The 10 Best Articles of 2016

best articles 2016

We have finally reached the last few days of 2016. And it has been quite an year.

So after publishing 60+ articles (with more than 1,00,000 words) in 2016, I’d like to share 10 best articles of the year.

The idea of this listing comes from James Clear’s compilation here. I found this exercise quite interesting as it gave me insights about – which articles resonated most with you all (and which ones didn’t).

So let’s get into it.

Here are the 10 best articles of 2016 on basis of traffic and reader engagement (both on site and social medias):

Apart from these, there were many articles that I thought were decent enough, but didn’t get enough eyeballs. 🙂

So here are 4 other articles that deserve a second look:

Looking for more good articles to read? Check out the archives that has full listing of 330+ articles since 2011.

Advertisements

You get Investment Returns you deserve. Not what you Want or Need!

investment returns you deserve

Looking for high returns from your investments?

You are in for trouble.

You won’t get high returns just because you want them or even if you ‘really’ need them.

You will get the returns you deserve. Atleast under most circumstances.

Investment space is a cruel one. It pays no heed to what you want or need. It simply delivers what you deserve.

Now the question is – what do we deserve?

Let me explain.

When it comes to investing, there are many available opportunities. You can invest in stocks, equity funds, debt funds, bonds, fixed deposits, recurring deposits, real estate, gold, etc.

Some people even ‘invest’ in insurance and keep money in savings account! All in the name of investing… which ofcourse is wrong.

Now all these investment options are very different from each other. These give different returns and are suitable for different time horizons.

So something like real estate is not suitable if you want to invest for just few months or even a couple of years. Similarly, if you want to put away your money for 1-2 years, savings accounts are not the right option. Again, if you want to invest for your retirement, keeping money in FD is nonsense.

As you see, problem arises when there is a difference in the returns you expect and the returns that an asset class can deliver.

  • Savings account won’t give you more than 4-6% returns.
  • FDs won’t give you more than 6-7% returns (that too after taxes).
  • Debt funds won’t give you more than 7-8% returns.

Expecting anything higher than these… is plain wrong.

If you invest majorly in these products (and less in other high return ones), then the low average returns you get is exactly what you deserve.

Talking of returns, a good option for those seeking higher returns are stocks (directly or indirectly through equity funds). Equity funds can give an average of 12-15% returns. But this won’t happen every year.

Lets say you expect equity funds to deliver 12% annual returns in 5 years.

But you would be wrong to expect returns of 12% every year. Investment returns in equities fluctuate and these fluctuations can be gut-churning at times.

So for an average return of 12%, the returns will not be as you expect (i.e. table on left below). But actual annual returns might follow the pattern in table on the right.

stocks returns vs expectations

Both give average returns of 12%.

So no matter how much you want equities to act like bonds and give you 12% every year, equities won’t behave like that. More importantly, equities don’t behave as you want them to. J

You might be tempted to sell your investments after two years of poor returns (8% and -14% in table above). And you might decide to move your money to (lets say) safer FDs giving 7% returns.

What will happen then?

selling stocks after fall

Wow! Straight line returns as you wanted (though just 7%). And very safe! But your average returns after 5 years is mere 2.6%.

What went wrong?

You sold equities when you should have been buying more (Remember Buy Low Sell High).

So the returns you got is what you deserved – that is low!

Had you remained invested (and not added fresh money), the result would have been this:

staying invested long term

You would have got 23.7% annual returns in the 3-year period after the first two bad years. The overall returns would still have been 12%. But you would have made up for poor returns of earlier years in later ones.

Had you invested more during down markets (upto 2nd year), average returns would have been even better.

So the point that I am trying to make is:

  • If you get your asset wrong, your return expectations will not be met.
  • If you get your timing wrong in some assets, again your return expectations will not be met.

When you invest in low-return instruments, you should not expect high returns.

When you invest in high-return instruments, you cannot expect high returns overnight. You need to be patient and you need to NOT sell out at the wrong time.

So you will always get the returns that you deserve.

Investing in the right asset class has the power to improve and dramatically change your life. And investing in the wrong one has the power to ruin it.

The bright side is that if you are not satisfied with the returns that you have got till now, then you can change your future returns.

But it will require some effort from you.

And it is justified. Isn’t it? If you are not where you want to be, then you will not reach there by doing what you have been doing till now. You need to change something:

  • If you want high returns, equity is the right asset class.
  • If you want safety of your investments, debt is the right asset class.
  • If you want to balance safety with returns, mix equity and debt.
  • Don’t expect equity to give you high returns overnight or every year
  • Don’t expect equity to beat debt investments every year
  • But also, don’t expect debt investments to beat equity investments in the long run.

Now having said that, it is quite possible that you are not comfortable with the risk that comes with equity investments. That is perfectly fine. Atleast you know what you don’t like. Most people fail to realize even that.

But then, you should know that returns that you will get from safe and tension-free debt investments will be lower than equity.

This means, that you will have to invest more, if you have a target amount to be achieved in the long term (financial goal).

Lets take the example of people’s retirement savings to better understand this.

Most people’s biggest investment for retirement is their PF, i.e. debt instrument.

Now, generally retirement investments go on for decades.

And we know that for that kind of time horizon, equity is the best asset class.

So if you are young and still invest most of money towards retirement in debt (like in PF), then I can promise you one thing.

At the time of retirement, the amount of money you get from your debt investments will be much lower than what would have been possible had you invested in the right asset suitable for long term – which is equity.

So at the end, you get what you deserve.

You don’t end up as rich as it was possible for you.

Why?

Because you chose the wrong primary asset class for your investments.

You get well-deserved mediocre returns.

Charlie Munger once said,

The best way to get success is to deserve success.

Talking of investment success – think about your personal investments.

You might be investing and saving regularly. But is it in the right asset class?

And do you really deserve the high returns that you so desperately want?

Stable Investor Mid-Monthly December 2016

This is the sixth edition of Stable Investor’s Mid Monthly.

monthly newsletter december 2016

Great Stuff Elsewhere

The richest man ever rarely spoke and deliberately made himself inaccessible. Why? Because he wanted to listen to himself. He wanted to think – about things that mattered. Einstein too had similar thoughts when he said – “I take time to go for long walks on the beach so that I can listen to what is going on inside my head.” So we should respect the fact that what actually produces good work can at first look lazy (and often waste of time from other’s perspective).

Are you worried about your stock portfolio’s performance? You are not alone and ofcourse the performance of your investments matter. But most people fail to realize that putting their personal finances in order is more important than worrying about their stock portfolio. These 20 Rules of Personal Finance are a good starting point for you to begin thinking about your personal finances.

Best Investment Writing of 2016 – worth bookmarking and reading in your free time.

When we plan our investments or personal finances, we try to be as accurate as possible while calculating monthly investment requirements, correct insurance amount, target corpus for financial goals and what now. But instead of worrying about getting the 2nd or even 3rd decimal point right, it is far more important that your directional decisions are correct. There is no point worrying too much about whether 65% or 70% of your portfolio should be in stocks. Both are almost fine. What matters is getting the decisions broadly correct. Like being in equity (and not debt) for goals that are decades away.

Bill Gates. You know him. Right? He tells about the best books he read in 2016. Here is another list of good books to read.

*At times, I feel there is not enough time to read as much as I want. Then I realize that I myself am to blame for not reading enough. Everybody has 24 hours. 😉

We remember Genghis Khan as a negative historical figure. Blood thirsty, terrorizing, plunderer. But this perceived barbarian was one of the greatest military minds ever. And that was because he was more open to learning than any other conqueror has ever been.

Insanely Productive + Happy + Balanced –> Isn’t this what we want to achieve with ourselves. Its not easy though. But remember that achieving these three doesn’t mean doing more work (in limited time) and being ‘ON’ 24×7. Its about getting the big things right and not vice versa (getting small things right and big things wrong). Its also about being ‘unreachable’ at times. Here are 33 ways to remember that we are human being and not human doing.

In Last 30 days on Stable Investor

I could not write much in last 30 days. Was on a mini-vacation with family. Here is the one post I wrote in celebration of completing 5 years of Stable Investor.

And the usual – Detailed analysis of the actual state of Indian stock markets – at the end of November 2016 – can be found here.

From the Archives

Many people believe that you cannot make money in large cap stocks. I think they are idiots. 😉

Should you invest in Real Estate or Mutual funds? Though there is no one correct answer, this detailed analysis might help you think rationally.

When it comes to successful investing, being sensible without getting over ambitious is enough.

Will RBI’s rate cuts or US Fed’s rate hikes impact you? Should you even be bothered about these events beyond a point? The answer.

Books I Read (or Re-Read) Recently

  1. God’s Debris
  2. The Everything Store: Jeff Bezos and the Age of Amazon
  3. Good to Great

State of Indian Stock Markets – November 2016

This is the November 2016 update for the State of Indian Stock Markets.

Note – This update comes a little too late. But please bear with me this time. 🙂

As usual, this monthly update includes historical analysis and Heat Maps of Nifty50 as well as Nifty500‘s key ratios, namely P/E, P/BV ratios and Dividend Yield.

Please remember that these numbers are averages of P/E, P/BV and Dividend Yield in each month. Neither Nifty50 heat maps nor Nifty500 heat maps show the maximum or the minimum values for each month.

Caution – Never make any investment decision based on just one or two ‘average’ indicators. At most, treat these Nifty heat maps as broad indicators of market sentiments and a reference of market’s historical mood swings.

So here are the Nifty 50 Heat Maps…

Historical P/E Ratios – Nifty 50 (Monthly Average)

Nifty 50 PE Ratio

P/E Ratio (on last day of November 2016): 21.6
P/E Ratio (on last day of October 2016): 23.3

Historical P/BV Ratios – Nifty 50 (Monthly Average)

Nifty 50 Book Value

P/BV Ratio (on last day of November 2016): 3.12
P/BV Ratio (on last day of October 2016): 3.27

Historical Dividend Yield – Nifty 50 (Monthly Average)

Nifty Dividend Yield

Dividend Yield (on last day of November 2016): 1.34%
Dividend Yield (on last day of October 2016): 1.28%

Now, to the historical analysis of Nifty500 companies…

As the name suggests, Nifty500 is made up of top 500 companies which represent about 94% of the free float market capitalization of the stocks listed on NSE (as on March 31, 2016).

Nifty50 on other hand is an index of 50 of the largest and most frequently traded stocks on NSE. These represent about 65% of the free float market capitalization of the NSE listed stocks. So obviously, Nifty500 is a comparatively broader index than Nifty50.

Historical P/E Ratios – Nifty 500 (Monthly Average)

Nifty 500 PE Ratio

P/E Ratio (on last day of November 2016): 25.09
P/E Ratio (on last day of October 2016): 27.57

Historical P/BV Ratios – Nifty 500 (Monthly Average)

Nifty 500 Book Value

P/BV Ratio (on last day of November 2016): 2.86
P/BV Ratio (on last day of October 2016): 3.00

Historical Dividend Yield – Nifty 500 (Monthly Average)

Nifty 500 Dividend Yield

Dividend Yield (on last day of November 2016): 1.29%
Dividend Yield (on last day of October 2016): 1.22%

You can read the last month’s update here. The State of Markets section has also been updated with new Nifty heat maps (link). For detailed analysis of how much returns you can expect depending on when the investments have been made (at various P/E, P/BV and Dividend Yield levels), please have a look at these 3 posts:

Stable Investor turns 5

stable investor 5 years

Exactly 5 years ago, Stable Investor was born.

And I was reborn. Though I didn’t realize it then. 🙂

You should forgive me for being a little overexcited today.

But if I can’t share my excitement with those who read this blog… whom can I share it with?

Last one year has brought 4 big changes in my life:

  • Got my license from SEBI to become a SEBI Registered Investment Advisor (now I professionally help individuals like you with their investments & personal finances).
  • Left my job and am focusing full time on Stable Investor.
  • Help companies/startups build and execute their content strategy.
  • Moved back to my home city (this is what I always wanted to do).

To be honest, none of this would have been possible if this blog was not there. And obviously, the blog would not have grown to its current state without YOU.

So thank you dear readers. Last 5 years have been wonderful for me, and I owe that to you.

With 6000+ blog subscribers, 5000+ Facebook fans and 4000+ Twitter followers, I must confess that I am pleasantly surprised by the love Stable Investor gets from you all.

These numbers are not huge and there is still a long way to. But they prove one thing very clearly – there are a growing number of people who really believe that long-term investing can change their lives. And these are the same people who also believe that the first step towards that aim is to put their own house (personal finances) in order.

Every week, I get mails from readers telling me about how something I wrote helped them take a good financial decision. These mails mean a lot to me. And everytime you write them to me, it becomes another source of motivation for me to carry on.

So dear readers… keep motivating me. 🙂

Together we have to take steps (regarding money) that allow us to live a life that we really want.

And the journey has just started.

I look forward to continuing this wonderful journey with you all, in years to come.

Regards

Dev

Stable Investor Mid-Monthly November 2016

This is the fifth edition of Stable Investor’s Mid Monthly. You can find my thoughts about big-event of currency demonetization in last section (A Random Thought) of this post.

stable-investor-mid-monthly-november-2016-1

Great Stuff Elsewhere

In 90s, people were so busy trying to predict the next 1987-like crash that they missed the internet bubble. In 2000s, they were so busy trying to predict the next internet bubble that they missed the financial crisis. Now people are so busy trying to predict the next financial crisis that they’re almost certainly missing whatever will cause the next crash. Sounds right? Here is how investors should deal with real surprises.

Here is how Warren Buffett writes his legendary letter to shareholders.

Being content with your current standard of living is probably one of the best ways for people to save more money, which can be supercharged when you start making more as your career progresses. If you are finding it tough, then here is how you can change your financial behaviour.

There is a reason why rich are rich and not-so-rich are not-so-rich. Infact, there are atleast 53 good reasons. This is a really good read. Don’t miss it.

Don’t Half-Work + two more time-management tips that actually work! Also read why you should focus on setting a schedule and not just a deadline.

Personal finance is like medical treatments. Markets are like biology. Financial planning is like designing a bridge. Think this is bu**Sh**? No it isn’t. Here is how to make more sense of investing.

 

In Last 30 days on Stable Investor

Don’t want to be a Stable Investor? 🙂 Here is how you can become a Bad News Investor.

You should get your immediate family members’ health and life insured. But if you really want to protect your wealth, also ask those people to get insured whom you will not be able to say NO in times of need.

You have nobody else but yourself to blame if you mix insurance with investments.

Understand the 3 T’s – Timeless or Timely or Timing?

Detailed analysis of the actual state of Indian stock markets – at the end of October 2016 – can be found here.

 

From the Archives

Remember one thing – You will not get a loan for your Retirement!

Shocked by results of US Elections, ban on 86% of Indian currency notes? These are events that you cannot control. But there is something that you can. Here is how to think about investing and what you can control.

We want to do it on a regular basis. But should we compare our returns with others?

 

Books I Read (or Re-Read) Recently

  1. The Decision Book
  2. The 4-Hour Workweek
  3. The Unusual Billionaires
  4. Seveneves (Sci-Fi)

 

A Random Thought

Interesting things have been happening lately. Biggest being the stunning move by our PM to demonetize Rs 500 and Rs 1000 currency notes.

And it does seem to be a masterstroke.

To be honest, I am extremely happy with this move.

After honestly paying taxes for years and feeling helpless in front of those who flourished without paying taxes on their blackest of wealth(s), there is now some hope to latch on to. 🙂

The actual impact of this move will only become clear after few months. But some sectors like real estate, luxury goods, etc. do seem to be in (big) trouble. For obvious reasons…

Just do a google search of ‘impact of demonetization’ and you will find plenty of analysis to consume for days! I don’t have much to add to what others are saying, atleast for time being.

But markets in general are falling at broader levels. And the falls in individual stocks have been steeper. So shouldn’t we be happy like we always are after fall in share prices?

The answer is that we should be – as we are long term investors who welcome stock market crashes and bear markets. But then, we also need to be cautious. Because this event (i.e. demonetization) is not a normal event. You can call it a black swan event. And we as investors are still not sure about the exact impact of this event on various sectors.

But just because some stocks have fallen a lot doesn’t mean that those stocks are worth buying or can’t fall further.

I repeat that this is a major economic event and its effect can be widespread and long lasting.

Being contrarian sounds intelligent but can lead to huge losses if you get it wrong. In addition, you get to hear a lot as you went against that crowd. 🙂

So invest with caution.

Thing might get worse before getting better. If you have surplus money to invest, don’t invest all of it in one go. Slowly build up positions in businesses you like, run and headed by trustworthy people, are financially strong and more importantly, you know will survive this event and wont die.

If you are not sure, then don’t worry. In investing, you will never have all the answers. And if you think you really are clueless, then stick with mutual funds. This might not be the right time to act smart with direct stocks if you don’t know how to ‘actually’ analyse businesses. 🙂

Why you should convince your Close Relatives to get Insured too?

Shouldn’t you just be bothered about getting you and your immediate family’s life and health insured?

Ofcourse you should be.

Immediate family comes first. And you don’t want to leave their health and post-your-death-family-expenses to chance. Isn’t it?

So definitely, you should first buy proper health and life cover for yourself and your family.

Suggested Reading – How to find what is adequate insurance cover?

Family Life Health Insurance

But as the title of this post suggests, it makes (a lot of) sense to have your close relatives – other than spouse, parents and children – to be insured too.

I will tell you why.

The debate about lending money to your relatives or not is a long one in itself. Everyone has their own views when and whom to lend and when and whom not to.

But when money is needed for medical reasons or sadly, after death of a relative, your hard-thought-notions about ‘your-money’ can change overnight.

What will you do if one of your close relatives (say first or second cousin) is in financial trouble?

Most often than not, you will help them (assuming both sides are not on fighting terms).

And if money is needed for some medical expenses, then you really can’t say no.

And god forbid, if this relative dies without making proper financial arrangements for his/her immediate family, chances are high that you (among many others) will slowly have to take up his/her family’s responsibility too.

You just cannot turn down requests for money in such cases, no matter how smart you are. Also because you don’t want to come across as a person who doesn’t help family members. That’s evil.

But had this relative of yours, been wise enough to purchase a proper health and life insurance cover, the situation would have been much better. He or his family would not have to depend on others for financial help.

People have their own financial goals and problems to deal with. And even if they really want to help, it can get tough at times to do so.

Take your own case. If you are already running a tight ship financially and a close relative needs money for a medical emergency, will you be able to help him? Will you be able to take this new and unexpected financial responsibility?

The ideal answer is yes (ofcourse). But in reality, it can strain your finances a lot.

And the financial responsibility that we are talking about can either be temporary or permanent.

Temporary in case of some one-time health-related fund requirements (like hospitalization or surgery). Permanent in case of death and on-going need to financially support the dependents of the relative.

Its not easy to say no in such circumstances.

We are humans and we should act like one. Hoarding money is not the ultimate aim of life. We should help others as much as we can.

But if a small step by your relative can cover some of these risks, it doesn’t hurt for you to spend time to convince them to purchase a health and life insurance policy (even if its inadequate*). You might even have to ask them some uncomfortable questions. But its necessary.

And if you succeed in convincing your relative, keep pushing till they act on their newfound conviction.

*This will reduce the risk of future financial liability for others (like you) to some extent.

Its very easy to say that it is your relative’s problem and not yours.

But when bad times come, we all get sucked into these situations. And you don’t want to screw up your finances just because someone else was not responsible enough with theirs.

I agree with you if you think that this is a very far-fetched thought.

But the risk is real.

You should carefully assess how people close to you are covering the health+life risk for themselves. You will know exactly where the risk is, whom you will not be able to say No, and whom you should be convincing.

So think about it.

Getting you and your immediate family’s life and health insured is most important. But also important is to convince (or force) those people to get insured – to whom you will not be able to say NO in times of need.

PS – Replace ‘close-relatives’ with ‘close friends’ and the discussion is still valid. You cannot say no to many of your friends too.

State of Indian Stock Markets – October 2016

This is the October 2016 update for the State of Indian Stock Markets.

As usual, this monthly update includes historical analysis and Heat Maps of Nifty50 as well as Nifty500‘s key ratios, namely P/E, P/BV ratios and Dividend Yield.

Please remember that these numbers are averages of P/E, P/BV and Dividend Yield in each month. Neither Nifty50 heat maps nor Nifty500 heat maps show the maximum or the minimum values for each month.

Caution – Never make any investment decision based on just one or two ‘average’ indicators. At most, treat these Nifty heat maps as broad indicators of market sentiments and a reference of market’s historical mood swings.

So here are the Nifty 50 Heat Maps…

Historical P/E Ratios – Nifty 50 (Monthly Average)

Nifty PE October 2016

P/E Ratio (on last day of October 2016): 23.3
P/E Ratio (on last day of September 2016): 23.4

Historical P/BV Ratios – Nifty 50 (Monthly Average)

Nifty Book Value October 2016

P/BV Ratio (on last day of October 2016): 3.27
P/BV Ratio (on last day of September 2016): 3.27

Historical Dividend Yield – Nifty 50 (Monthly Average)

Nifty Dividend Yield October 2016

Dividend Yield (on last day of October 2016): 1.28%
Dividend Yield (on last day of September 2016): 1.29%

Now, to the historical analysis of Nifty500 companies…

As the name suggests, Nifty500 is made up of top 500 companies which represent about 94% of the free float market capitalization of the stocks listed on NSE (as on March 31, 2016).

Nifty50 on other hand is an index of 50 of the largest and most frequently traded stocks on NSE. These represent about 65% of the free float market capitalization of the NSE listed stocks. So obviously, Nifty500 is a comparatively broader index than Nifty50.

Historical P/E Ratios – Nifty 500 (Monthly Average)

Nifty 500 PE October 2016

P/E Ratio (on last day of October 2016): 27.57
P/E Ratio (on last day of September 2016): 27.49

Historical P/BV Ratios – Nifty 500 (Monthly Average)

Nifty 500 Book Value October 2016

P/BV Ratio (on last day of October 2016): 3.00
P/BV Ratio (on last day of September 2016): 2.95

Historical Dividend Yield – Nifty 500 (Monthly Average)

Nifty 500 Dividend Yield October 2016

Dividend Yield (on last day of October 2016): 1.22%
Dividend Yield (on last day of September 2016): 1.24%

You can read the last month’s update here. The State of Markets section has also been updated with new Nifty heat maps (link). For detailed analysis of how much returns you can expect depending on when the investments have been made (at various P/E, P/BV and Dividend Yield levels), please have a look at these 3 posts: