Investing

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You Are ‘Shockingly’ Terrible At Investing

Not me, this is what research from Richard Bernstein Advisors shows – that the ‘average’ investor is terrible at investing.

This following chart, which shows returns over 20 years, of various asset classes, proves this…

You Are 'Shockingly' Terrible At Investing

Here is what Bernstein’s report states –

The performance of the typical investor over this time period is shockingly poor. The average investor has underperformed every category except Asian emerging market and Japanese equities. The average investor even underperformed cash (listed here as 3-month t-bills)!

The average investor underperformed nearly every asset class. They could have improved performance by simply buying and holding any asset class other than Asian emerging market or Japanese equities. Thus, their underperformance suggests investors’ timing of asset allocation decisions must have been particularly poor, i.e., investors consistently bought assets that were overvalued and sold assets that were undervalued.

Even cash has outperformed the ‘average investor’!

Simple Ideas on Wealth Creation, the Subramoney Way – Part 4

Vishal: What’s your view on gold as an asset class? How much allocation one should have of the yellow metal?

Subra: People keep on saying that gold has no value but unless you outperform gold, you have no right to say it. For example, when Warren Buffett says gold has no value, he makes sense because he has outperformed it. But a fund manager who is underperforming gold and says it has not value is in trouble, because he would have to answer his investors on why he is underperforming gold.

So, there will be points in time when gold will do well, like when there’s uncertainty in the market, or due to geo-political reasons, but if you’re an optimist, you’ve to assume that these kinds of skirmishes will not be much. So, over long periods of sustained development, I don’t see gold having a great place in your portfolio.

But let’s face it. If you were in Kuwait in 1980, or in Pakistan in 1947, and you had to run away from your house, the only thing you could’ve carried is gold. To such people, gold has tremendous value.

What Type of Investor Are You?

In my interactions with hundreds of investors over the last few years, and now during my True Wealth Workshop journey across seven cities over the last few days, I have met investors who have classified themselves under one or more of the following heads –

Defensive
Aggressive
Growth
Value
Risk-taking
Risk-averse
Fun loving
Serious
Just by the way
Self made
Made by crisis
Sane
Insane

But then, as I understand based out of my experience and from reading the investing legends, the only true classification of investors is this…

So what’s your type?

Rising Stock Prices and the Return of Arrogance

Disclaimer: This post is not my attempt to predict what lies in the future and where the stock market is headed, because I have a post-graduate degree in making disastrous predictions, especially about the future. What I am sharing below is what I have started experiencing around me, and why I believe you, as an investor, must be very careful of falling into the trap of people making rosy predictions about the future.

One of the key themes of my discussions with investors during my extensive travel over the past few days was that risk-taking and arrogance is back in the stock market.

I got a hint of this from a lot of people stressing on the benefits of borrowing money to invest in “great opportunities” available out there.

So one participant at my Indore workshop argued – “Why shouldn’t I borrow at 10-12% interest and invest for 25-30% returns that are there for the taking?”

Another asked in Vadodara – “Why shouldn’t I borrow when I know the opportunity to multiply money is great?”

Without doubt, I could answer these questions only to the point I understand the dangers of borrowing money to trade or invest in the stock market. Beyond a point, if someone has made up his/her mind that borrowing money is a great idea (because others have found success doing so), I have no answers to provide.

Simple Ideas on Wealth Creation, the Subramoney Way – Part 3

Vishal: What are the 2-3 big mistakes that have characterized your investment life? What lessons did you learn from the same?

Subra: Funnily, all my mistakes are one – trusting people who are not trustworthy. I will not call them fraudsters. I will call them incompetent. And I thought they were competent because they were known people, and friends.

For example, I got close to bankruptcy when I was 32 years of age, because my broker defaulted. And I remember one employee of the brokerage firm saying, “Subra, you never take risks. But you took this biggest risk of all!” Like I will never do an F&O, or a badla, or things like these. And I was taking a risk on my broker, and my broker defaulted.

I used all kind of support, from police to political, but that guy didn’t just pay. But I paid up for my clients. So that was horrible mistake which was all about trusting the wrong person.

Anyways, these mistakes of trusting wrong people helped me in a good way – I did not get carried away by any of these booms, like the tech boom, and the real estate boom.

Journey of a Value Investor – Part 1

I recently returned from the first phase of my True Wealth Workshops held in Ludhiana, Jaipur, Indore, Vadodara, and Surat, covering around 3,800 KM over six days.

The next phase starts on 21st November, where I will cover Nagpur, Raipur, Bhubaneswar, Ranchi, Patna, and Lucknow. Click here to know more and register.

I wish to thank the following people for helping me out in several ways during this journey –

Ludhiana – Haresh Nagpal (for offering his office as venue and spending his precious time helping me out in other ways) and Sanjeev Bhatia (for just being there for me, including taking me out for the most delicious Punjabi food I’ve ever eaten)
Jaipur – Jitendra Khandal (for bringing me home-cooked food and helping with other arrangements) and Rajveer Singh (for identifying the venue)
Indore – Abhijeet Dongre (for hosting me at his home and helping me with the venue and other arrangements)
Vadodara – Samir Shah (for offering his office as venue) and Reni George (for hosting me at his home, preparing a great breakfast for me, and partnering me in my morning walk at the beautiful Sayaji Baug)
Surat – Premal Thakkar (for hosting me at his home and co-conducting the Vadodara and Surat Workshops with me) and Pratik Patwari (for identifying the venue)

Here are the amazing tribe members I met in these five cities…

The overall experience was great, and here are a few things I learnt (or re-learnt) in this journey.

Simple Ideas on Wealth Creation, the Subramoney Way – Part 2

Vishal: I remember reading somewhere in your blog that most people get into troubles in their financial lives because of their inability to say “No”. That’s truly a widely prevalent problem, right?

Subra: Yeah. My most popular article is one that says – One word that will make you rich.

This article was inspired by another article on Wall Street Journal, in which a doctor with 25 years of experience says, “If a doctor asks you to go for this or that test, don’t do it. You don’t need to do it, because the risks of the test are greater than the rewards of the test.”

So I asked – “Isn’t the same thing applicable to financial services?”

All you need is one term insurance, one savings bank account, one index fund, and that’s it. Then, anybody comes and tells you buy this and buy that, you just need to say no.

And I see portfolios of people who’ve put money in 100+ mutual fund schemes without understanding what they are doing. You don’t need to do all this! This is bound to give you sub-optimal returns.

Simple Ideas on Wealth Creation, the Subramoney Way – Part 1

If there is one person I’ve known in my life who can most easily and sensibly guide people on wealth as on health, it is PV Subramanyam (or Subra as he is popularly known). When he is not advising people on how to manage their financial lives sensibly, you can find him running or cycling long distances.

Subra is a Chartered Accountant by qualification and a financial trainer by profession. He writes frequently on his blog, Subramoney, and has also authored a book on wealth creation called ‘Retire Rich Invest Rs 40 a Day’.

Subra believes to make money, you do not need too many ideas. You need simple ideas and discipline. Simple ideas, and many of them, are what he shared recently with me in his interview for Safal Niveshak.

Before I get into our discussion, let me share that this was the most unusual interview I have been a part of in my life. The reason being the venue me and Subra decided upon, which was on a hill here in Navi Mumbai that lies midway between our homes.

We met at the base of the hill at 7 AM day before Diwali, walked all the way up, prayed at the temple on the top, and then sat at the backside of the temple, roadside, for this interview.

Let me now go straight to what Subra shared with me. Like all interviews I have shared with you in the past, I have broken this one also into a few parts so that you get a chance to absorb the ideas better, and also practice patience while waiting for the next part. 🙂

Let’s me start with the interview now.

One Big Lesson I Learned Seeing Warren Buffett Make Mistakes

IBM and Coke represent two of Berkshire Hathaway’s three biggest investments (the biggest being Wells Fargo).

However, disappointing earnings announcements at these companies cost Warren Buffett around US$ 2.5 billion in the week gone by.

These losses add to a recent rough patch for Buffett, who slashed Berkshire Hathaway’s stake in British retailer Tesco recently. He has described buying into the stock as a “huge mistake” after the company announced another earnings disappointment and, over that, a £ 250 m accounting scandal.

Few seats remain at my Value Investing Workshop in Bangalore on 1st Nov. (Saturday). To join, please register here – https://t.co/VoXkYaHm9q

— Vishal Khandelwal (@safalniveshak) October 27, 2014

The media is rife with these big “mistakes”, especially Tesco, and is surprised how the world’s best investor could commit them. But then, Tesco isn’t Buffett first mistake and it won’t be his last mistake either.

DLF Fraud: One Big Lesson for Investors

Warren Buffett wrote this in his 1989 letter to shareholders…

Stick to proven management with a lot of integrity, talent and passion. After some other mistakes, I learned to go into business only with people whom I like, trust, and admire.

Sadly, 25 years after Buffett first said this and after his countless repetitions of this thought, investors continue to deal with managements that lack integrity, and have talent and passion not in conducting their business affairs honestly but in looting other stakeholders.

The latest case is that of India’s leading (if size matters here) real estate company, DLF, which has sent its customers and investors into a tizzy. This is after the stock market regulator SEBI barred it from raising money from the capital market for three years.

So, home buyers who have invested in DLF projects are worried because they fear the projects that have already been delayed may be pushed back further or even get stalled due to lack of funds with the company.

As for investors (or let me say speculators, who were playing with fire), they have already lost a bucket-load of money in the company’s stock. The stock is down 55% in just the past four months, and 90% down from its post-IPO highs in January 2008.