Budget, Taxes, and the Power of Acceptance

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Budgets, with all their economic mumbo jumbo and despite sometimes their big announcements (like increase in capital gains tax, no indexation benefit on real estate etc.), don’t really matter to you as an investor in the larger and longer scheme of things.

What really matters is – whatever the tax you pay and whatever happens to the general economy, and despite all those things not in your control – how much you save regularly and how well you invest those savings.

But the problem is because being frugal despite the economic environment and saving and investing well does not make newspaper headlines, people don’t worry much about these aspects of wealth creation as much as they worry about what is more vivid, like Budget announcements and stock price reactions owing to them.

Avoiding and not reacting to the news, like Budget announcements – unless it’s about a real impact on the future cash flows of the businesses you own – is a competitive advantage in investing.

The longer you remember it through the ups and downs of the markets, and the more you use it in the way you invest, the better off you will be in your wealth creation journey.

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What I’m Reading

Serenity Prayer

I own stocks, and they increased long-term capital gains tax. I own a real estate that I wanted to sell, and they have removed the indexation benefits that will now cost me a higher tax outgo.

Benjamin Franklin said it right that “nothing is certain except death and taxes.” Both are outside my control.

Now, I have two choices for dealing with these –

1. I feel dejected because I don’t control these.
2. I feel liberated because I don’t control these.

You see, life and investing (and finance ministers) often test our emotional resilience. And given this, adopting a stoic mindset can be immensely beneficial. That teaches us to focus on what we can control — our actions, reactions, and decisions — while accepting what we cannot — market fluctuations, economic uncertainties, and taxes.

I was re-reading an old diary entry last night that was about the Serenity Prayer –

– and I am happy accepting the thoughts of paying higher taxes, and dying, with serenity.

Note to myself – Karm karo, taxes ki chinta mat karo. 🙂

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Expiring vs. Long-Term Knowledge

Sherlock Holmes told his accomplice Watson in A Study in Scarlet –

I consider that a man’s brain originally is like a little empty attic, and you have to stock it with such furniture as you choose. A fool takes in all the lumber of every sort that he comes across, so that the knowledge which might be useful to him gets crowded out, or at best is jumbled up with a lot of other things so that he has a difficulty in laying his hands upon it.

Holmes added –

Now the skillful workman is very careful indeed as to what he takes into his brain-attic. he will have nothing but the tools which may help him in doing his work, but of these he has a large assortment, and all in the most perfect order. It is a mistake to think that that little room has elastic walls and can distend to any extent. Depend upon it there comes a time when for every addition of knowledge you forget something that you knew before. It is of the highest importance, therefore, not to have useless facts elbowing out the useful ones.

Morgan Housel did a great job explaining what you should stock in your brain attic (long-term knowledge), and what you should just ignore (expiring knowledge)…

Expiring knowledge catches more attention than it should, for two reasons. One, there’s a lot of it, eager to buzz our short attention spans. Two, we chase it down, anxious to squeeze out insight before it loses relevance.

Long-term knowledge is harder to notice because it’s buried in books rather than blasted in headlines. But its benefit is huge. It’s not just that long-term knowledge rarely expires, letting you accumulate it over time. It’s that compounds over time. Expiring knowledge tells you what happened; long-term knowledge tells you why something happened and is likely to happen again. That “why” can translate and interact with stuff you know about other topics, which is where the compounding comes in.

Add to this something similar I wrote a few of years back in my post on a guide to reading for investors.

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Why more effort is not always better

Rich Roll’s memoir, Finding Ultra, showcases his incredible journey of completing five Ironman triathlons in one week, sparking a deeper exploration into the balance of fitness and life. While Roll’s achievements are undeniably inspiring, they raise an important question: how much effort is enough when building foundational habits like exercise?

This article delves into the diminishing returns of physical fitness and the broader implications for finding equilibrium in various life pursuits. By examining the benefits and costs of investing time and effort, it helps determine the right balance for a healthier, more fulfilling life.

An excerpt –

…once you pay those fixed costs, you can reap the benefits of strong foundations for the much more modest “maintenance” costs. Most people who have a good productivity system, solid financial portfolio or healthy eating habits aren’t expending a lot of time and energy to sustain them.

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What I’m Thinking

In most likelihood, all you need is –

• Some money as emergency fund
• 1 term insurance
• 1 health insurance
• 2-3 high quality MFs
• 10-12 high quality stocks (optional)
• Some debt (PPF, FD, liquid fund)
• Some gold (optional)

Personal finance is simple. Keep it that way.

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A lot of choices in life are not between good and bad, but between bad and worse.

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George Baker once said something profound that Thomas Phelps quoted in his book “100 to 1 in the Stock Market” – To make money in stocks you must have “the vision to see them, the courage to buy them, and the patience to hold them.”

Of these, patience is the rarest and the hardest to master. But if you can cultivate this skill and practice it diligently, it pays off handsomely in the long run

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Quotes I am Reflecting On

The meaning of life is just to be alive. It is so plain and so obvious and so simple. And yet, everybody rushes around in a great panic as if it were necessary to achieve something beyond themselves.

– Alan Watts

There is only one side to the stock market; and it is not the bull side or the bear side, but the right side.

– Jesse Livermore

For the safest way of not being very miserable is not to expect to be very happy.

– The Essays of Arthur Schopenhauer

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That’s all from me for today.

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Thank you for your time and attention.

~ Vishal