Humko Deewana kar gayee

Heard in the news today morning that Salman and Katrina are getting married.

This is the saddest day of my life. I have seen Katrina movies sitting alone in the theatre and now....

How the hell can she marry a man of her father's age. Forget that, how can she marry somebody who crushed people under his car and doesn't care about it?

Any volunteers for Jehad against Salman?

A new Beginning

Dear Friends, we have now started earning money and saving for the future is part of earning a living. Our wants are unlimited and the means to satisfy them are limited.
But, good financial planning can make our life easy. Financial planning not only helps maximise the power of money, but also saves us from shocks and crises when we need the money not to satisy our want but need.
I would like to share with some of my knowledge and learnings which I have gained through my passion for the financial markets. I am starting a series with the first article dealing with investment options.

INVESTMENT BASICS

Definition: Part of the income set aside today to create higher value/purchasing power tomorrow.

Investment options:
1. Debt:
a) An investment instrument that gives non-negative returns.
b) Generally safer with low-moderate returns.
c) Available instruments:
i. National Saving Certificates (Post Office)
ii. Public and Employee provident funds
iii. Bank Fixed Deposits.
iv. Government and corporate Bonds (direct purchase)
v. Debt mutual funds (indirect bond purchase)
d) What returns may be expected?
Historically, till about 1998 (since socialist eras) interest rates were about 15-18%. Then came the phase of low interest rates: 8-9 %. Again, the interest rates have started moving upwards closer to 10%.
e) The first three instruments need very less deliberation from the investor, though investment in other debt instruments requires knowledge.
2. Equity:
Definition: Direct or indirect ownership stake in a company.
a) The chances of returns are in both directions ie positive as well as negative.
b) Equities are riskier and need careful active investment.
c) Higher the risk taken, higher the potential (not actual) returns.
d) What returns may be expected?
In the last 5 years ie since Jan 2002, top mutual funds have returned 50% annually ie Rs. 100 would have become Rs. 760.
But, there are market crashes which could wipe out the entire money eg the 2001 tech bubble where lot of companies lost all their value. The recent May 2006 crash where lot of companies lost 60-70% share price. One can take the examples of the 1929 or the 1969 US market crash. Thus, it also depends on the shares that one purchases.
There are phases in the stock markets, where the prices go nowhere eg Indian markets were in the 3000-4000 range between 2001 and 2003.
3. Bullion (Gold, Silver):
a) Jewelery is not an investment but an adornment.
b) Gold/silver having very less correlation to the stock markets is used to spread the risk of the portfolio.
c) Returns are generally low and it is used as a hedge against downslide.
4. Enterprising Assets (Timber, Commodities, Real Estate):
a) The house you stay in (single house) is not an investment, but a necessity.
b) Buying these assets to be considered to diversify your investments.
c) What returns may be expected?
Since 1960 till 2000, the best performing asset has been timber with 6% annualized returns.

Summary Matrix

Investment Risk Potential Return Volatility Liquidity
Debt Low-moderat e Low-moderate Low-moderate Low-moderate
Equity Moderate-high Moderate-high Moderate-high High
Bullion Low-moderate Low-moderate Low-moderate Moderate-high


INVESTMENT STRATEGY:
1. Investments are made to satisfy needs which may range from funding education (of self or children), marriage, house/car purchase, retirement corpus. Hence, an investor must start with a well defined need (ie set a target).
2. The different needs are to be satisfied at different times and hence the investment time period is different. This provides a guideline. For example, if you have to purchase a house in the next 3 months, you won't park those funds in equity as if the stock prices decrease, you will not be able to buy the house.
3. The investor should decide her risk-tolerance capacity ie who are her dependents and how badly she requires the invested money. If the investor has dependents (old parents, spouse/children who have to be supported) she cannot take too much risk.
4. The investor should then assess her risk taking capability ie how would she feel if her money decreases by 20% in 1 month: will she panic?

5. Thus, depending on the need (or aim), time, risk tolerance capacity, a strategic plan must be prepared to allocate the available funds for investment into the various asset classes. The risk-return (likely) scenarios of asset classes differ ( also with time) and the investment plan may be effectively implemented by investing fractional parts in the various asset classes.
6. A low-risk portfolio would consist more of debt than of equity and a more aggressive one the exact opposite.
7. The overall returns do not depend so much on the individual instruments (20%) as on asset allocation (80%). Thus, asset allocation is the key to achieve sustainable returns and to manage risk.


Definitions:
1. Asset: Something which you would be proud of passing to the next generation
2. Hedge: Strategy used to minimise the impact of a risk
3. Liquidity: Ease of converting the asset to cash.

Confessions of a sinner

You may consider this as some kind of a postscript to my 'Ab toh Zinda Hoon' blog-entry.
After travelling in the company bus for the past couple of months, I now had to travel in train again on Saturday. Thinking that the trains would be relatively empty, I chose this mode of transport over road. But, then my calculations had gone wrong and I could clearly see that I would remain standing on Kandivli station for an hour before I could board any train.
A thought suddenly struck me, why not travel in 1st class till Malad and catch the starting train at 8.35 am? I would be travelling in 1st class for just one stopover and then get back to 2nd class. I don't know whether it was a big sin travelling in the compartment I was not entitled to. My circumstances dictated my actions. Can't decide who the bigger sinner is; me or the railway planning authorities who forced me to do such a thing?
Is there anything like right or wrong? Or the fact that I ensured because of my travelling 1st class, I didn't put anybody in inconvenience. (I was standing at the door without occupying anybody alse's place)

Friends!!

What did I do in the four years of engineering- study, study and study?
Well yes, without getting the marks. But, thats not what I value. I made some great friends. Sitting late in the evening in the Gymkhana........that was bliss.
I made friends for life. And this I realise from a few weeks of parting. They will abuse, insult, make jokes about you, make u believe they have long gone past you, but they are the ones who will always remember you and be there for you.

Guys my heart goes out to you.

But, do remember life is very uncertain, anything can happen and thus please cherish each and every moment that you get. Life is not a input-output linear algebraic equation, its Fourier series, so enjoy life and be prepared to bear the burden of duties.

The pic says it all

And for those who think my blog is dead, its dormant through all the churnings of the past few weeks. It will be back....