20 December 2014

Interview - Safal Niveshak's Vishal Khandelwal - Part 4 (Final Part)

This is the fourth and final part of this interview. You can read the first three parts at the following links:

Part 1  |  Part 2  |  Part 3


Question 10.

From your blog I know that you do not prefer Index Funds even though they are highly recommended as decent options for average long term investors. Do you think that an average investor is better off picking an actively managed fund over index funds, despite the risks associated with fund manager and his team's ability?

A. To clarify my stand on index funds, these are what I personally don’t prefer because I trust a few active managers more than the index. However, that’s not to take away from the simplicity of investing in index funds, which people not wanting to choose active managers or direct stocks, must do.

In investing, the most important thing is to know what you don’t know. So if you don’t know how to pick stocks directly and how to pick the right active funds directly, it’s better to start with a passive, low-cost index fund.

Since there’s not much differentiation between different index funds, pick the one with the lowest cost and from a decent fund house.


Question 11.

As an allocator of capital for your personal and family wealth, what percentages do you generally have in equity / non-equity baskets (ignoring real estate investments)? The percentage allocations might be dynamic depending on market conditions, but what is the thought process behind the decision making when allocating capital to various asset classes?

A. Well, my allocation is not so much dependent on the market conditions as it is dependent on when I need the money.

Any money I need in the next 1-3 years, plus my emergency fund that is around 6-8 months of my household expenses, I don’t invest much of that in stocks.

However, of all the money I need beyond three years, I invest 80-90% of the same in equities, either directly in stocks or through equity funds.

Largely, I try to keep 80/20 allocation between equity and bonds, with the latter also including some gold.


Question 12.

If you were to go back to the start of your career as an investor, would you like to change something – add or delete?

A. Nothing to delete, but I will like to add a greater amount of patience. I have always been a long term investor, but I have lost a lot of wealth-creation opportunities by owning some great businesses for just 2-3 years which should’ve been owned for 15-20 years. So I have lost a lot of potential gains.

Another mistake I made, which I would like to correct if I were given a chance to go back in the past, is that I used to get anchored to stock prices. So I’ve sold a lot of stocks that earned me 100-200% returns just because they earned me 100-200% return, and because I was anchored to my buying price.

Your original cost price, as I realize now, does not matter when you are making a decision to hold or sell a stock, or buy more of the same. Then, once you have bought a great business – and there aren’t much of such businesses – it’s important to sit tight on it for years until the business itself does not change for the worse.

So yes, if I could, I just want to add more patience to my past investing decisions. How I wish that was possible. :-)


Question 13.

What would you say to those who are just starting to learn about the markets and investing their own money?

First, read Safal Niveshak. :-)

Jokes apart, here are my ten quick suggestions to a new, young investor –

1.      Start...don’t wait
2.      Read everything
3.      Know that you don’t know...a lot
4.      Keep it simple and minimalistic
5.      Turn off the noise
6.      Have patience
7.      Focus on process, and outcome will take care of itself
8.      Accept that you will make (a lot of) mistakes
9.      Find your role models
10.    Know what to avoid (like leverage, trading, and speculation)

Finally, while these ten suggestions/rules can help a new investor take better care of his/her money and financial life, I would also suggest him/her to not get too focused on these things that he/she loses out spending time on the real joys of life.

As a wise man, or maybe a woman, once said, “No matter how hard you hug your money, it never hugs back.”


Question 14.

For a young person who avoids investing in stock markets (due to risks & volatility), what examples will you share to convince him to start investing?

I don’t believe in convincing people, but inspiring them.

So, to such a person, I will try to inspire him/her by sharing my own experiences and the numerous stories of others who have created wealth for themselves using the power of compounding over long periods of time.

I will also gift him a few books like...


These books have inspired me a lot when it comes to taking proper care of my money, and I am sure these will inspire the person I gift them to, if he/she were read them diligently.


Question 15.

What’s your final, two-minute advice for an investor?

A. Nothing, as I’ve already advised a lot. :-)

Just love your family more than the money. Be a good son/daughter, spouse, and parent.

Your best investment in life would not be any stock or bond or real estate or gold, but the time you spend with your child. Life can pull you in a thousand directions, and you might ignore it especially when your child is little. But remember – Children don’t stay little for long. So, slow down…take some time…give some time…invest some time.

And finally, please take care of your health. If you want to benefit from compounding, you need to be alive and in good health beyond 50 years of age.

If you have great health and a loving family, there’s no bigger wealth you can ask for in life.


The End

______________________________________________________________________________


Brief Bio

Vishal Khandelwal has 11+ years experience as a stock market analyst and investor, and 3+ years as an investing coach. He is the founder of Safal Niveshak, a website dedicated to helping small investors become smart, independent, and successful in their stock market investing. Over the years, Vishal has trained 1,500+ individual investors in the art of investing sensibly in the stock market, through his Workshops and online investing courses.

19 December 2014

When Buying Your First House, Choose Dependency & Capability Over Cheapness

Ask any middle class person about the biggest investment which he wants to make in life. And pat comes the reply – a house. Isn’t it? In India, having one’s own house is not only a personal requirement, but also a social requirement. And no matter how much we try to avoid it, sooner or later, we have to go out there and invest in a house.

You would be thinking that investing per-se in residential properties for self-occupancy shouldn’t even qualify as investment at all (as discussed in a post sometime back). And that is because an investment should earn something, and a self-occupied property does not. That is true, but sooner or later if you do decide to invest (or for that matter, make expenditure) on a residential property, then there is something very important to keep in mind.

When you are investing in stock markets, you focus a lot on company’s management. Similarly when looking at options to buy your first house, you need to focus a lot on management (in this case, builder). Will the builder deliver as promised? Is the builder customer friendly and transparent in his dealings?

Once you think on those lines, you realize that when you are about to make the biggest financial transaction of your life, you would want to deal with someone who is capable, dependable and is known to deliver. There are very few who meet these criterias and one such name which comes to mind is Muthoot Housing & Infrastructure.

The company is part of a 125 year old group from south India and operates mostly in Kerala. It has delivered many value-for-money residential projects in cities like Trivandrum, Kottayam, etc. Company’s offerings also include furnished as well as unfurnished apartments available for renting in Trivandrum and few other cities. Apart from these, there are few more residential projects which are nearing completion. For those who are looking at ‘investing’ in real estate in South India for commercial purposes, the company has been developing commercial properties for last 25 years and its projects include shopping chambers, complexes, hotels, luxury resorts, etc.

But think of it, what would happen if you decide to pick a builder who offers slightly cheaper projects, but who does not have a good track record of customer dealings? I will tell you what will happen. You will eventually end up losing a lot more than money. Such builders will cut corners while using raw material, delay deliveries of projects and most importantly, will snatch away your mental peace.

We focus so much on company’s management when investing in stock markets. Then shouldn’t we do the same when we are about to make the biggest expenditure of our lives? Think about it? So when you are about to buy your first property, make sure you engage with someone who is dependable and capable.

17 December 2014

Mailbag: What are DVR Shares which State Bank of India (SBI) is planning to issue soon?

I got this question from one of the readers yesterday. The State Bank of India’s Chairperson recently announced, that they were going to look at issuing shares with differential voting rights (hence the name DVR) to raise funds to meet the Basel-III capital adequacy norms.



Government has also clearly indicated that it won’t continue to fund Public Sector Banks indefinitely. And these banks now need to look after their own needs. I believe that it is easier said than done because any problem, which these banks face will eventually become the problem of the government - reason being that these banks are deeply woven into the fabric of Indian economy, and hence the government cannot have a hands-off approach with them. But nevertheless let’s believe the government for the time being. :-) 

The government has allowed these banks to raise up to Rs 1.60 lakh crore from markets by diluting government holding to 52% in phases - so as to meet Basel III norms, which come into effect from March 31, 2019. The norms are aimed at improving risk management and governance while raising the banking sector's ability to absorb financial and economic stress.

So what exactly is this DVR creature?

What are DVRs?

Differential Voting Rights shares or as popularly known as DVRs, are a special category of shares issued by an already listed company to raise funds, with lower dilution of ownership when compared with issuance of normal shares.

Like ordinary shares, DVRs are also listed and traded on stock exchanges.



How are DVRs different from ordinary shares?

A DVR provides fewer voting rights to the shareholder than a normal share. While a normal shareholder generally has one vote per share held, a DVR shareholder needs to hold many more shares to get the right to ‘one’ vote.

One example of an Indian company having DVRs is Tata Motors. A normal shareholder of Tata Motors gets one vote for every share, whereas a holder of DVR shares gets one vote for every 10 shares held.

Companies generally compensate DVR shareholders with a higher dividend. A Tata Motors DVR has 5% extra dividend than normal shareholders as compensation for lower voting rights.

DVR generally trade at a discount to ordinary shares and Tata Motors has seen its DVRs historically quote at more than 30% discount to normal shares. I have written about the dual categories of shares of Tata Motors - Ordinary and DVR earlier too.


Is issuing DVR a common practice? Haven’t seen many in India.

Indian companies have somehow been averse to issuing DVRs. Apart from Tata Motors, very few have gone on to issue DVRs of their own – namely Gujarat NRE Coke, Jain Irrigation, etc. World over its a much more common practice and well known companies like Google, Berkshire Hathaway have dual categories of shares listed on exchanges.

16 December 2014

Boring Tuesdays – Three Things to Read Today - 2

Its Tuesday again and I am here to share with you some articles which I found interesting. Hopefully it will brighten up this boring Tuesday a bit :-)

Boring Tuesdays Readings

So here it is…

Article 1

I completed my MBA couple of years back and have realized that even though, they teach a lot about finance in B-Schools, there still aren’t many rich professors :-) Guy Spier in this beautiful article, tells you why it makes sense to read Warren Buffett’s Letters to Shareholders instead of doing a MBA.


Article 2

Rs 10,000 invested in this company’s stock in 2001 is now more than Rs 3,10,000 i.e 31 Times!! And that's despite the company operating in a highly cyclical industry. Forbes has documented an interesting story about how Mahindra became the King of Indian SUV market and why it is still going to rise further.


Article 3

This is a story about someone who took his girlfriend to attend Berkshire Hathaway’s Shareholder Meeting. As of now, Wall Street bankers are fighting off each other to give their money to him. This college dropout is now known as The 400% Man.

That’s all guys…

If you missed last week's Boring Tuesday post, you can find it here.

And if you find some interesting articles which you want to share with others, please copy+paste the link to that article in comments* or drop a mail to stableinvestor@gmail.com

*Don't worry if your comment is not visible as soon as you post it. Anti-Spam filters generally detect hyperlinks in comments (which you are sharing) and automatically park it for my review. I will eventually be notified about your comment. :-)

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