Posted tagged ‘sensex’

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

Retirement Planning simple steps

August 26, 2008

In every financial planning class I need to do a post lunch session. To keep them awake I ask them to do a simple exercise – calculating how much money they require for retirement.

Unless they are at least 32-33 years of age, they have no clue as to how much they need for retirement. Once they see the figure (let us say Rs. 4 crores) they get into a DENIAL mode. Immediate reaction is to say “my father did not need this much amount” or “my expenses will reduce after retirement” or “my children will take care of me”.

Once they cool down, they sit and work out how it can be put together.

What most people do not realise is that the figure looks very big because we are seeing it from a very long tunnel. If I were to tell you that YES you do require Rs. 4 crores to retire, 30 years from now. HOWEVER if you were to invest just Rs. 100 a day for 30 years in a SIP which gave a SENSEX rate of return, you will have Rs. 4 crores in your retirement kitty.

So the important lessons in retirement planning are simple – make an estimate of your needs, adjust them for time value, compute the amount that you need to invest on a monthly basis, THEN START TODAY. Do not let the power of compounding go away – harness it when you can. Simple.

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!

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 uselessĀ a wait I guess!

So please use mathematics carefully!

falling markets what to do?

June 13, 2008

This is the time that most retail investors lose patience, panic and hit the sell button. If you did that, you may not be wrong. But then you may not be right either.

Remember the best money managers (no not a businessman like Warren Buffet) have done well by protecting the downside in their clients portfolios.

I sold Tata power, L&T, Hdfc not because these were bad companies but they had got ahead of their fair valuations – and by a mile. I was proved right in L&T and Hdfc (they are down more than 20% of my selling price) but I am not much in the money in case of Tata Power.

I have no clue as to where the market is headed – I have a “Technical Report” predicting a Sensex of 9800 and another report predicting 9000. I do not know whether this will happen. However I am convinced that there is enough alpha (or how a fund can outperform an index) and some smart managers can capture that.

You could be smart and continue your SIPs (like I am doing) or be foolish enough to stop the SIP. However, if the market stays down for say 4 years your stomach will be tested. For most investment returns IQ necessary is less than 100. However, in real life IQ above 150, harms your investment returns.

Market View: All experts

June 13, 2008

Many experts in the market now have a view on the market. This is of course only to be expected is it not? It is like when you thrust a mike in front of a person, suddenly he becomes a wise man (person?).

Mr. Ken Fisher who is himself a great fund manager and the son of Mr. Fisher whom Mr. Buffet recommends calls the market a “The Great Humiliator”. Whenever you risk predicting the market it does the opposite!

I have research reports from a big broking house (Oh my God, sent urgently from a Blackberry!), view of a CIO who said “the best bull run of our lives is over, Subra”, a technical expert’s report (on CD) that the market will see a 55% correction from its peak of 21000 – which means sensex will see 9827 (sorry maths or facts one of them is correct), and therefore I do not have a view. One very senior banker has a very pessimistic view on the “land bank” of most real estate companies. And particularly of one company – and he is expecting that to spoil the recovery party, if any.

All these views are pessimistic in the short run (which could be 5 years?). One expert said “it took the market 10 years to cross 4200 the previous peak – from 1992 to 2002” so you may see 21000 in 2018!! Vow! we as human beings love creating a trend where none exists! God save us.

I know only one thing – if your money is being invested for the long run (I am old fashioned I mean about 7-10 years) that money should be in equities. If it is for a shorter period (3-5 years) be in a balanced fund. If you have money for less than 24 months, be in debt instruments like FMP, or short term floater. As simple as that.

Will the market touch 10k before touching 21k? Please consult an astrologer.

What will Mr. Market do?

May 6, 2008

As is fashionable and necessary there is a discussion on a leading channel about how the market will behave. Of course to quote Taleb “Sensible sound bytes is an oxymoron”. So please listen to all the noise and come to your own conclusion.

There is Shankar sharma who is predicting that the market might see 10,500 (when he says market can fall 50% from its previous top, I guess this is what he means), says we are in a bear market. He says the bear market can last 2-3 years.

Then there is Rakesh Jhunjhunwala who says market the market is in a correction mode – part of a bull market and this phase can last 12-18 months.

Frankly all these experts are guessing – and they are looking into a teleprompter or a tv camera not a crystal ball.

Getting the market right means –

1.getting the direction right (from 21k, the market will GO DOWN),

2.say by how much (it will go to 14,000),

3. how long it will be there (time that it will spend at say 14k), and by implication

4. when will it start going up. AND HAVE THE CONVICTION TO STAND BY IT.

Like John Templeton, I also do not know anybody who knows anybody who can get all the factors correct, all the time, every time. So stop listening to sure fire timing success stories – it requires too much discipline to be successful with Technical skills.