Being childish,and not kiddish with your wealth management

Children know exactly what they want
Be it the toy car in red or the chocolate ice cream without the chips in it, a child knows just what he or she wants and will rarely settle for anything else. This is something that everyone must learn to do with your finances. The first step towards achieving your financial goals is knowing and understanding which financial instrument is best suited to helping you reach them. Equity funds might be the finest investment choice, but not when you're investment goal is just a couple of years away. Similarly, something like a ULIP won't give you adequate insurance or make a good investment.

Children are honest
Children are brutally honest. They don't mince words and they'll let you know exactly how they feel about something. Honesty is a virtue, one that we need to have when dealing with your finances. Whether you're getting an insurance policy or setting targets for your investments, it's best to be honest with an intermediary as well as yourself. Don't hide anything from your insurance agent and don't devise objectives that you yourself know can't get fulfilled.

Children ask a lot of questions
Where does the blue sky go at night? Why can't we have pizza every day? If an orange is orange-coloured, why is an apple not apple-coloured? Some of their questions are funny, some are deep and some flummox even us adults. But that doesn't stop children from asking them. And it is something we should be doing as well. Ask your fund distributor or insurance agent or bank representative as many questions as you can. It is important for you to know why they're recommending a particular product to you, since it is your money on the line, after all. You've to make sure the financial decision will be in your best interests, not pushed out of their vested interests. The more you know, the better your money is put to use.

So, be childish with knowing what you want to make sure your money is put at the best use for you. Be childish with having an honest approach. And be childish with not getting embarrassed about asking questions.

Keep it simple and take small steps

   It was many years ago that I first read the book Small is Beautiful by the economist E.F Schumacher. It's not a popular book in business circles. Shumacher's concepts of getting by with the least possible and smallest possible set of resources seem outlandish to a certain audience. To most businessmen, 'enoughness' seems to be an idea more suited to a hippie commune from the sixties than to the world as they see it functioning.

   This may seem like a long jump, but I personally believe that for a non-professional investor, a derivation of Shumacher's approach would work very well as an investment philosophy. This is something that I would call the 'Simple is Beautiful' approach. It could also be called 'Do Less to Do More' approach.

   This approach is based on my belief, borne out of many years of interacting with investors, that far more people go wrong by trying to do much than by doing too little. In personal investments, the solution is not to do a lot, but to do only the minimum possible.

   The 'Simple is Beautiful' approach means sticking to some basic time-tested principles; by investing in the minimum possible number of securities and by taking the fewest possible actions. In the last couple of decades, the culture of investing (and of finance in general, and perhaps of all business) has shifted towards a worship of complexity for its own sake. More and more people assume that any investment methodology that doesn't involve mysterious formulas, and arcane ratios and elaborate charts couldn't possibly deliver the goods. The truth is the exact opposite. This complexity is just smoke and mirrors erected by a priesthood in order to create a need for their services.

   How would such a simple approach work in practice? Here's one example, which could well serve as the recipe for the perfect financial plan. You should keep all the money that you might possibly need for at least the next five-to-seven years in a safe fixed-income investment.

   The reason is obvious-this is the money that must always be on call. Only safety matters, nothing else. Longer term investments should be invested in a small number -- three to four -- of conservatively run equity funds with a good track record. Remember, the five-to-seven-year time horizon is a sliding window. Money should be moved from equity to fixed income as its date of usage comes near. The investments in equity should be gradual -- shoving money into equity-backed investments in one fell swoop when things get hot is courting disaster, but I suppose everyone should know that after the experience of the last couple of years.

   Is this an example the best possible plan? Well, that depends on your definition of best. I think this plan is the best one because its basic principles require no further understanding. It's optimised not for returns, but for the best combination of comprehension and returns. It’s very important to do only those things that we understand ourselves.

   In personal finance, there are few issues that are as full of obfuscation, such as insurance. Few financial products that are intended for individuals are as full of complexity as modern insurance products. However, keeping the ‘Simple is Beautiful’ principle in mind, it isn't difficult to cut through this thicket.

   Here's what you need to do. Make a liberal estimate of how much money your family will need if you should fail to wake up tomorrow morning and buy the cheapest term insurance you can find. Do diversify your insurance across LIC and two private insurers -- one is no longer confident of who's going to be solvent tomorrow. You should buy lots of term insurance, but never even think of buying any other product from an insurance company. In their mixed savings+insurance products like ULIPs, the huge commissions and obfuscated expenses they charge will kill your real returns.

   One important component of the ‘Simple is Beautiful’ approach is to somehow avoid having to react to market ups and downs. This is a major advantage of the kind of approach to investment that I'm describing.

   If you have an investment plan needs tailoring to suit the season then it's useless to begin with. Almost by definition, the only useful approach to investing is one that does not need to change in reaction, or worse, in anticipation, of events. The approach that I describe would be just as good during the lows of March 2009 as it is at the current highs. Or in fact at any other point of time in the past decades. The ‘Simple is Beautiful’ approach is structured around your life, not that of some investment market. In this approach, you change your financial plan when something happens in your life, not in the stock market.

   One characteristic of this approach is the emphasis on understanding things yourself rather than being dependent on some expert who is pushing his own agenda. This goes against the grain of modern financial industry, but understandability is a more important characteristic of any investment than high returns or anything else. Far more people get into trouble by putting money into things that they don't understand rather than by earning a little lower return.

   Does that mean that experts are not needed at all? Not really, except perhaps to tell you that you don't need an expert! Seriously, this is the gold standard of investment principles. No one should ever dabble in an investment that they don't understand personally. It's better to let a good investment pass by rather than invest in anything that you don't understand. An expert's role is not to tell you where to invest -- it's to show you how to decide for yourself.
DK

Technical Analysis, the relevance today...

          The technical analysis being used in equity and commodity trading is nothing but a predetermined mathematical model which indicate the trading pattern of a certain equity and based on psychological behavior of larger trading community. Greed, patience, fear etc have been mathematically modeled.      
                  Initially these were given by mathematicians after going deep into the trading behavior of majority and certain patterns were attached to a certain market condition of an underlying equity/commodity.Oversold, overbought, sideways movement, steady rise, relief rally etc are some of the trading patterns attached with certain values on the model like RSI, MACD, Averages etc

           Earlier,the technical analysis was based on trading behavior but now, in this age of information revolution, the trading behavior is influenced by technical analysis.The market pundits analyse these models and advise on the various marketing tactics. The analyses which were modeled for helping trading have now enslaved the trading. It has rather become a tool in hands of punters to fool gullible investors who come to markets in hope of earning but end up loosing all they have.

               In most studies it has been ascertained that people earn only 10% of the times, on rest occasions they loose. So what is the solution??? Day trading may be treated as bad as gambling. Futures trading is also a  sort of betting. Hence retail investors should indulge in long term investing only. Carefully chosen and balanced portfolios invested with a horizon of three or more years generally give returns beating inflation and growth together. For this, help of some long standing wealth manager can be taken which are available for a fee.

  

Rate Cut and Lending rate cut, the correlation...

         RBI has cut rates twice but banks have not reduced lending rates that much,neither they have shown any inclination to do so. The lending rates lowering will be pragmatic only in case banks are having enough liquidity. Liquidity crunch is the result of not lowering CRR accordingly.

         Market liquidity has been sucked by dollars being purchased by gold smugglers. Recent upsurge in gold import may be another indication. Govt efforts to curb gold imports or reuse of household gold also may be wasteful exercise because most of this gold is unaccounted.

         By controlling SLR, RBI keeps a vigil over credit growth in economy and CRR accordingly controls cash flow in the system. In the absence of credit growth permission, there is no economic justification to reduce lending rate as in absence of enough liquidity, businesses are ready to borrow money at present rates also( though cost of capital may be counter productive to growth). So it would be worthwhile for planners to take a holistic view of the situation...

         In future, rate cut should be accompanied by suitable SLR cut also for credit growth...and implicit govt direction to banks to reduce lending rates.....

Investment Myths/Syndromes...

        It is a common knowledge that most people loose on equity trading. Yes, if they resort to investing in lieu of trading, then most people earn. I am listing certain myths around which so called investors revolve their investment( actually trading) strategy......

Currency is an asset class

       This is a myth. Currency does not grow on its own, rather it looses its value if not invested in some asset class due to inflation. However keeping money as emergency fund is desirable. Money even invested/kept in saving a/c, FDs looses its value post tax and inflation.Various asset classes like equity, bullion, real estate,debt funds, art work, wines etc may be mentioned here for context .In present economic conditions, equity is only asset class which is giving returns post tax & inflation.

Booking Profit Syndrome

        Most of the investors( actually traders) have no capacity to digest profit but have ravenous apatite for loss.If a scrip has gone up by say 20%, they would book the profit but would not contain the losses in some other scrip.We do not sell businesses after taking initial profit in the first year itself, rather nurture it as milch cattle to get continuous profit and have a sort of bonding that the same business becomes our identity. Same should go with the stocks purchased after deep research. And where do we take this money? If it is required for some obligation, fine but to purchase some other scrip based on tip or additional purchase in some loss making scrip, what are we doing? We are leaving a trusted and efficient horse to ride an untested or already ailing horse..... a little consideration will prove my point.

Averaging the Loss Syndrome

          In a carefully selected portfolio of 10 scrips, if 6 are giving above average returns and over all returns are also above average, the portfolio is treated to be performing exceedingly well. However the portfolio is expected to be dynamically managed. If out of these 10 scrips, one odd scrip is in loss, it is absolutely normal. If growth story is intact, this is bound to regain but buying the same scrip more to average the loss may prove to be disastrous. My ailing horse argument holds good here also. We should rather book the loss then to put more money into the scrip.In a long term investment story, one needs to worry only if a scrip has gone down more than 40% in an otherwise okay investment and growth scenario.If the economy grows, then most businesses will grow and do well, and what the investor has to do is choose stocks that have some better-than-average characteristics. If you keep doing so without getting carried away too much, then there's a very high probability that you will make excellent long-term returns which are essentially unaffected by the steady flow of supposedly important events.

Multibagger Purchase on 7 April 2015

I have added Bajaj Finserve  to my portfolio on 7 Apr 2015 at Rs 1450

Gain Analysis 6 Months holding

SCRIP	PURCHASE PRICE	PRICE as on 2 Apr 2015	GAIN	%AGE gain
ENTERTAINMENT NETWORK	410	793.40	383.4	94
EVEREADY IND	110	270.45	160.45	146
FEDDERS LLOYD	85	71.75	-13.25	-16
GRANULES	76	92.85	16.85	22
LLOYD ELECTRIC	180	210.00	30	17
NUCLEUS SOFTWARE	223	183.30	-39.7	-18
R S SOFTWARE	283	201.05	-81.95	-29
SUVEN LIFE SCIENCES	122	288.85	166.85	137
T V TODAY NETWORK	170	226.20	56.2	33
Infinite Computer Solutions	200	248.15	48.15	24
Zicom Security Systems	173	161.10	-11.9	-7
	IN ONLY 180 DAYS			36.62%