win by controlling your emotions – not by succumbing to them. So unless you are really made of steel you will succumb to the emotions of the TV analyst. Just remember the channel makes money if you watch. You make money if your portfolio does well. I have still not seen proof that watching television (or reading the pink papers) can create a good portfolio. I may be wrong, but I still have to say it!

Wealth creation is easy: Simple steps

June 28, 2008

Many people think creating wealth is a very difficult process. Funnily, it is not so!

Let us look at some simple steps:

1. Stop procrastination! The best definition of procrastination that I know is unfortunately not printable! But it is easily one of the most important reasons why wealth does not get built. So start today. If you do not know in which mutual fund to invest, invest in Benchmark Nifty bees. Once you decide on which fund to invest remove it from there and invest in a place you deem fit. Savings bank account is not a sensible place to keep your “waiting” money. It is perhaps the worst.

2. Incur only legitimate expenses: Many of us let leakages be! If there is some leakage, plug it. It could be your son, daughter, brother …somebody sucking you off your good money. Keep vigil.

3. Your own spending habits: Most people know where their big money is going – emi, house rent, school fees. Actually these do not hurt. What hurts is the small amounts that you spend regularly. As an experiment track your income and expenditure – a software (as simple as an excel sheet or as complex as a portfolio tracker – cum- Income tax return filer like www.myirisplus.com) can be used.

4. Inflation: the least understood of the drains on your money. It is a killer – because it takes away a little every day without you even realizing it. So ensure that your portfolio gets a ‘REAL RETURN’.

More tips on wealth creation will follow….keep reading.

Inflation and mathematics

June 20, 2008

A pyt in our office today asked a very innocent question. If inflation has gone up from 9% to 11% in a week, next week will it be 14%?

Well the truth is I do not know. However I do know that if it rains 90mm in Mumbai, and it does rain like that for 3 months, Mumbai will be drowned. If the Sensex falls 300 points a day, over 50 trading days the sensex will be zero. This is the problem with mathematics – the user has to know when to stop pulling the mouse! Yesterday one website claimed that Mum -London fares had fallen by 27% over the past 10 years, so, the author reasoned you will be able to fly Mum – Lon @ some ridiculously low amount in the next 10 years. Now if you pull your mouse fast enough and long enough there will be some stage when you will be PAID for travelling Mum – Lon.

Just like the waiting time for a treatment at the NHS in the UK. Let us say today you have to wait 2 days for an abortion. Now if you pull the mouse long enough, surely there will be a stage when you may have to wait for 10 months……pretty useless a wait I guess!

So please use mathematics carefully!

Market View: Nilesh Shah

June 12, 2008

At the India Equity show there were many speakers. One of the good speakers was Mr. Nilesh Shah, CIO, and Deputy Managing Director of Icici Prudential asset management company. He of course is a good speaker from the understanding point of view – his examples are always related to food though :). When he talks of inflation, he talks of the price of masala dosa, when he talks of a asset allocation he talks of a “thali” for a balanced diet, and true to form this time he spoke of how mutual funds are like Udupi hotel! Surely he likes his food – but his body does not show it. Lucky him!

This is what he had to say at the India Equity Show, 7th June, 2008 at Worli Mumbai:

He gave a nice, new version of the ant and the grasshopper story. As is known this is a old story about thrift. The ant toils in summer and creates a warehouse for itself for the winter. However, the grasshopper which has been playing all summer has no larder from which to eat. When the grasshopper asks the ant for food, the ant tells the grasshopper if you have sang all summer, you should now go and dance!

Nilesh’s take was “people like us” – I guess he meant the middle class, educated Indians do not vote and therefore we get the politicians we deserve. However, he ended on an optimistic note. He said if politicians are in a performing mode, they will get re-elected (like Gujarat and now Bihar), otherwise they will get thrown out.

His version of the ant and the grasshopper story is:

Once upon a time there was an ant and a grasshopper….However in the winter when the grasshopper did not have any food, the situation changed.

There was a round-table discussion on cnbc, zee, bbc and cnn on how to save the grasshopper. 4 activist groups had gathered data on how ants had more food to eat and that it could get spoilt. Soon there were dharnas and protests held all over the country. Kerala, West Bengal, Tripura announced a state wide bandh protesting against the ants keeping all the food to themselves – so what if they had earned it themselves. Under pressure from UP, Kerala, and some more votes in the West of the country an ordinance was pushed through : “Prevention of terrorism against grasshoppers”.

This was followed by IT raids which took all the food and gave it to many people hoping it would reach the grasshoppers. End of story.

Nilesh then went on to talk about “rahu” and “ketu”. Now he felt that it is rahu kalam because of oil prices. He felt that if oil prices are not brought down, the market is headed down. He felt that higher oil prices would lead to inflation, would lead to higher interest rates, and thus a higher deficit. We will all end up paying for the quality of politicians we vote for (or as he says do not vote for).

Unlike the earlier oil spike we will not pledge our gold, but clearly our momentum of at least one year is lost. He felt that politicians will ensure a de-rating of India story. He had something sinister to say about the Index being in 4 digits if oil hits $ 200.

So go out and invest….!