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Reader’s Story: How I Created a Corpus of Rs 3.7 Crores in 10 Years!! – Part 2

Note: This post is second part of this series about how a reader created a corpus of almost Rs 4 Crores in just 10 years. Like the first part, even this part is worded by Ajay Sreenivasan – a loyal reader of Stable Investor. And if you haven’t read the first part, please do so immediately (Part 1) before going ahead with this post. 

In this part (2nd), he reflects back on his experiences and shares his learnings…which can be used as broad guidelines by other mutual fund investors.

So over to Ajay, once again…


Self-Analysis of My 10+ Years of Investment Journey

Advantages I Had as an Investor
  1. I had a reasonably stable job and income.
  2. I had sufficient surplus to invest in markets & mutual funds.
  3. I had a habit of Saving. And it was not new and had its origin in times, much before I came to Gulf.
  4. Combined with this habit, I also had the Discipline to stick with it.
  5. Though I really started ‘planned process of investing’ quite late, I still had age on my side….and this always helps in allowing ‘Compounding’ to create its magic.
  6. Because of above point, I had a reasonable amount of time to achieve my targets.
  7. Since I had a decent regular income, I had a decent risk taking ability.
  8. I was lucky to be part of markets which became extremely volatile at times. I was lucky to witness quite a few market crashes. Why? Because SIP works best if the markets are volatile and present the investors with many opportunities to invest ‘more’ at lower levels.
  9. This was a big advantage. I had no personal loan or housing loan to worry about.
  10. Another big one. I had already bought a home prior to investing even a Rupee…and luckily, I did it much before the real estate boom started.

Things I did Wrong:

  1. I was late to start investing. And I have seen people repent…and I mean really repent…when they realise that just because they were late to start investing by a few year, their final corpus was nowhere near where it could actually have been.
  2. I put most of my early savings into products which actually reduced purchasing power (read Insurance products).
  3. I was very late in creating a plan for investing. I should have done it almost a decade earlier than when I actually did it.
  4. I invested randomly without any goals, during the early part of my career.
  5. I started getting into direct stock investing, without having the proper knowledge of stock markets or valuations.
  6. At times, I went over board with my direct stock investing.

Things I Did Right:
  1. I saved and invested as much as possible. And when markets were down, I invested more.
  2. Even though I questioned my own beliefs every now and then, I followed Systematic Investing diligently.
  3. I identified my mistakes pretty soon (in a few years!!) and started focusing on Mutual Fund investing…as this helped reduce chances of committing errors in direct stock investing.
  4. I got myself a financial plan and invested as per the plan (and with a purpose).
  5. I took adequate Term Insurance plan. And this in itself is a big factor, when you want to sleep peacefully at night, without having to worry about what will happen to your loved ones when you are not around.
  6. I realized and more importantly acted towards separating Insurance from Investment.
  7. I said no to ULIPs.
  8. I learnt the importance of Asset Allocation and acted upon it.
  9. Even though I had so many period where I could have panicked (and at times did) in last 8 years, I did not quit midway. I continued with my plans.
  10. I concentrated on investing the set investment amount (Monthly SIP x No of Months as per original plan)…sooner than bothering about the target amount.
  11. I cut my losses in direct stocks and re-invested the money in equity fund or debt as per the required asset allocation.
  12. I remained invested through out the period of 10 years.
  13. I invested only in well diversified Mutual Funds (max. 7) across fund houses.
  14. I chose Direct Plans as soon as it was introduced.
  15. I used Liquid Funds to park money when I had to transfer money to equity funds through STP (Systematic Transfer Plan).
  16. I made mistakes and learnt from those mistakes..and took the experience.
  17. I managed not to invest in real estate in the crazy boom of 2006 – 2009. But only time will tell whether I was correct or not.

Lessons To Be Learnt:

Lesson 1

Before Investing, ask yourself these questions:

– Why should I even invest?
– What am I investing in?
– How will I get my capital back?
– What return I will get back?
– Will the return match inflation?
– When do I need this money back?
– Is it the right investment option for me?
– What are the real possibilities of not receiving the capital or expected returns?
– Will my asset allocation allow me to invest in this option?
– And whether the current market valuations reasonable enough to invest in equity?

Lesson 2

Save as much as possible and start investing as soon as possible. And ideally, you should start investing from the very first day you get your first salary.

Lesson 3

If you are afraid of stocks and mutual funds, start by investing small amounts to gain practical experience of positive and negative portfolio returns. You might end up losing money, but experience gained will help you a lot when you plan for the big amount you want to end up with eventually.

Lesson 4

Have a plan. Even if you think it is difficult to achieve it. Having it is almost half the battle won. And if you cant make your own plan, get in touch with good financial planners. They will charge you money for their planning services. Don’t worry. You are ready to pay your doctors. Why not be ready to pay those who are looking after your financial health? Think about it.

Lesson 5

Invest whatever is possible towards your goals. And it seriously doesn’t matter initially whether its small or big amount. Just go and do it.

Lesson 6

Are you a regular person who goes to office and does not know much about stock markets? Stick to investing in mutual funds via SIP. End of Discussion.

Lesson 7

Inflation can kill you. Seriously. Always include a realistic inflation figure while making your financial plans. Its always safe to be on the higher side.

Lesson 8

High returns expectation can also kill you. And that is because you will start making buy/sell decisions in line with your expectations. Always keep reasonable returns expectations and accordingly, have your financial plans. Its always safe to be on the lower side.

Lesson 9

Have an asset allocation plan and follow it religiously. And unless the valuations become extremely compelling (like PE<14), keep 20% in debt.

Lesson 10

Any money which is not required for next 10 years or more, should be invested in well diversified equity or balanced fund. Remember this as this is very important.

Lesson 11

Any money which is required within next 5 years should be invested in debt instruments. If you have money which you need in next 5 years, please switch from equity to debt instruments as soon as possible.

Lesson 12

Always be ready to face short term notional losses. And remember that your returns could be Zero or Negative, even after 5 years (Remember 2009-2014). But over a period of more than 10 years, the general trend is Up. But even this is not guaranteed.

Lesson 13
Be happy and always welcome a market crash in the early stages of your investment journey. It will boost your return significantly in the long run.

Lesson 14

Invest some money whenever there is negative news all around and during panic selling to boost return.

Lesson 15

Always keep track of market valuations & your asset allocation. Set your own rules for asset allocation that suits you.

Lesson 16

Review performance of the mutual funds in your portfolio on an annual basis. And replace the under-performers after thorough analysis. Never replace a fund if it underperforms the benchmark for a quarter or two. You need more time (2+ years) to know whether its a good idea to move out of a fund or not.

Lesson 17

Avoid churning your funds frequently as it will not help you, but your broker or RM. And always choose funds with reasonable fees and direct plans.

Lesson 18

For choosing Mutual Fund schemes, always stick to reputed process oriented fund houses and evaluate funds based on all parameters.

Lesson 19

Watch business channels. But only for entertainment. Most advise being given, is for short term and not for you. Market experts are paid by channels for their opinions. Don’t invest your money to test their opinions. 🙂

Lesson 20

Don’t invest because your friend or relative is investing. Your risk and expectations will almost always be different.

Lesson 21

Mutual Funds are the best investment vehicle for retail investors. Only effort required is to choose a few good funds and invest in them regularly.

Lesson 22

Direct equity investing requires a lot of additional efforts. And these range from evaluating a company to regularly tracking it to finally, exiting it.

Lesson 23

In Mutual Funds, always invest in Growth options. If you require money, you can always withdraw. No point going for the Dividend option.

Lesson 24

Do not panic during bad times / bad news. And don’t get too excited in bull markets. Always stay calm.

Lesson 25

Make it a point to have adequate Term Insurance cover, from an early age. Also make it a point to have proper health cover and emergency fund to suit your needs.


Another Three Interesting Lessons (But With Proof This Time)…

Going forward, lets have a look at 3 (or rather 4) interesting lessons which I will try to make you understand using proofs:

Lesson:1

The following article was published in May 2006, in a online business news website:


This shows that the first hint of a coming market crash was published on 15th May 2006. But as highlighted above, the expert opinion was that there was ‘Nothing To Worry.’

A few days later, the markets crashed as depicted in the next image:


So what does it prove?

It only proves that there is no one who can predict what is going to happen in markets with 100% accuracy. So don’t waste your time in listening to these so called market experts who claim to have the power to predicts the market movements.

A good mutual fund scheme named HDFC Equity’s NAV fell from Rs 134 on 1st May 2006 to Rs 112 on 1st June 2006. A big fall at that time. But today, no one even remembers the crash in the long term chart. The NAV of the fund is more than Rs 480. In January 2005, it was just Rs 67. NAV today has multiplied almost 7.5 times.

There will be sudden market crashes in future as well. And fund NAVs will go down. And down to almost any level. Accept this fact and move on.

Lesson :2

Below is a broad compilation of the BIGGEST falls in the Indian stock market history (upto 2008)

October 24, 2008: Sensex falls 1070 points (10.96%)

March 17, 2008: Sensex falls 951 points.

March 3, 2008: Sensex falls 901 points.

January 21, 2008: Sensex falls 1408 points.

January 22, 2008: Sensex falls 875 points after intra-day fall of 2273 points.

February 11, 2008: Sensex falls 834 points

May 18, 2006: Sensex falls 826 points.

December 17, 2007
:  Sensex falls 769 points.

October 10, 2008: Sensex falls 801 points.

October 18, 2007: Sensex falls 717 points.

January 18, 2008: Sensex falls 687 points.

November 21, 2007: Sensex falls 678 points.

August 16, 2007: Sensex falls 643 points.

April 2, 2007: Sensex falls 617 points.

August 1, 2007: Sensex falls 615 points.

So…do you remember all these dates and falls today? And can you make out those big crashes in the NAV chart of a good well-diversified mutual fund like HDFC Equity fund?

Its tough I would say…

Over the long term, the graph generally tends to move up. It is the only prediction, of which one can be a little certain of…. 🙂


Lesson: 3

Index value on 1st Jan 2008 was 6144 – A peak value for the index at that point of time. At the same time, NAV of HDFC Equity fund was 224.

Lets fast forward to end of 2010…

Index value on 1st Oct 2010 was 6143 and NAV of HDFC Equity fund was 300.

So…after all the corrections in between 2008-2010, the markets recovered back to the same peak index level nearly after 2 years and 10 months. And even if you had invested at the peak valuations (of index) in HDFC Equity fund in Jan 2008 in lump sum mode, the fund would still have provided you with Rs 76 (300-224) gain per unit – and that is when index did not move anywhere at all.

So what does it prove?


It generally pays to stay invested in a good quality, actively managed equity fund.


Lesson: 4

Index value on 1st Oct 2010 was 6143. And NAV of HDFC Equity fund was 300. After all the corrections the market recovered back to the same peak index level nearly after 2 years 10 months.

Now after more than 3 years…

Index value on 1st Jan 2014  was 6301 and NAV of HDFC Equity fund was 304. Again after corrections, the market recovered back to the same peak index level after nearly 3 years and 2 months.

So after 4 years, the Index was up by 2.5% and NAV of the fund also gave similar returns of around 1%

So what does it prove?


Lesson 3 above was proven wrong. 🙂 Always remember, not all rules are applicable and proven, at all times.


Notes and Disclaimers:

  1. The above post and Part 1 of the same post-series should not be considered as any sort of recommendation or investment advise.
  2. These posts are not to be considered as advise to invest in HDFC Funds or any other funds named in both parts of these posts.
  3. HDFC equity fund was one of the core fund of my portfolio along with several other funds. However for simplicity of the post, all investments have been shown as invested in HDFC Equity. There were some funds performing better than HDFC Equity in my portfolio and some were lagging the performance also. The fund in general was used as an example.
  4. I thank Dev for guiding and encouraging me to write a post on Stable Investor.
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Reader’s Story: How I Created a Corpus of Rs 3.7 Crores in 10 Years!! – Part 1

Note: This post has been written by Ajay Sreenivasan – a regular reader of Stable Investor. I have been interacting regularly with him after we got in touch regarding my SIP Case Study last month. Ajay made many useful suggestions, which I eventually used for the last part of the interesting analysis. In our email conversations, it became clear that he had a vast experience in Mutual Fund investing. So I requested him to share his experiences and learnings with all the readers of Stable Investor. And he gladly accepted the offer. 🙂
The first part of this story is about his actual experiences over the last 10 years. The second part of the series will be more about the learnings which can be used as guidelines by other mutual fund investors.
So over to Ajay, who shares his experience of mutual fund investing below:
__________________
Till 2004, I was of the opinion that stock market investing was not for ordinary people. And that the terms like ‘Saving’ and ‘Investing’ generally referred to depositing money in bank deposits. And this opinion is probably formed because I come from a middle class family and none of my family members have ever had to do anything with the stock markets. 
Also a few other people, whom we knew and who invested in stocks, were the ones who lost quite a lot of money in markets. This again kept me away from the markets.
All I knew was that bank deposits, postal deposits, chit funds and LIC were for Savings; and if there was a need to make an ‘investment’, I could buy land if I had sufficient money.
So this is my story…
I became a NRI in 1995 as I had come to Gulf for employment. In 1997, I bought a plot of land (because someone told me to buy it). Later on in 2001, I constructed a house for self-occupancy as my family wanted a place which we could call as a home. And luckily for me, the good part was that buying of plot as well as construction of house was all done with personal savings, without any loans or debt. 
I was lucky that I built my house much before the crazy real estate boom began. And I have no hesitation in saying that it was purely because of my need and partially because of luck that I was ahead of the boom.
In 1998, an American Insurance company agent promptly approached and duped me. He convinced me about how I should save for my future and almost forced me to buy a US Dollar endowment policy – it hardly gave 0% return, yes 0% after 10years of regular annual payment. And I realized this only after 2006. But once this realization occurred to me, I promptly chose to convert it into a term plan for next 10 years as there was an option to do it.
In 2003, when my first child was born, I promptly called a life insurance agent in Gulf and took a Child Marriage and Education policy. In this policy, I had to invest on a yearly basis for next 18 years. It was a US Dollar denominated LIC endowment policy – it hardly gave 2% bonus every year despite paying regular annual premium. My reason for buying this policy was to be a responsible father, who was saving for his child’s future. But to be honest, I was doing it without having any knowledge about what long term investment was all about, and more importantly, without having any set target in mind.
In 2003, banks deposit rates started coming down and dollar started becoming stronger. I felt that it was better to keep money in dollars, even if it fetches a lower rate. And that is because it will get compensated by the exchange rate – due to rupee depreciation over the holding period. With this thought in mind, I again bought a single payment US Dollar denominated endowment life insurance policy for a 5 year term. I was treating it more like a US Dollar fixed deposit. 🙂 Unfortunately, the returns were less than 4% per year as I did not get the exchange rate benefit. And reason for it was that even after 5 years, Dollar-INR rate remained more or less at same levels.
By 2003, I was in a good-to-be situation, where I was saving a considerable amount of cash. And more importantly, I was free from any kind of loans. At this juncture, I got fooled once again. A LIC agent in India fooled me into buying a so-called good a policy named Jeevan Anand. To cut the long story short, the policy is hardly earning 5% despite paying annual premiums regularly for last 10+ years. A good policy indeed!!
By 2003, stock markets had started gaining momentum and IPOs were all rage. Personally, I didn’t know anything about IPOs at all. All I was hearing on news channels and from friends, who had invested in IPOs, was that it was a way of making easy money….and that too quickly. Being attracted to the glamour of quick money, I approached a broker and promptly opened a demat/trading account. And I did this without even knowing what exactly a share was and how it worked, etc. The broker, being as helpful as an angel, promptly helped me apply for various IPOs. Luckily for me, I somehow got invested only in good, established companies without even knowing anything about them. Some of these were TCS, ONGC, PETLNG, etc. But without knowing the real potential of these companies, I sold them whenever I made a small profit.
Since I dealt a lot with my broker for IPO investing, these guys started recommending mutual funds to me too. They recommended many NFOs and sector funds to me. Not because these were good for me, but because these paid higher commissions to them. And they always recommended me to chose the dividend option, so that I could get back some of the money back in my hand. But as far as I understand now, the real reason for this was to give me a feeling that I was making money. And this in turn helped them, to easily convince me to re-invest with them in other NFOs and funds that they recommended. I became a cyclical commission-making machine for them. But I had no clue about it. All I knew was that I bought a fund and the fund was giving dividends. Broadly speaking, I had full faith on what my broker wanted me to do.
By 2005, I got more accustomed to the concepts of money management and mutual funds. I even started tracking my funds’ annualized returns on a 5 year basis. And at that time, it showed a healthy (rather, very healthy) 25% per year. At that time, my total investment in mutual funds was hardly anything to say about. Mostly, I was churning the funds as per my broker’s recommendations (which benefitted him the most).

With the kind of returns my fund’s portfolio was showing, and the dividend I was getting from these funds, I came to the conclusion that, making money in stock markets was very easy. Even at this juncture, I was completely unaware of the Dotcom crash or the No-Return periods after 1995 or the Asian crisis of 1998
The 5 years annualized return of mutual funds looked good, only because of the 2003-2004 Bull Run. However, because of my excitement at seeing the profits and because I was getting dividends, I had already invested close to Rs 3 Lacs in mutual funds.
As the bull market progressed through 2004-2005, and pulled many novices into the market, I started investing in secondary markets too. But it was purely based on business channel tips & newspaper recommendations. In my quest of making some quick money, I started putting money in companies that I had not even heard off!! You can imagine the risks I was taking when I tell you that I invested in shares of companies like GTC, Manugraph, Betala, Nocil, Kohinoor…only God knows what these companies did…

I simply thought that all stocks will make money for me. 

How foolish of me?

But due to losses in these unknown companies (although small), I realized that I should only buy shares of large companies. But I still didn’t know which stocks to buy and why to buy them. It was still very random for me, even though I was ready to hold for the long term. And the money I made in TCS, ONGC and ICICI gave me this foolish confidence, that I could not lose money if I stick with large caps.
It was during this time that I fortunately came across a financial guide on investing from PersonalFn. And as far as I am concerned, it was the turning point of my investment journey…or in fact, it was the starting point. I was not a voracious book reader (although I read a lot of blogs, articles and newspapers)…..however, this guide had me interested. And that was because it was short and simple, and more importantly, it spoke about all the foolish things I was doing in my investments. At that time, this guide was like Benjamin Graham’s Intelligent Investor to me. It taught me a lot about goal-based investing and how to use a range of mutual funds and direct stock investments to achieve my goals. Honestly, it was like a god sent material for me. 🙂

I realized that despite working for more than 15 years (with 10 spent in Gulf), and also being a good saver, I did not have any plan for the future and was goal-less. All I was doing was to buy some insurance products and some random Mutual Fund and stocks. 

I approached PersonalFN to prepare a financial plan and got in touch with a very capable and honest financial planner. During the planning part, I set my goals and the financial plan was ready for investment in line with my risk appetite and the asset allocation.

To cut the long story short, I set a goal of Rs 3 Crores by 2025 for retirement corpus and Rs 1 Crore by 2021 for my child’s education and marriage.

A monthly SIP target of Rs 60,000 was worked out for me. This amount had to be invested in Mutual Funds for my future goals. Though it’s true that 
I missed out on a good part of my younger age before I started proper investing, I would say that I was still lucky enough not to have any loans at that time when I eventually did start.
By April 2006, I consolidated all my existing funds to the chosen fund as per my financial plan and started SIP investing for the 1st time in a disciplined manner. I decided that no matter what happens, I will invest at least Rs 60,000 every month towards my goals. And I also intended to invest more to cover up for the lost time of 15 years. 
Just after a month (in May 2006), there was a significant fall in markets (it had something to do with the commodity price collapse on LME). And by June 2006, about 20% of my portfolio (Rs 1.1 Lacs from Rs 6.9 Lacs) had disappeared due to this market correction. But I told myself that I had to stick to my plans no matter what. Markets eventually recovered and went on to make some good gains over the next 6 months. By December 2006, my portfolio was sitting at 50% point-to-point return.(See entries for 1-Dec-2006 in the Table 1 below)


My investments in mutual funds continued from 2006 to 2008 and I remained loyal to my 60K SIP. Rest of the surplus money went into Fixed Deposits, Liquid Funds and Insurance premiums. I thus built the debt side of the portfolio too. But still I did not bother much about my asset allocation at that point of time.
While I could sense and for that matter, actually see the euphoria building up around me in November 2007, I didn’t do anything. The media propelled euphoria went over the roof around November 2007 as there was a general consensus that GDP will grow at 9+ percent for many years to come. I simply continued with my SIP. At one point, I even doubled my SIP investments as I got a substantial raise in my income. And this I did without any regard to market valuations at that time.
By Jan 2008, my portfolio had peaked with a point-to-point return (since 2006) of 79.27% (See entries for 1-Jan-2008 in Table 1).
An investment of 17 Lacs had turned into Rs 31 Lacs in just 18+ months. No one was bothered about market valuations and almost all market analysts were publishing much higher targets, and justifying them with the now (in)famous theory of disconnect between Indian economy and global market. At this point, Nifty PE Ratio was 27.64. But I only came to know about this in 2010.
And then came the Crash of 2008. Uptil then, I had never seen my portfolio getting slaughtered in a big way. After the crash, the markets started drifting downwards. By July 2008, while my investments went up from Rs 17 Lacs to Rs 29 Lacs (due to my increased SIP and additional purchase – seeing the market fall), the actual profits of my portfolio were completely wiped out and became negative for the first time (see the return figures of 01-July-2008).
Yes…from almost double (of my actual investments) in January 2008, the returns turned negative within just 6 months!! That is how ruthless the markets can be.
Actually in July 2008, the markets came to a reasonable level where Nifty PE was around 16.6. The media also started recommending that this steep correction presented one of the best opportunities that an investor can get (since 2004). I too decided to increase my SIP between April 2008 and August 2008. And I did this by breaking some of the fixed deposits. I also invested some additional money through direct stock investing. Frankly what I was doing was to average out my investments which had run into steep losses. Or you can say that I was trying to catch the falling knife. But as the knife continued to fall, I increased the additional purchases (See additional BUY transactions between August 2008 and March 2009).

By December 2008, the valuations had gone into a deep negative territory – a point to point return of (-) 28%, i.e. a steep loss of Rs 12.7 Lacs on a Rs 45 Lacs investment.  There was panic all around. And it was like there was no end to bad news – Dubai default, Sub Prime Crisis, UPA may not come back to power and no stability after upcoming elections etc.
By March 2009, investment showed a point to point return of (-) 28%, a Rs 52.5Lacs investment had become Rs 37.7 Lacs. And Nifty PE ratio had touched a once-in-a-lifetime low of PE 12.
The crash in the period of August 2008 to March 2009 made me read several prominent articles, blogs and most importantly, Benjamin Graham’s Intelligent Investor. Frankly, it was only then that I started understanding market valuations and the importance of asset allocation. It was here that I decided to consolidate all my investments to evaluate my asset allocation…and to bring it down to a comfortable equity and debt level.
For the first time in my life, I evaluated my complete portfolio of Fixed Deposits, Debt Funds, Equity Funds and individual stocks as one entity.
And based on my readings, I set following rules for myself:
Rule 1: Save as much money as possible for the purpose of investing.
Rule 2: Before investing (every time), look at your asset allocation and in general, market’s PE valuations.
Rule 3: Continue investing via SIP as per the original plan. Do not stop SIP midway for any reason till target investment value (not the target corpus value) is reached.
Rule 4: Broadly keep the asset allocation between 60% – 80% in favor of equity – for PE Ratio range of 18-24. And continue investing in SIPs as per investment plan.
Rule 5: If markets fall below 18PE, increase SIPs.
Rule 6: If markets fall further below 16PE, increase buyout, and
Rule 7: If markets fall below 14PE, invest maximum amount in equity in lumpsum.
Rule 8: If market crosses above 23PE, restrict investment amount in Equity.
Rule 9: Above 25PE, reset equity allocation to something in between 65% – 75%,
Rule 10: Above 27PE, do not invest further and reset the asset allocation to below 65%
Important Note: Equity allocation includes mutual funds and direct stock investments.
In my case, I didn’t sell any of the fund holdings till December 2014. But I did sell my direct equity holdings and invested additional money in debt portion (including gold) to manage my asset allocation.
It is very important to decide the investment period of the money being invested. If you don’t require the money for next 10 years, then it must go to equity mutual funds only (preferably via STP transfer from liquid funds). But if investment period is for less than 3 years, then it should be invested in debt.
Money required for other periods, i.e. between 3 and 10 years can be shuffled between equity and debt as per asset allocation.
So let’s go back to my story…
By May 2009, the election results were out and UPA 2 was forming the government. Markets took the news positively and the portfolio turned neutral i.e. 0% returns after 3 years of accelerated SIP investment. And within a month, i.e. by June 2009, it turned positive.
By this time, I went through a lot of dilemma about whether, what I was doing was correct or not. Honestly speaking, at times my portfolio looked scary to me and even disturbed my sleep. Almost all my friends were investing in real estate using cash and loans and enjoying rents & capital appreciation. As for me, I had almost ZERO returns to show after 3 years of investing. Even my family was not sure whether what I was doing was the right thing to do or not. After all I was going so aggressively with fund based investing, without any regard for what others were doing, i.e. investing in real estate.
And apart from the pain of 0% return of MF portfolio, there was added pain of direct stock portfolio being deep in red. This put further pressure on me. My thought process here was that after so many years of negative returns, even after investing in SIP mode and market touching all time low valuation levels, there is bound to be a point, where I will get decent returns. And backed by this thought and my understanding gained from reading various investment books, I decided to increase my SIP investment – but only using the money which would not be needed for next 10 years.
In any case, my original plan was to invest Rs 60,000 every month for 20 years to achieve my goals. This would amount to Rs 1.44 Crores (Rs 60,000 per month x 12 months x 20 years). By increasing my SIP now, I was only putting the money ahead of its planned schedule.
By Jan 2010, the market PE valuations touched 23. I brought down the equity asset allocation to 63% (see table) as the market at that point was nearly 100% up from March 2009 valuations.
As I had anticipated, markets did correct but recovered immediately. Throughout 2010, the market PE stayed above 21 and therefore I continued with my regular SIPs.
In October 2010, the market once again peaked out at 25PE. Yet, I continued with regular SIP and adjusted the asset allocation by investing equally in debt and also by selling the direct stocks. I had started looking at my whole portfolio in its entirety. So the bad quality stocks, which I held were sold….even if it meant that I had to sell them at a loss (for the sake of asset allocation).
Although, the market PE remained at 20+ till July 2011, the index itself corrected from 6200 to 5000 by September 2011. Witnessing this correction, I increased the additional purchases in this period and equity allocation touched almost 80% plus. Another reason for increasing the allocation was the availability of cheap USD-denominated loans in 2011 to invest in mutual funds. As of today, it seems to have turned out to be very successfully. The loans were paid off in 3 years from salary and the investment amount has nearly doubled.
As 2012 came, the valuations started moderating and PE came down to average levels of around 18 (probably this was due to lots of negative news about government, fiscal deficit, currency collapse, gold restrictions, high oil prices, etc). By this time, I had already become familiar with the volatility and bad news. Here, I decided to keep adding to my MF folio with an investment target of Rs 1.44 crores (and not the total end of 20 year target of Rs 4 crores). The Idea was that once I invest Rs 1.44 Crores, I could always give sufficient time to the markets to achieve my target. And I started increasing the investments whenever the PE came below 18. But I ensured that equity portion in portfolio did not exceed 85%.
As 2013 came, valuations stayed below 18PE and the gains were getting wiped off once again.  I was consciously raising the investments in MF and also allocating sufficient funds in debt side. By September 2013, the portfolio gains were nearly wiped off (just a point to point return of 28% was left out with just Rs 42 Lacs profit on a Rs 1.4 crore investment). It seemed that even after investing aggressively for 8+ years, there was no fruitful result. But this time, I got even bolder than ever and decided that even if markets were to correct 20% from here, the PE would only fall 20% from lows of 16 at that time. So downside was almost limited and upside was not. So I decided to continue doing my monthly SIP from there on.
Fortunately, BJP started winning state elections and the sentiment started to change from November 2013 onwards. And rising markets have started helping my portfolio too. By this time, my targeted investment of Rs 1.44 Crore has already been done. Yet I am continuing my minimum SIP investment of Rs 60K. From December 2013 onwards, the additional amounts were invested in the debt folio to increase the debt allocation and thereby bring down the equity allocation from 70% to 58%.
As of Dec 2014, the fund has reached a target of Rs 3.92 Crores versus the original target of Rs 4 crores. I still have another 6 years left to take this corpus out. Therefore except in case of nifty valuations going haywire, I don’t intend to take my profits out anytime soon. I expect this amount to become at least Rs 7-8 Crore by 2021 and serve my goals. Although my original goal was 4 crore, with increase in monthly expenses (retirement corpus), children education and marriage expenses, I may require around Rs 8 Crore. I expect the same to be comfortably met from the current mutual fund folio investment.
As of 1st Jan 2015, the returns on mutual fund portfolio stand at 19.80% per annum. A snapshot view from a portfolio manager tool is posted below:
The above summarize my investment journey till date.

If you want to have a look at the detailed transaction history over a 10 year period, please click on the image below:

——————–
The second part of the series will cover the learnings which can be used as bulleted list of guidelines by other mutual fund investors.

I like You. Do you Like me?

Hi guys

I get a number of mails from you all every day. And this is in addition to numerous comments on all the blog posts. Mails range from ones asking for advice on specific stocks to ones asking about gifting foreign trips to wives!! 🙂

But unfortunately, I am unable to give timely replies to all your mails. Sometimes, the mails just get buried in ‘read mails folder’ of my inbox. There shouldn’t be any excuse for not giving timely replies but the fact is that I still have a day job and need to juggle between the job and this small adventure called Stable Investor. 🙂

I received a follow up mail from a lady reader (Sa####) about how I was trying to act pricey and not replying to her previous mail. First of all… my apologies to her. I understand that it is frustrating if one does not respond to one’s genuine concerns. But honestly, this and many such slip-ups are neither intentional nor an act of posing like a big gun. Its simply because of reasons given in previous paragraph. And I wanted the readers to know the truth.

I just want to finish by saying that I am just a regular guy like you all and am trying to act not only as a guide but also as a friend. I know what it means to be messed up with your finances, not being able to pay the bills, cutting down on expenditures, etc. I have gone through all that.

I would feel satisfied if Stable Investor is adding value (or rather bringing sanity) to your financial life.

And I would appreciate You if…

…you would join Stable Investor on Facebook by clicking the image below and LIKING the Facebook page:

Stable Investor Facebook


Its faster & easier for me to respond to your Facebook messages and comments. Also, you will get loads of interesting stock market and wealth building related updates on a daily basis.

I hope you understand

Regards
Dev
A Stable Investor

Mailbag: I want to gift a Dubai trip to my wife. How do I fund it?

I think that after reading the title of this post, many of you would have become interested in knowing more about the person behind such a ‘noble’ thought. 😉 
 
Unfortunately, all I know is his name – Amir. Ever since I started a section to handle personal finance questions, this had to be the most interesting question and I decided to address it as fast as possible. For the benefit of readers, I would summarize Amir’s question below –
 
Amir’s 5thWedding Anniversary is due in 2015. He wants to take his wife to Dubai for 5-6 days to mark this special occasion. He also wants to make provision for shopping in Dubai. His question isn’t clear as to when exactly does he wants to go, but I would assume that it’s in second half of 2015. He also says that he can pre-pone his trip to take place in 2014. But that according to me might defeat the very purpose of 5th year celebrations. He wants to know whether he should fund this trip using credit cards or share market trading.
 
How To Fund My Dubai Trip?
 
I checked a number of flights, hotels and holiday packages for a 6 day trip to Dubai. And my preliminary research showed that it would cost around Rs 55,000 per person for a decent stay in Dubai for 6 days (including airfares). Additionally, one needs to pay another Rs 5200 per person for Visa. This brings the total for two persons to approximately Rs 1,21,000. Now the next figure which I would add to this amount can vary from person to person. It’s the shopping budget. And as far as ladies are concerned, any budget for shopping is less. So to keep matters simple, I assume that the couple would shop for around Rs 50,000 plus. This takes the total to Rs 1,71,000. 
 
And just to make provisions for contingencies, travel insurances and other unforeseen expenditures, I have decided to round off the estimate to Rs 2,00,000.
 
 
 
Now, Amir failed to provide the following important information(s):
 
– Monthly Surplus (Income from all sources – Investments – Expenditures)
 
– Exact time of travel
 
– Shopping Budget 🙂 (I have already played safe with my assumptions here).
 
Now to decide how to fund this trip, we need to know when Amir needs to travel. I will assume that he plans to travel between Sept – Dec 2015. This means that he needs to be ready with funds by August 2015. This leaves us with 21 months (starting December 2013). Now I still don’t know his monthly surplus. But what we do know is that Amir needs to arrange Rs 2,00,000 in 21 months.
 
Now a simple recurring deposit of Rs 8900 per month for next 21 months, earning a 7.5% interest per annum can do the job. It’s that simple. 
 
As far as taking a Credit Card debt is concerned, one must understand that it is the costliest form of debt and at times can cost you more than 35% per annum in interest costs. And you don’t want to pay 35% interest on Rs 2,00,000 for next few years, isn’t it? 🙂
 
Another option which Amir mentioned was stock markets. I would not suggest this option even though you have close to 2 years as your time horizon. I personally think that over a short term (less than 5-7 years) stock markets can be risky with high chances of capital erosion. You may be a good stock picker and may be able to make the required amount in less than 21 months. But I have no access to knowledge about your stock picking abilities. 🙂 And also, just imagine a situation that you decide to go ahead with your decision of making money in stock markets to fund this trip, and god forbid, markets take a dive in July 2015 and you are left with inadequate funds to pay for your trip. What will you do then? You may decide to take Credit Card debt and go ahead. But why would anyone want to take chances with such an important event of your life? It’s better to keep it simple and go for a simple recurring deposit.
 
Note – I have made assumptions regarding the trip and shopping expenditures. The real costs may be higher or lower, and consequently, your monthly RD contribution would also be higher or lower. Consider this to be disclaimer from my end. I don’t want your wife to come after me for miscalculating  her shopping budget. 🙂
 
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Mailbag: I am 45 years old & want to accumulate shares of good companies for next 20 years

A reader aged 45 had the following query. Though he asked the question on Stable Investor’s Facebook page, I thought it would be a good idea to share it with loyal website readers to know their views.
 
 
 
So here is his question:
 
“I am 45 years old and wish to invest in equities for long term. My goal is to create a corpus, which I may use when I’ll cross 65. Hence in which Indian companies should I invest? I plan to buy stocks of the chosen companies regularly in small quantities in “buy-and-forget” mode. I don’t want to be bothered about daily price fluctuations or viability of company’s business. Please recommend a few companies which you think would keep performing well for years to come. I assume that at whatever price I buy these stocks, I would eventually have significant capital appreciation over the next 20 years.”
 
Now this is what I think:
 
I am assuming that you are adequately insured and have sufficient money in your emergency funds. With this assumption, I would say that it is always advisable that one should invest in multiple asset classes, so that there is no concentration risk. I am assuming that since you plan to invest in the so-call-risky asset class, you already have decent positions in less risky ones like PPF, PFs, NSCs, bonds, FDs & RDs etc.
 
Now Buy and Forget kind of investing requires that you pick companies which you are sure are going to survive for next 20 years. These are companies which essentially, have a greater ability to suffer than other listed companies.
 
Once you have taken care of survival, you need to shortlist those which have a good probability of flourishing in next 20 years. Just these 2 filters would reduce the list of probable companies to less than 10-15. And that in itself is a pretty manageable number.
But having said that, I would digress a little from this topic of direct equity investment. You can, or rather should consider routing a substantial part of your planned monthly investments through index funds. You might argue that investing in index funds would eliminate the probability of picking up multibaggers, even when considering a 20 year time frame. That’s correct. But this would also eliminate the possibility of ending up with stocks of companies which might be very close to being shut down at end of 18-19 years of your stock accumulation period.
 
Now no one would want to accumulate shares of a company for 19 years, only to find that when he requires that money in 20thyear, share prices have crashed down and business is about to close. 🙁 So, I would suggest that you should give index fund investing a serious thought.
 
Sometime back, I had suggested a similar approach to two young readers who also intended to invest for next few decades! You can read those discussions here and hereBut if you still want to go ahead with a Direct-Equity-SIP sort of a program where you buy few shares of companies every month for next 20 years, you should stick to companies which pass the following criteria –
 
First
 
Provide products and services which would have increased demand in years to come and are ideally placed to benefit from India’s demographic profile over next 20 years.
 
Second
 
To meet this demand, these companies should depend as little as possible on debt and should be able to fund their expansion through cash flows itself.
 
Third
 
The companies should be run by trustworthy and proven management. You don’t want to handover your hard earned money to companies which are not run by people whom you would personally not like to interact with. Isn’t it?
 
Fourth
 
Personally speaking, dividend paying companies ring a bell for me. But you can choose not to consider this criteria.
 
So once you have shortlisted companies according to these criterias, you would have very few companies which you would like to invest for next 20 years.
 
One such company which comes to mind is ITC. You can create your own list of such companies.
 
It is always better to have a framework (structure) before you go ahead picking specific stocks. Hopefully, this post will help you in coming up with a correct framework to pick stocks worthy of long term investments.
 
This is what I feel should be done by the reader. What do you all think?
 

Mailbag: Why do you choose such simple criterias for shortlisting stocks?

We received a question in comment section of our last post on selecting 10 stocks to buy in next market crash. The question asked was very simple, but relevant…

 
“Why do you guys choose such simple filters for shortlisting stocks? There are more comprehensive and well proven methods of doing the same.”
We will first explain a little about these 5 filters and then answer the question –
 
Filter 1: Management (Atleast Decent)
 
The last two words of this filter, ‘atleast decent’, make this a completely subjective criteria. We believe that we are average investors. Hence, we are the last ones to receive company / promoter related news, leave alone insider information. Hence, in the event we do come to know that management is not trustworthy (read decent), then it means that there is more negative news which has not even come out in public domain. Isn’t it? Hence, we will prefer to stick with companies with ‘known decent’ promoters / management.
 
Filter 2: Not Highly Cyclical
 
Some experts say that one should buy cyclical business at high PEs. It is at these times, when things are about to turn around for better. They may be right. And sometimes, it seems logical on face value of the argument. But we are not sure. Frankly, we haven’t devoted adequate time to analyzing cyclical businesses. And hence, we don’t understand them too well. Also, highly cyclical businesses are highly uncertain. Such companies are at the mercy of the economic cycles. So it’s better that we avoid such companies.
 
Filter 3: Atleast Average Growth Potential
 
If the underlying business does not have any growth potential, then how can we expect the stock to move up? We should never forget how Kodak, a great company which did not embrace the advent of digital photography and how it paid the price with its bankruptcy.
 
Filter 4: God Dividend Record
 
We just love dividends. That is all we have to say. 🙂 But we have a reason for it. You can read it here.
 
Filter 5: Are we ready to hold the stock for 10 Years?
 
Mr Buffett once remarked, “Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”Being self-claimed long term investors, we ourselves would like to hold stocks of great businesses. We would love to act like owners of companies. And when a great company is going through tough times, the owners don’t sell and runaway. They stick with it. They know that when times will change, the company would be back. And in a much better shape.
 
So now, we are back to our original question…
 
Why do we use such simple filters??
 
The primary reason for using such simple filters is that these have worked for us. It is easier to evaluate stocks on these filters than more complex quantitative ones. Though we do use such quantitative metrics in our case studies of individual stocks, we always prefer to keep things simple. We try to stick with proven businesses. We try to find indicators of overall pessimism in the market, so that we can be a little sure that we are being greedy when others are fearful. We know that by following these filters, we are simply eliminating the possibility of finding those 50 and 100 baggers. We are restricting ourselves to a very small universe of 40 (or max 50) stocks. But we accept this tradeoff. We don’t want to lose money in stock markets by taking very risky bets. We know what we are good at and we will prefer sticking to our strengths. Over time, we will increase our expertise in other areas and may be, would be able to find the next multibagger. As of now, we are happy to lay a strong foundation for our long term portfolio.
 
We hope this post clarifies the doubt which our reader(s) had. 🙂

Mailbag: Don’t pray for stock market corrections!!

If you are a regular reader of Stable Investor, you would know that we are very public about our interests in market corrections. This is because it gives ample opportunities to buy stocks at distressed valuations.

But in our post about Buying on Dips, we received a comment from ‘HP’… This comment made us sit down and think. Comment reply which we wanted to post, was too large to fit in the comment thread. So we thought of replying it with a post.

mailbag reply

You can read HP’s comment below:
Note: The reader used ‘HP’ as his name instead of his/her full/real name.
– – – – Start of Comment – – – –
I am not sure if you were already working in early 2009, but my guess is you were in school/collage back then.
Hence talking about it as just a random thing that had occurred.
The world went through Hell literally for what we call now as “Worst Financial Crisis” of last 100 years.
Every day people were fired from their jobs (Especially in IT and Finance) and those of us who still had a job were considering ourselves very lucky.
Each day gave lot of pain seeing our loved ones and friends getting fired and seeing an absolute uncertainty about what is going to happen to them (Specially the married folks)
So when you pray that situation like 2008-2009 to return just because we will get stocks at throw away prices, just be careful, your wish might just come true.
And if it does, My Friend I would like to see how you react, I am sure by now you are done with your graduation.

It would be interesting to see if you really stick to your principles or all this is just pep talk, especially when your entire so called world is falling down around you.

– – – – End of Comment – – – –

We agree completely with what HP has to say in his comment. It can be tough to think about making investments, buying stocks at cheap valuations when your own job is at stake. And it can be painful to see people around you losing their jobs. And for record, our site is young, but we were not school going kids in 2009. Like you, we consider ourselves lucky to be employed during 2008-2009.

When we say that we would love to have a correction, we don’t mean that we would like to see people losing their jobs. We pray for corrections (only in jest)… and we know that talking is easier than doing. We may or may not be able to hold on to our jobs during the next recession. In a way, it is beyond our control. But what is within our control, is our ability to remain prepared

Before even thinking of investing, we would have our emergency funds ready. Its a fund that would be capable of sustaining our family expenses for next 6-12 months (in case we lose our jobs). And if we are able to cling onto our jobs, it wouldn’t be a bad idea to invest whatever is possible. Because when you fall in hot water, you should take a bath instead of cribbing about the situation and your helplessness. And if you have an interest in investing, you would understand the power of 3Cs – Cash + Courage +Crisis. 🙂

So when crisis comes, we can’t say how well we will stick to our principles, but we would definitely give it a serious try. Till then, you can consider all this to be a pep talk which we are giving to ourselves.

dont pray
You should not pray for market corrections.

We are sorryto those who are hurt by our prayers for market correction. It was made in jest.

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