SENSEX rises from 20k to 40k, but no income rise for the equity mutual fund investors

SEX is reaching new high’s, investors portfolios are not going up. Reasons why it is not? Only a handful of stocks are moving up in price, why it is so? What is happening to the broad market? SEBI, recategorization, high valuations along with why fund managers were forced to park money in small & mid-cap segment in 2017. Why they are now parking funds into large cap, which has been doing well and taking SENSEX up. Not to have concentrated exposure, diversification is good. India is poised for big growth, keep off worries and take advantage of growth.

Trading Psychology in Sydney

I had the opportunity to attend a training program of Van Tharp institute on Trading psychology. I expected Van to take the course, while it was unfortunate that he could not make it and the program was conducted by RJ Hixon.

The three day workshop was filled with tons of learning. Made me learn that the already strong belief in me that we attract what we believe, even stronger. The course went through consciousness, oneness, meditation etc.,

A little spiritual while giving a clear picture on why it is required to be successful in trading. I was having a belief that 30% per annum returns in equities is a big number for a trader, which was quashed. The super traders trained by Van easily cross 100% in a year and they repeat it year on year.

This made me get interested to get couched to become a super trader. My next steps will be in that direction.

The discipline of following the rules of the trading system is what is required to be successful in trading. We need 95% trading accuracy to achieve big, this was a big revelation to me. At first it seems simple, while going deep into actual trades I find that even one small mistake brings down the efficiency number and then for it to get out, it takes several number of trades.

It made me realize that, how sharp a trader needs to be if he had to get big numbers in profits. Learning about SQN’s (System Quality Number), this number helps us know how much of risk has to be exposed to a trade. SQN also helps us quality a trading system for actual use.

SQN can also be used to find the market type like Bullish, bearish, volatile, quiet markets which will help in using the right system for each market. I learnt that there are 4 market types and we need 4 different systems to trade each of the market types.

We played a trading game using marbles, it was a trilling experience. In the game we learnt that even with 19 losing trades a system can give positive results if we have right risk exposure. Risk exposure determined as position sizing was an unique way to take risk on the system. It helps us achieve the objectives of the system.

Buying and selling is only a part of the trading activity, the actual gains come only from position sizing. Using position sizing we can achieve immense profit potential. Using the record of trades with their outcomes we can even judge where to risk more and where to be lesser. This will help in minimizing losses and maximising gains.

I got the inputs on creating a detailed business plan, which runs into more than 250 pages of information. Once the plan is made, it will act as a bible to the trading rules for the person who is trading.

All the inputs that I learnt from this training has brought me a lot of confidence on achieving big profit numbers from my trading activity. I have also devised plans to use the same methodology to invest in mutual funds. It will help our clients make higher returns on their investments in the market.

I was blessed to have 2 oneness blessings in the program, which was very powerful and brought a sense of peace and clarity in the mind. Looking forward to attend more trainings and get to the level of a Super Trader soon.

IN the program I happened to meet several successful traders across asia and Australia. Andrews, a successful palm oil Business owner from Malaysia, Glady’s, a new entrant into forex trading from Indonesia, Chuky and Jullian from Australia, who brought in thoughts of poker and risk management concepts that they are using, which were very useful inputs.

Why invest in SIP?

The advantages long-term SIP’s explained with the comparison to RD or one time investing. SIP helps have 1.50% more gains that one-time investment into equities for a period of 25 years. Against RD where an Rs. 1000 investment per month grows to 11.03 lakhs, SIP grows to 15.53 lakhs in 25 years. Where RD multiples the investment by 3.70 times, SIP’s multiply more than 5 times. SIP’s help creates long-term wealth with the minimum contribution.

Own the businesses of products you consume

Investing into stocks for dividend income was one of the passive income sources. In similar manner own the businesses that produces the products that you consume in your daily routine. This actually brings confidence to be invested. For example – Say your grocery bill always has a couple of maggi packets in it. You regularly buy Good Day biscuits for your kids at home. You use Dove soap.

You know the reason why you are consuming these products and can relate to similar usage pattern among other users. So, it will bring confidence in you that this product is going to stay for long. In such a condition if you have a few shares of the companies that produce these products like Britannia for Good Day, Nestle for Maggi, Hindustan Lever for Dove soap.

For every purchase you make, you get a small portion of the money spent as your profits because you are a part owner of this company. And as you see more and more people in the stores consuming these products while you are doing your purchases, you really feel very proud that your business is growing.

Many such regular products of consumption which are available in the markets for users to own them. A few among the list would be TITAN, BATA, MARUTI, BAJAJ AUTO, ITC, DABUR, NESTLE, GLAXO etc.,

So the next time you buy a product that you have been consuming for a long time, turn the packet to find the company which is manufacturing it, find if the company has listed its stock. Along with spending on your consumption purchases, also spend some amount to buy a few shares of the company.

Believe me, after you have a good number of companies in your investment kitty, while you walk on a busy street, you will be trilled that you own many of those businesses. As you see people buying products of your company, your pocket is getting filled with money.

Dividend as passive income

Dividend from investments into listed companies forms one of the passive income streams. Whenever this concept of dividend as income is talked, that too from shares, the immediate thought is that, it will be very less returns and the next one is, how to rely on a company for a longer period. Because every person who has a fairly good period of exposure to stock investing will know in their memory itself, many companies have vanished from their business.

Whereas, on the other side, there are people who are having dividend as a regular income stream. A couple of years back when the Tata Sons board had a thought of reducing dividends, there was big concern raised by elderly people who said that, they had commitments in their life based on the dividends and reducing it will impact their lifestyle.

What this shows is that, there is a possibility to have dividend as regular income which can take care of our livelihood expenses. In that case, how is it sustainable if a company gives ₹5 as dividend for a stock that is quoting ₹250. The dividend yield comes to only 2% of the investment.

Yes, most of the good, familiar and companies that have long track record of existence generally pay out about 2% of their prevailing value of the stock as dividend. While these are companies that are growing in their business consistently and that growth takes the stock price higher as time passes.

So, today if we buy a stock for dividend the return will be lesser, whereas holding on to that stock for a longer period increases the value of the stock as also its dividends. A ₹250 stock will become ₹2000 over a period and at the time the 2% dividend will work out to ₹40. So you will be getting ₹40 as income from your original investment of ₹250, which becomes attractive.

Only criteria here is to chose a stock that has been there in the market for a fairly long period and also continue to be in existence for an even longer period. Do we have businesses like that in our country?

Yes, there are many. Like ITC, BATA, TITAN, Hindustan Lever, Godrej, Bajaj Auto, Maruti to name a few. Look at these names, most of them or producing daily use products that you and I consume. When will we stop consuming and these companies can run out of business? For example, ITC has been there for more than a century now. In almost every corner of your city you will find Bata store, probably you will be using a Bata product too.

Investing in these kind of businesses will help get a good dividend income over a longer period and these investments will become legacies which you can leave for your children. If not to have all your income coming from dividends, one can look at having a portion of his or her income from dividends.

This is passive, because you are not required to put any kind of effort in making these investments work, people consume & growth these companies. So long the consumption continues, your investment grows and keeps giving you returns.

I did a working on ITC to find if it is viable. The stock price of ITC was about ₹850 in 2000. Over the last 18 years ITC has given many bonuses and splits in its stock price. If someone had bought 100 shares of ITC in 2000 by investing ₹85000. His dividend in 2001 was only ₹1000. It is just a little above 1%.

After all the splits and bonuses, today the 100 shares have grown to 4500 shares and the stock is priced at ₹300 today. The value of ₹85000 invested in 2000 is now ₹13.50 lakhs. The dividend that came for these shares in 2018 is ₹23500.

₹85000 investment in 2000 is now fetching 23500 per annum which is close to 30% of the investment & it will keep increasing.

If you have thoughts of having dividend as one of your sources of income in your retirement years, you can think of accumulating stocks like ITC to create a legacy. One more advantage is that, the feeling that you own a part of the countries economy. As you go across town in your older days, as you keep seeing brands across and people consuming, your mind will say, “I own a part of these businesses and every minute it is earning me income.”

What a feeling right?

 

SBI Result shock & future of Stock Markets for FY18-19

Markets climbing higher got shocked by close to 5000 crore loss declared by SBI, adding to volatility in the markets. Reasons to stay invested, how SIP’s are at advantage when volatility exists. Reliance Tax Saver, the best of high volatile schemes which suits the best for SIP investors.

Why markets will not go down further yet with high volatility and setting pace for the next big bullish ride, pre & post election 2019.

What is SIP?

SIP is the short form for Systematic Investment Plan. It is a way to invest small amount of savings on a regular basis.

SIP is similar to a bank RD, here it is invested into a Mutual Fund. Where you can pre-fix the amount you want to invest on a regular basis. It can be monthly, Bi-monthly or quarterly.

The difference between Bank RD & Mutual Fund SIP is, in RD, every rupee invested will be growing every day. It has a fixed growth in a fixed period. In an SIP, the investment will not be growing every day. Some days it can be up and some it can be negative. It has no fixed return though it can have a fixed period.

This up & down movement is what makes SIP’s more attractive, because it will give lesser number of units when markets are up and more units when it is down. It will help in averaging the investment so that, when the market goes up to its next higher level, your investment brings higher return.

Let’s look at this with an example:

Investing ₹1000 into an RD account which gives 7% interest will accumulate to ₹12465 after 12 months. The same amount invested in a MF SIP where the assumed return is 7% and the funds NAV goes down to -7.60% in the same year before closing with a 7% profit. The value of the investment will be ₹12765. 300 additional earnings which is 30% more than bank RD.

This is the advantage of an SIP in mutual Fund. And Mutual Funds generally give 15% returns which would mean the same 1000 investment for 12 months would have grown to 13670. A profit of 1670 against only 465 from the banks.

 

Why you should start an SIP?

The first reason is that it brings a discipline to save. And the second, the most important reason is that, it keeps you off mood swings. For example – If you decide to invest an amount every month taking time to check the market and then do it. Most of the time, you obviously get held up in some task and miss the investment. If you have the time, you would want to wait for a better price. Or think about your previous investment which is now in the negative and postpone the current one.

SIP removes all these worries about timing. It helps you have the investment happen automatic & accumulate wealth.

Axis mutual Fund has coined a tag line for SIP, Sleep In Peace. It is really so peaceful was of accumulating wealth.

India’s Bad Banks

There was a report on the losses our Public Sector Banks (PSB) have made in the financial 2017-18. It was a staggering 87000 crores. Almost all of the stimulus given by the Government to clean the bank balance sheets have gone into thin air.

The above image shows 19 out of 21 banks have reported losses. Indian Bank outshines the crowd followed by Vijaya Bank, the only 2 that are profitable. Indian Bank was once into big trouble, change in management and restructuring on a swift note changed the fate of the bank. Later it has not looked back.

Now, it is time for all the other banks to change. Hopefully it is around the corner. As most of the bad loans are cleared off, of the books which have been made possible by the introduction of the Indian Bankruptcy Code.

Soon we are likely to see big growth coming these poor performers, hard lessons learnt which should not repeat. Probably another quarter or two more and it will be good time to add banking stocks to your portfolio. Even in mutual funds, investing into schemes which are increasing exposure to PSB’s by beginning 2019 will pay rich returns.