Does Time Matter? Hint: The Longer The Better.

 Does Time Matter? Hint: The Longer The Better.

Source: DSP Mutual Fund. 

Don’t watch the clock; do what it does. Keep going.” – Sam Levenson, American TV host and journalist.

What is a SIP?

We all know the benefits of a regular workout regime, discipline with eating and sleeping, etc., but we also know how hard it is to maintain the disciplined approach. Being disciplined with money and investments is no different.

Systematic Investment Plans (SIPs) enable investing a pre-determined amount in a mutual fund scheme at pre-determined regular intervals (monthly or quarterly, etc.) in an automated manner.

SIPs are one of the best ways to deal with market volatility. When markets go up, the overall portfolio value increases. When markets correct, with the same instalment amount, an investor is able to buy more units due to the lower price. 

SIPs may help to create wealth over time, but understand the downside to SIP returns in a worst-case scenario.

“Most people overestimate what they can do in one year and underestimate what they can do in ten years.” – Bill Gates

The biggest advantage of a SIP is that it brings discipline and forces investing and may aid in long-term wealth creation. However, SIPs are not magical investments that work in every scenario. Markets fluctuate, and markets do fall. Short-term price fluctuations can’t be eliminated, especially with equities as an asset class. Stay patient and attempt to ignore these fluctuations. They are a basic characteristic of markets and investing. Let’s understand worst-case scenarios and see how SIPs in equity funds can potentially provide returns over a longer investment horizon. Long-term investments in equity SIPs cancel out short-term market volatility.  

Rolling returns since inception of BSE Sensex (i.e. 03 Apr 1979 till July 31, 2021)

Note how the drawdowns (declines in an investment or a fund) reduces over time and turns positive over the longer term.

Return expectations from SIPs - The Journey IS LONG!

Jeff Bezos, Founder, Chairman, CEO and President of Amazon and also one of the richest men in the world, asked Warren Buffet, “Your investment thesis is so simple. Why doesn’t everyone just copy you?” Warren Buffett responded, “Because nobody wants to get rich slow.”  

One rule of thumb. SIPs are not a formula to become rich quickly. SIPs utilize a simple, boring process that may help create wealth over the long term. In the short run, there are many factors that can affect the performance of the markets. Over the longer term, SIP returns generally follow overall economic growth. Short-term cyclical fluctuations tend to get ironed out over a longer term. Stretch the investment horizon to more than 10 years, and it may brighten prospects for optimum returns.  

SIP Tenure	% of times returns are
	Negative	Between 0-8%	Between 8-12%	> 12%
1 year	28%	12%	5%	55%
2 years	22%	14%	9%	55%
3 years	15%	19%	12%	53%
5 years	9%	17%	20%	54%
7 years	8%	15%	21%	56%
10 years	5%	8%	26%	61%
12 years	1%	11%	25%	62%
15 years	0%	5%	24%	71%
17 years	0%	0%	18%	82%
20 years	0%	0%	20%	80%

Rolling returns since the inception of BSE Sensex: Risks in a SIP (i.e. 03 Apr 1979 till July 31, 2021). Source: MFIE

One can see from the table on rolling returns since the inception of BSE Sensex that as the investment time horizon increases, there is a higher probability of earning positive returns.

FYI: Investors can use SIP calculators to estimate the returns they could have earned on their SIP investment. 

Risks in a SIP

By design, SIPs may help to avoid market volatility. But they do not eliminate risk completely. SIPs can help distribute risk.

There have been periods in the past where SIP returns have been low to negative for long periods. Let’s understand from a total returns perspective - if an investor continued her investment even when SIPs delivered negative or zero returns over a five-year period, how would she have fared?

BSE Sensex SIP Returns: 

Scenarios		If SIP is continued for
		2 years	5 years	7 years	10 years
% of times total SIP returns are:	Negative	13%	5%	0%	0%
	Between 0-8%	33%	15%	3%	0%
	Between 8-12%	23%	13%	33%	18%
	Greater than 12%	33%	68%	65%	83%

Source: MFIE. Data as on 31 July 2021.

 

Note that over a 10-year period, SIP returns were greater than 12% almost 83% of the time. This goes on to strengthen the cause that an investor needs to have faith and patience to stay invested EVEN and  ESPECIALLY during times of negative and zero times to enjoy the long-term potential of SIPs.

When should one stop a SIP? 

Never. As long as one is working and earning, we recommend SIPs should continue. Aim to increase investments along with income growth. Don’t break the power of compounding. SIP amounts can be modified (increased and decreased) due to a change in goals, life circumstances, income, and to adjust asset allocation.

Markets Fluctuate, Emotions Fluctuate, Keep SIPPING!!

We as human beings get swayed by complex ideas. SIPs are a simple idea of investing a fixed sum of money at regular intervals and not getting swayed by emotions. SIPs by design inculcate investing discipline in investors and may keep fear and greed in check. 

When the overall value of mutual fund investments declines during a market downturn, don’t pause SIPs out of fear. When the market is down, investors can take advantage of the opportunity to reduce the total cost of investment by continuing SIPs. When the market picks up, the entire portfolio may rise. 

SIP investors should not get swayed by events and market noise. Events such as elections, budgets, trade-war, pandemics, slowdowns, high growth, recessions, rising markets, market corrections, etc., will be a part of the journey.

Key Takeaway: Investors need to have perseverance, faith, and patience to stay invested even when fear wants to prevail to enjoy the long-term potential of SIPs.

Tighten your seat belt but don't leave the roller coaster. The ride will be enormously enjoyable. - Nilesh Shah (Source : The Economic Times)

  

Nilesh Shah

Joint president and MD, Kotak AMC

Source :

Equity markets are at a crossroads on Omicron: FPIs vs Domestic Investors, Inflation, and Expectations vs Delivery. Omicron seems to have peaked in South Africa without much hospitalisation and death rates. It is creating havoc in the US, Europe and Korea. India so far has withstood Omicron well. There is an upside to the market if it doesn't result in a lockdown/significant disruption in economic activities.
Suppose it is the other way, then there will be a downside to the market. India's massive outperformance over its peers in the MSCI EM index since March 2020 lows has pushed many FPIs to book profit. A few foreign brokerage houses have given short, profit-booking calls on India considering the valuation gap vs peers.

 

While FPIs have continued to invest in primary markets and unlisted shares, they have been selling in the secondary market in the last few months. Domestic investors who have made tonnes of money since March '20 lows have been regular buyers. If domestic investors absorb FPI selling, there is an upside to the market. Suppose FPIs exhaust domestic investor buying; then there could be some downside. FPI selling this time is measured, unlike rapid-fire selling like March '20.

Globally, inflation and inflationary expectations have risen. After being criticised on "transitory inflation," the US Fed has indicated winding down excessively soft monetary policy by reducing bond-buying and undertaking policy rate hikes. The bond market is betting against that by making a flat yield curve. If inflation is persistent and elevated, the US Fed will have to take aggressive action, which can adversely impact US and global markets. However, if the bond market prevails or Omicron forces the US Fed to ignore inflation and focus on growth, there will be an upside to the market.

Omicron, global inflation and FPI activity, or some other factors will continue to impact the market in the near term. Markets will be keenly watching December '21 quarterly results and the Budget. Corporate Profitability to GDP ratio had fallen from mid-single-digit in FY08 to low single-digit in FY20. It has started an upward journey since then. The Street will keenly watch quarterly results for continuity of that trend. We believe the results will be ahead of expectations and provide downside protection to the market. FY22 budget provided a healing touch to the economy. FY23 budget has to accelerate growth and support equitable distribution. Better-than-expected quarterly results and a pro-growth Budget will make markets more attractive for investors.

 

Stock selection will be vital to making money in CY22. There are a few pockets of excess valuations. It will be rewarding to avoid expensive stocks with low-floating stocks and concentrated holdings. We believe a few themes can give outperformance in CY22 and beyond;

 

Industry leaders will outperform smaller peers as the strong become stronger and the big become bigger.

A company doing faster and better adoption of the digital ecosystem than peers will be an outperformer.

Home improvement, engineering, capital goods and pharma companies could outperform the market.

It will be appropriate to moderate return expectations as it is a reasonably priced market. We recommend investors to maintain a neutral allocation to equity as an asset class, be marginally overweight on large caps and marginally underweight on small/mid-caps. We expect market to remain a "Buy on Dips market". There will be volatility/corrections, which an investor will have to capture through disciplined asset allocation.

 Tighten your seat belt but don't leave the roller coaster. The ride will be enormously enjoyable.

 Read more at:

https://economictimes.indiatimes.com/markets/stocks/news/tighten-your-seat-belt-but-dont-leave-the-roller-coaster/articleshow/88655970.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst

 

 

Take a Pause and read this ..."Learnings from Sensex journey" - Nilesh Shah

 

RBI Governor Speech Key Highlights - 05th May 2021

 

There is so much misinformation being spread about the Farm Bills 2020 (now Acts) and what they mean for Indian Farmers. ( Source Twitter: @desiafterdark)

Farm Bills 2020

 

Source from Twitter: @desiafterdark

 

1/ There is so much misinformation being spread about the Farm Bills 2020 (now Acts) and what they mean for Indian Farmers. This thread is an attempt to categorically go through the provisions of the 3 bills, what they will mean, as well as address any legitimate criticism

2/ Three bills were proposed in the Indian Parliament (passed in September 2020) with the intent of reforming an agricultural sector that is severely under stress and handicapped by a structure that is a mixture of feudal holdover from the zamindari system & coldwar era socialism

3/ Bill 1: Farmer’s Produce Trade and Commerce (Promotion and Facilitation) Act 2020 introduces choice and freedom. Farmer’s will have the freedom to sell their produce to anyone and in any market that they desire in addition to the current system which will continue as is.

4/ This does away with the incredible draconian diktat that a farmer cannot sell his produce to whoever he wants, however he wants, at whatever price he wants. No where in the modern world are farmer's beholden to the whims of the government for where they can sell their own crop

5/ The new legislation will allow "the farmer to enjoy freedom of choice of sale and purchase of agriproduce" - that means that where farmers could only sell their produce through APMC (state government middle men), now they can sell to anyone including the APMC (if they choose)

6/ It will also allow barrier free inter-state (farmer’s selling anywhere within state, instead of local mandi) and intra-state (farmers can sell to APMCs or anyone else in other states) commerce outside of the physical premises of markets notified under State APMC legislations.

7/ Farmers will *not* be charged cess/levys for sale of produce and will not have to bear transport costs. This means more money in the pocket for the farmer per sale.

8/ Freedom of location - whereas currently farmers are restricted to selling only at mandis, the Act gives them the freedom to do business directly at a farm gate, cold storage, warehouse, process units, etc. Removes any regulation that dictates how a farmer can sell his produce

9/ The Act proposes an upgraded electronic trading transaction platform to more efficiently regulate trade and plug leaky holes of mismanagement and corruption (this already exist in the E-NAM platform where farmers can sell physically or electronically to APMCs)

 

10/ Now that I have explained what the bill actually says, let's talk about some of the valid concerns that have been raised about those worried that the govt is doing away with MSP (min. selling price) and how they have been addressed via official notification:

 

11/ Procurement at MSP will continue. The new act allows famers to sell outside the APMC/Mandi system in addition to at the Mandi, not instead of it. If a farmer so desires, they can continue doing business as usual with no change.

12/ In summary, the first bill was passed with the intention of removing regulation & bottlenecks unfairly imposed on the farmer from the days of socialistic central planning that dictated where, when, how, and for how much a farmer could sell their produce. This is a good thing

13/ Bill 2: The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, 2020 deals primarily with reforms in contract farming, providing fair prices to farmers for their produce, and on measures that will ultimately increase a farmer's take home.

14/ The intent of the bill is to introduce regulation that offers legal protections to a farmer when they enter into a contract with a buyer to mitigate the risk that corporate entities take advantage of farmers who don't have the $/knowledge to ensure the fair price for crop

15/ Farmers engaging with processors, wholesalers, aggregators, wholesalers, large retailers, exporters, etc. will be empowered as follows:

16/ When a buyer approaches a farmer to produce a crop, they must enter a legal contract where the price is clearly dictated. This price is assured even BEFORE the sowing of the crops. Farmers save cost of marketing product bc contract dictates a guaranteed buyer at a guar. Price

17/ The principle of price assurance says that if at the time of sale the market price for the crop is higher than what was initially negotiated, the farmer is entitled to this higher price over and above the minimum negotiated price. He will not be fleeced at the end.

18/ If at the time of sale the market price for the crop is lower than was initially negotiated, the farmers is still entitled to the minimum negotiated price, so he will not lose out if the market suddenly tanks. Price assurance is good for farmers and eliminates predation.

19/ Price assurance also transfers the risk of market unpredictability from the farmer to the sponsor. Due to prior price determination, farmer's will be shielded from the rise and fall of market prices.

20/ Now a farmer can fix his own price for produce and they must receive payment within three days maximum as per law. The Bill also creates local dispute redressal mechanism that means less court = increased speed of dispute resolution without legal fees for farmers

21/ Regulating contract farming not only reduces predatory practises, but makes farmers legal partners with buyers, where both parties benefit from increase in yield. It is in the interest for corps. to provide modern technology, better seed, and improve productivity. Win Win.

22/ After signing a contract, the onus is on the purchasing party to pick up produce directly from the farm, eliminating the cost and logistics born by the farmer for transporting and selling their produce. More money in the pocket for a farmer. Another really good idea.

23/ 10K FPOs (Farmer Producer Orgs) are being formed to bring together small farmers and work to ensure remunerative farming for farm produce. Which govt wants to facilitate unionization? Increased education, knowledge, and access to the system helps the farmer, not hurts him.

24/ In summary: The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act introduces legal safeguards for farmers that allows them to approach a transaction at a level playing field while also focusing on improving the education of rural farmers

25/ Bill 3: Essential Commodities (Amendment) Act 2020. This thread is going longer than I anticipated, but detail is important since such havoc is being caused by blatant lies and fear mongering. Let's talk about the third bill; perhaps the simplest but most important.

26/ The intent of the bill is to remove limits on how much of a crop can be bought in the market due to outdated, wartime laws that were put in place to ensure that the government had stockpiles of “essential commodities” at hand; restricting how much could be sold in the market.

27/ Cereals, pulses, oilseeds, edible oils, onions, potatoes will not be classed as essential commodities - allowing economies of scale for important crops, that will allow more production and increased supply, and as a result lower market price for end consumer.

28/ Currently, 35 - 40% of produce produced is WASTED due to lack of cold storage facilities and inefficient supply chain. This costs the farmers 35 000 cr. Economies of scale will lower cost of op. when size of business is allowed to increase by removing artificial bottlenecks.

29/ Additionally, the interests of consumers are safeguarded through the failsafe provision that allows the government to regulate agricultural foodstuff during war, famine, extraordinary price rise, natural calamity, etc.

30/ What is an essential commodity? This is an act from the 50s/60s that caused people to line up for rations for decades a la full blown communist countries. We produce surpluses of all these crops in 2020. The govt criminalized possession over a certain amount for these crops

31/ The ECA was a restriction on scale in agriculture that only hurt the farmer, the consumer, and everyone in between. The premise behind the ECA is similar to what led Churchill to lock up foodstuff in 1943, and artificially create The Famine of Bengal in 1943. Good riddance.

Source: Twitter: @desiafterdark

 

9 daily habits of Warren Buffett by Isaac Fox - Summary of the book - Must Read

9 daily habits of Warren Buffett by Isaac Fox

Summary of the book

Habit # 1 Reading + Numbers

Read as much as you can.

Invest time in books, blogs, journal and articles.

Habit # 2 The principal of compounding

Invest and wait patiently for compounding to take effect.

Buffeett earned 90% of his wealth after turning 52 years

Habit # 3 Power of isolation

Buffett stays away from internet i.e. Noise

Message is to disconnect and deep think to understand what we really want and focus on what is really important

Habit # 4 Circle of competence

Buffett advises to operate within your circle of competence.

Invest in ideas that you understand the most.

Habit # 5 Inner scorecard or outer scorecard

Always have an inner scorecard means do things what make you happy and content VS doing things to impress the world even if you don't like them.

Habit # 6 Do what you love

Buffett said, Doing a job that you don't like is like saving up sex for your old age.

Basically, he meant, do what you love and you will start loving your job and life.

Habit # 7 Cash is king

Buffett advises to keep a good chunk of cash always

This cash can come to rescue in adversities and deep panics

When a great opportunity presents, only those left with cash can only catch it.

Habit # 8 Invest in yourself- Pay yourself first

The biggest client in the world for you in YOU

Invest in learning or enhancing your skills

When you get your paycheck, Invest first and then spend

Habit # 9 Time Management

Manage your time effectively because this is all you have

Learn to say NO so you don't waste your time and life in unproductive and non-valuable things. 

 Source: @Thestockbox1(Twitter)

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Flat and down Market are good for SIP Investors