Sunday 30 May 2010

On Market Bubbles


On Market Bubbles

Two things are infinite: the universe and human stupidity; and I'm not sure about the universe ---

Albert Einstein

How true, indeed!

Regards,

N

On Market BubblesSocialTwist Tell-a-Friend

Need for Savings


Need for Savings

First, some background info for this particular post:

....... ....... ....... ....... ....... .......

Happened to be chatting with a friend, and was suggesting that he get hold of a PAN card in the name of his HUF with a view to having an additional "taxable entity" in his family, thereby ensuring that he gets one more "exemption limit" of a couple of lakhs of rupees.

His response was a shocker. He started asking me as to how having a PAN Card for his HUF can help him reduce his taxable Salary income????

I probed further, and he mentioned that his income from all other sources such as interest, dividends, rent, capital gains, etc. were close to zilch. And he was only interesting in knowing whether the TDS on his salary income can somehow be reduced.

I was perplexed, and delved even deeper. I was curious to know as to how and why he has almost zero-income from Interest, Dividends, Capital Gains, etc. And he told me that he ends up spending almost all his salary income on either expenses or EMIs for his home loan. Thank God for small mercies - At least he had a home loan and hence was not spending ALL his income on running expenses.

And this friend of mine is an Engineer/MBA from top notch schools with a couple of decades of experience! The only saving grace was that he was not maxed out on half a dozen credit cards and that he was not in a deep hole of a debt trap!

....... ....... ....... ....... ....... .......

Now to the main post. Why should a typical salaried person with a kid or two and one or more other dependents save any money? Here is the low down to my dear friend:
  • You are not going to
    • Live forever
    • Stay healthy forever
    • Work forever
  • Some day, you'll retire and in all probability, you'll live for a few years after that. Today's life expectancy for reasonably healthy upper middle class folks is well beyond 80, and I don't expect you to work for much beyond 65
  • Your accumulated savings should keep you and your dependents going for at least 20 years after retirement. And remember, there is a good chance that your dependent may end up outliving you by 5-10 years!!! Look around you.
  • There are blocks of "Big Expenses" waiting for you in the years to come
    • Higher education of kids
    • Marriage of kids
    • At least 2 foreign holidays for the family per decade
    • At least 6 instances of multi-day hospitalisation per decade
  • You will not enjoy the idea of being a "dependent" on anyone, especially if you're used to "being the boss" and the "hand that brings the bread" all your life. Certainly, you'll not relish being financially dependent. And God forbid, what if you outlive people on whom you may be forced to be dependent, financially or otherwise????
  • You have a better standard of living today than you did around 10 years ago, 5 years ago, perhaps even in comparison to a year back. And you'll be keen on improving your standard of living in the years to come. It costs money. Just tell your dad or grandma about the price of 1 KG of your favourite vegetable or a gram of Gold or a square feet of land or your last restaurant bill and look at the looks on their faces - That will be your response for every item of expense 10 years later, 15 years later.
  • Don't believe a word of the public claims of inflation in the business papers - While they talk about 5-10% per annum, you know better. Things that you MUST BUY like rice, dal, tooth paste, shaving cream, shampoos, shoes, shirts, petrol, movie tickets, sanitary napkins, undergarments, broomsticks, floor cleaners, etc. are all becoming costlier at rates northwards of 15-20% per annum. Things that are becoming cheaper due to technological advancements like TVs, Laptops, Mobile Phones, Cameras, etc. need to be replaced ever more frequently as they become outdated. Even yester-year "once in a life time purchases" like cars are being replaced as frequently as twice a decade. All of this cost money. And loads of money. And I've not even spoken a word about so-called luxuries like jewellery, costly parties, etc.
All the above points are just a small portion of the strong reasons that exist for you to start saving money every month - right away! In case you have not been doing so already.
If you are convinced about the need to save money regularly, you are prepared to start thinking about a few other questions:
  1. How much should I save?
  2. How should I save?
  3. What should I do with my savings?
  4. Should I never take loans? Or is it OK to take some loans?
  5. How should I invest my savings?
  6. What is the meaning of
    • Financial Planning
    • Asset allocation
    • Fiscal Prudence
    • Risk Pyramid
    • Risk-adjusted returns
    • Inflation-beating returns
For answers to all such questions, do keep re-visiting this blog!

Regards,

N

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Saturday 29 May 2010

Spain Downgraded


Spain Downgraded
Watch your portfolio:
Keep cash ready in the next several days / weeks. More such news follows. If you must buy, buy in a staggered manner.

Regards,

N

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Thursday 27 May 2010

"China reaffirms confidence in Euro Bonds"


"China reaffirms confidence in Euro Bonds"

Just saw a series of news clips on multiple TV channels and read a few articles in the past several hours that various global indices are inching north because China has re-affirmed its confidence in Euro Bonds and "are not selling out".

As usual, I'm amused.

Even if you are an ordinary fund manager of a mid-sized mutual fund, if you are holding a few hundred thousand shares of a Reliance or TISCO or Suzlon which you plan to liquidate, you're certainly not going to be publicising the fact. Even if you're asked whether you've lost confidence in XYZ Ltd. and whether you're planning to sell out - even in a private conversation, you're certainly likely to either deny outright or respond with a vague "No comments".

And you expect China, one of the biggest investors in Euro Bonds - GLOBALLY - to actually give advance notice about their plans to sell out!

Regards,

N

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Cash is King!


Cash is King!

In these times of grave uncertainty, one should pay heed to the pearls of wisdom from one of the greatest investors:

"It takes character to sit there with all that cash and do nothing. I didn't get to where I am by going after mediocre opportunities." – Charlie Munger

Regards,

N

Cash is King!SocialTwist Tell-a-Friend

Tuesday 18 May 2010

Over-optimistic Equity Analysts


Over-optimistic Equity Analysts

Those of us who thought that only our Indian analysts are over-optimistic should read this one:
My hypothesis on the possible reason: They often represent fund managers, mutual fund houses, insurance companies, etc., all of whom have a stake in investors pouring in more money into their coffers - And when will they do so? When the prospective investors hope that the markets will go up!

And we thought that these analysts are supposedly unbiased and professional!

Regards,

N

Over-optimistic Equity AnalystsSocialTwist Tell-a-Friend

Monday 17 May 2010

No PAN? Be prepared for greater TDS!


No PAN? Be prepared for greater TDS!

Take a look at this press release from the Income Tax Department:
I've got some objections to this:
  • People who are really rich and straightforward will anyway have PAN and declare it. This circular is irrelevant for them
  • People who are really rich and unscrupulous will anyway have PAN and find ways to take care of taxes. This circular is irrelevent for them
  • People who are really rich, unscrupulous and deviant will probably not have PAN or have multiple PANs or have benami PAN-holders, etc., and will know how to get around the system - either the right way or otherwise - This circular is irrelevant for them
  • People who are part of the middle class (especially the salaried class) will be sufficiently scared of the Big Brother - IT authorities - And will be meticulous about declaring their PAN - This circular is irrelevant for them
  • People who are poor / low-income folks are unlikely to be in the taxable bracket. However, occasionally / rarely, they may receive some big bucks - by their standards - from relatives / friends / government / well wishers, etc., which they may choose to invest in a fixed deposit with the bank for taking care of some specific major future commitment (Say, a marriage or medical emergency or higher education for an only child) - The interest amount on the same may cross the limit applicable for TDS, but their own Annual income may very well be well below the tax exemption limit. - This circular is likely to be applicable to such individuals, and while it is actually quite irrelevant for them, it nevertheless succeeds in harassing them by forcing them to get a PAN or lose "significant" money unnecessarily.
A typical example would illustrate this point. Let's say, a watchman & his housemaid wife have a combined monthly income of Rs. 10,000/= out of which they save Rs. 2000/= per month for the higher education of their only child. After a couple of years, the interest income on these deposits would be over the limits prescribed for deduction of TDS. However, the bank manager will tell them to produce a PAN card or simply accept a TDS, that too @ 20%! If this is the intended consequence of the press release, I wonder why our Left parties and BJP folks are keeping quiet about it - or for that matter vociferous people like our very own Rahul Gandhi, Mamata Didi, Kalaignar Karunanidhi, etc.!!! Whatever happened to the poor Aam Aasmi???

Regards,

N

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