Why this book - "How to get rich and retire early"

Before I started writing this book, I went around to do a market survey – wanted to know what kind of books existed in wealth management space in India. I went to many book shops, searched internet portals - bought about 20 books and read them and browsed through many more in the books shops  in Bangalore.

 
Some of the books that I liked and surely recommend to my readers are:

·       One up on wall street – by Peter Lynch – this is an amazing book – Peter Lynch, a very known money manager in the US, has explained in very easy terms how to pick up stocks

·       The little book that build’s wealth –by Pat Dorsey – this is also a very easy to read book and can be a primer to stock selection.

·       Buffetology – by Mary Buffet – another good & easy to understand book - explains the thought process of Warren Buffet while evaluating stocks – this is a must read for those who want to know more about investing in stocks.

 

As you can see, most books did not go beyond stocks. When it came to Indian authors, either they were a compendium of information ( like the Savings and Investment year book – published by Value research) or they were general advisory, motivational  type of books (How to become a multi millionaire –by Subhash Lakhotia).

There was no single “good book” that went beyond stocks and I did not find a single book that shared tips on financial planning for long term

 I would like to mention one book that is a must read for all my readers  - “Rich Dad, Poor Dad" by Robert Kiyosaki – I had read this book years back and I re-read it atleast once an year – this is a book that changed me and I think it would change you too.

 
Having seen the kind of books available, I realised that there is no single book that covers the all the topics. The topics that I believe needed to be covered are:

1.   How do you define the word Rich – this is the starting point of the wealth journey

2.   How do you do a long term financial plan – a plan for 20 years? How do you visualise what would be your cash inflows and cash outflows 10 years down the line?

3.   How do you reach your definition of rich through financial planning? What investment actions do you need to take today and in the future to get rich?

4.   What the various investment options available for us in India?  How does one evaluate a Kisan Vikas Patrika? What about stocks and mutual funds? When do you invest in Gold? How does insurance fit into the overall scheme? And what about real estate? Overall how does one get rich in India?

So keeping these questions in mind, I split the book into chapters and then wrote it over a period of 4-5 months.

This book has a completely practical approach to this question – “How to get rich and retire early”. Every tip that is there in this book has been practiced by someone I know who has become rich.

This book addresses all the investment avenues - not just stocks.

The book uses Indian examples -for example, I have shared data on real estate prices since 2008 for about 20 Indian cities to discuss the price movement of real estate in urban India.


This book will hopefully change the way you will think about wealth. And therein lies the secret of getting rich – change the way you think about money and money will come to you. You will surely get rich and retire early.

My six predictions for 2013

Before going into India specific predictions, let me share the big picture for  2013:

US will continue with its policy of quantitative easing – the US economy will do better than the current 2% GDP growth (expected to be around 3%) - there will also be mild austerity measures to balance the budget over long term (a small cut in expenditures and a mild increase in taxes for the rich) –the US economy and the US dollar will emerge stronger over the year.

Europe will continue in its difficult process of economic and political re-integration – the overall EU GDP is expected to grow between 0% and 0.5% –the  European central bank will continue with its policy of monetary easing – the German elections in 2013 will not result in change in direction – Greece, Spain  and Italy will continue to be in recession.

Asian economies and Latin American economies will increasingly become more prominent – China and India will do better in 2013 than in 2012. Middle East will continue its transformation and Sub Saharan Africa will grow further into prominence.

So here are my six predictions for India for 2013:

• Inflation will fall slightly and RBI will reduce interest rates in the first half of 2013 – this will result in rise in rise in Sensex between Jan and June 2013.  FII inflows would be good (at least till Q3 2013). In the last quarter of 2013, the govt will go into election mode and it would result in volatile and directionless markets towards the end of 2013.
• USD/INR ratio will go from current Rs 55 range to Rs 57 range by end 2103 – the devaluation will not be more than 5-6% through the year.
• Gold will give close to 10% returns in 2013 – it will beat inflation but will not be a great investment option.
• Long term Debt will give 11-12% returns
• Overall corporate performance would be better in 2013 due to more market friendly policies. Hence, it would be prudent to look at select stocks – it would be possible to get 25% returns by investing in quality stocks at the right price. Industries that I expect to outperform are FMCG, consumer durables and financial services.
• Improving economic conditions in India would result in real estate doing better in 2013 than in 2012 – so cities like Bangalore, Kolkata, Mumbai, Surat and Bhopal where real estate did not perform in 2012, will perform in 2013. Hyderabad real estate depends on the resolution of Telangana issue. I would urge caution for real estate investments in Chennai, NCR, Jaipur and Pune as the real estate market is over heated in these cities.

In all this, there is one joker in the pack – the Iran issue. This would become a flash point during this year and that can impact the global markets and it is difficult to predict the scenarios.

Beyond that, I am investing in 2013 based on these predictions.

Looking back at my crystal ball - How accurate were my 2012 predictions?

The time between Christmas and New Years is a good time to look back and plan forward. The weather here in Bangalore is beautiful – most of my friends have gone to Goa /Srilanka /Coorg /Chickmangalur etc and my students are all over the country (but available on FB)  -  and I am in a contemplative mood today.

So I went back to my blog dated 30^th December 2011 to see what I had predicted then – and this is what I found :

• I had said "Indian economy will slow down a bit –reforms are the way out and our government will need to push through a few reforms if we need to be anywhere near an 8% growth"  - Indian economy did slow down to 5-6% and Govt did falter (thanks to Pranab Mukherjee) and then Chidambaram has tried hard to talk the markets up in the last few months -so here I was right
• I had said "Europe problems are expected to dampen the markets for the first few months –I am optimistic that it will not result in a Lehman like crash – the Europeans will find a way out (even though a few countries like Greece and Italy will be bruised badly)"  - That is exactly what has happened over the year
• I had said "The US economy will limp through a 1-2% growth in 2o12 (just like in 2011) – but in the absence of other alternatives, the US markets will be deemed as the safest place to be and US Dollar will be strong and the US Bond rates will be low".  The US economy is closer to 2% than 1% - they have done better than my estimate – the US bond rates are still low – the Dollar is still very strong and the US /INR rate has gone beyond what I had originally thought.
• I had said "Chinese economy too will slow down in 2012 – and the challenge there would be growing their domestic consumption as currently 65% of Chinese GDP is export based". - That is exactly what has happened over the year

So based on these macro predictions, I had recommended the following on Dec 2011 :

Debt  - I had said "for anyone who has a one or two year investment timeframe – invest now in Long term debt funds which have portfolio of 2011 debt –you can expect about 12% returns on these" – In the past 12 months Gilt funds has given 10% -11% returns – RBI did not reduce the interest rates as predicted and hence the actual ROI was lower than prediction by 1%. Here my prediction was close

Equity - I had said  "for those who are ready to invest for three years, you will get a 20% plus return per year by investing in specific stocks" – The sensex has gone up by 21.7% over the year due to FII activity and so I was spot on in this area – my own stock portfolio has given me a 43.6% return in the past one year. I am happy to share that I have beaten the sensex by 22% in 2012.

What stocks do I have – well I have currently  Agro tech foods, Bajaj Atuo, BHEL, Colgate, Crisil, Dabur, Gruh finance, Havells, HDFC Bank, L&T, Maruti Suzuki, Noida Toll, Page Industries, Piramal Enterprises, Sriram transport finance, Swaraj Engines, TCS and TTK Prestige.

Gold - I had said "I believe Gold will not give more than 15% returns in 2012 in Indian rupees – It will beat Inflation in India – so it not unsafe – but there are better investment options in 2012" – Gold has given 10.1% ROI in 2012 – after a few good years when we got 20% plus appreciation in gold, this year gold just beat the inflation of 9-10% by giving an ROI of 10.1%.

Real estate - I had said "Investment in urban (not rural) areas is recommended – if you can buy a house or flat or urban land anywhere in– you will make 15-20% asset return per annum". Well this is a generic statement and cities like Chennai, Jaipur, NCR, Pune and Lucknow have gone up by 20% and there are cities like Hyderabad, Bangalore, Kolkata, Mumbai, Surat, Bhopal where real estate has not appreciated much – and one city Kochi where real estate has gone down in 2012.

 

So overall I am happy with my predictions made in Dec 2011. I think I was correct on most counts.

What are my predictions for 2013  -just wait for a few days – I will share it shortly.

Here is a true story

In April 2010, as I was leaving my corporate life, I toured my offices in Chennai, Hyderabad, Gurgaon and Noida for a farewell session with my colleagues. In each city, I also had a 2 hour session on wealth management to all those interested and quite a few employees came and met me one to one after these sessions for advice.

It is in one of these one to one meetings that I met this colleague (whose name I cannot reveal) – he had a total asset base of Rs 60 lacs (a house partially on loan and some cash at hand).He was fairly senior in our company – had a annual income of around Rs 25 lacs – had been working for more than 10 years – had clearly known how to earn a decent income – but had not learned how to invest his savings.

In those 10 minutes that we spent, I recall advising him to invest in real estate as Gurgaon real estate was really hot. We discussed the amount of loan that he should take and I shared my views about a good loan and a bad loan. I also shared with him why he should not look at stocks and Mutual funds and recommended to him an approach towards insurance. We also discussed the difference between investing in real estate in emerging locations and also the difference between pre launch offers and the post launch pricing of builders.

We obviously kept in touch on and off and last week he came home . He shared that his current assets is around 350 lacs and he has a housing loan of around 50 lacs – so his net worth has gone up from 60 lacs to 300 lacs in 30 months ( CAGR of 90%). His current salary has also gone up slightly. His investments are primarily in Real estate and he has now invested in 4 properties - most of which have appreciated very well – they are not yet yielding rental income – but once that happens - he will be financially free.

Let me share what he said to me  - in his words -

"2009 was deep recession and 2010 was when market started picking up. I took the risk of investing in couple of properties at a pre-launch price at that time, which gave me decent return. So, what I did right was:

 1. Identify the opportunity (Market had just started picking up)

2. Take some risk (I took the risk of investing in two properties). It has paid off.

Raja, no one knows the future. I listened to you couple of years back, got inspired by what you had done to manage your finances, understood your advice and took some courage to act on it. I never knew that it will pay me so much. Thanks a lot!"

The latest Fed announcement and how it affects us

Two days back, the US Fed reserve announced that it would keep interest rates low till the US unemployment rates come down to 6.5% (from the current 7.7%). Typically all central banks have two key policy goals – controlling inflation and keeping unemployment low. Linking their monetary policy so explicitly with a 6.5 % unemployment rate means that the “low global interest rate regime” is here to stay for some more time. This would mean that the there would be a constant supply of liquidity globally and this would be a continuing opportunity for emerging markets including India.

We can see the effects of this excess global liquidity here already. FII’s have pumped more than $ 20 Billion into the Indian markets since Jan 2012 – the second highest amount since 1993 (when India opened its doors to FII’s). Due to this, the sensex has gone up by 20% in the last 12 months.  Easy liquidity will also help India finance its external deficit at lower costs in 2013. It also means that Govt would find it easier to mop up money through privatisation of select PSU’s.

However, easy liquidity also carries the downside of increased commodity prices especially Crude oil and Gold (these are highest import items for India).

So these are the positives and negatives of the Fed decision with regards to us in India.

Will the India Stock markets go up in 2013?

Well you decide. I will share my views about Indian stock markets in 2013 in a post closer to New Year eve.

Should you buy Kingfisher airlines? –remember today is 12.12.2012

I know many of my readers, who invest in stock markets are trying to figure out the answer to this question.

Kingfisher stock had a high of around Rs 30.9 in Feb 2011 and since then it has been a downward journey – it touched Rs 8.40 in August 2012 and since then has been languishing around Rs 15. Now we have this news that Etihad airlines may take stake in the airlines. Both KF and Etihad have not commented on this news.  We also have the news that 5 of its 42 KF planes have been taken back by lenders.

Yesterday, after the news of Etihad broke out, 85 lacs KF shares have been traded in BSE and NSE. To get a feel of this number, the most actively traded share in BSE and NSE yesterday was SBI and 23 lac shares changed hands on this counter. The KF stock has gone up by 5% (it cannot go up more due to controls by the regulator).The current price is Rs 15.7 (as of 12.12.2012)

The stock’s book value is -66.83 as per money control – what it means is that in a normal transaction, the share holder must give you Rs 66.83 for buying the stock instead of you paying him Rs 15.7.

Now here is my take.

We all should have a core portfolio and a satellite portfolio. The core portfolio is for long term investments and the satellite portfolio is for short term opportunities. The split between core and satellite depends on your life stage (age) and your risk tolerance level. For someone like me, I have 90% core and 10% satellite. For my students, I would recommend 80% core and 20% satellite. If you lose the satellite amount – you should not lose your sleep. But if you lose your core amount – you should surely stop investing (and come to me).

So here is the opportunity for investing in KF with your satellite portfolio – I believe that the stock will go up for a few days – the final value will be a derivative of the valuation that Etihad and KF managements agree – but greed in the market will create opportunities for short term gains. Do not wait for exit at peak – you will not be able to judge it. Exit once you get a pre determined appreciation (may be 15%) .

Am I investing – No. But that is my personal decision.

 Should you invest – well decide for yourself. Remember today is 12.12.2012

The 4th and 5th session of wealth management –Investing through equities.

Let me start by wishing all my readers a Very Happy Diwali.

This blog was due for more than two weeks – but as the college had exams and then a 10 day break, this session on Investing through Equity was dealyed.

As we all know, different people have different views on investing through equities. And my guess is that everyone is sometimes right and sometimes wrong – there is no one right way to make money by investing in equities.   

Here, I share the methodology used by Warren Buffet –who I think has the most successful track record in this area.

With a view to share Warren Buffet’s approach to life and investing,  I showed the class a one hour documentary on the great man himself -  you too can see on YouTube. This documentary was  produced by BBC and is called “The biggest money maker, Warren Buffet”   (it is split into 6 parts in YouTube – each about 10 minutes long and here is the url of the first part https://www.youtube.com/watch?v=bk0Rgyv6BzU).   

The documentary tries to explain the reasons behind Buffet’s success –his early style of investing (called buying cigar butts) - his journey through the years and his views on life and on investing. As is evident in the video, he invests just the way he lives  –he is an independent thinker – has self awareness of “what works for him”  - and sticks to what works for him – he is long term in his approach – is willing to accept mistakes – sometimes break his own rules - is willing to take large risks once he is convinced about his approach  - is very honest in whatever he does - and, even though he is one of the richest men on earth, money is not important to him personally –he just “enjoys making money”.

After the documentary, we discussed his style of stock picking – the following are the key points that I would like to share:

• Warren identifies "well managed consumer monopolies" and waits for market price of its shares to come down to a level where investing in it makes sense. He avoids companies that are in commodity businesses.
• Once invested, he holds the investment for long term until the business loses its attractiveness or until a more attractive alternative investment becomes available.
• Warren believes that any equity investor should view the company in the same way as any business person buying up the whole company –focussing on its cash generating potential in the future – overtime the company that has a superior cash generating potential would give a good value appreciation of the stock.
• In this session, I describe 14 questions that one must ask before investing in any company. I also take the example of CRISIL to explain these questions – at the end of these 14 questions, we discuss two ways of forecasting the stock price  - and this would then give us the 10 year returns on this investment, if you invested in CRISIL at today's market price.
• These 14 questions are given in the ppt – most of them are self explanatory. The last two questions are mathematical and anyone who can read a financial statement can (hopefully) understand the flow of logic – our forecast of the share price of CRISIL ten years into the future is given in the end and we take the more conservative of the two forecasts and we take the decision to invest or not to invest.     

As more detailed treatise on this subject is coming out in my forthcoming book – where there is more than 40 pages on just this area (hopefully it is easy to read and understand :-) ).

You can down load my ppt used here -http://www.authorstream.com/Presentation/sgraja-1590883-session-equities-final/