So, I have the usual financial consultant 'baraati's' coming to my doors (baraatis are the dudes who walk to the brides house in a hindu marriage - typically dancing along the way)
They pitch to me:
- High net worth banking services
- Portfolio Management services
- All kinds of 'structured' deals (most of them sound like eating radium pills and then going to pluto).
Initially I used to poke fun at their 'churn your clients money and get rich syndrome'
But now I've stopped presenting all these arguments.
Whenever the Armani and Calvin Klein suited men and hot banking women come to my office, I present a simple printed chart to them (from mutulalfundsindia.com)
I ask them to study the numbers and to take their time and FILL IN the names of the funds on the left side that march the returns on the right.
ALL OF THEM SAY - ' Alok, it could be ANY MUTUAL FUND OUT THERE. Maybe the first fund that earned 25 % is HDFC or something and then the rest are the usual suspects'
hahahahahaha- just as they are say it, they see the smirk on my face and also realize that their PITCH JUST GOT KILLED.
I tell them what finally massacres them:
All these funds are publicly listed. I can take 15 lacs and spread them into 15 of these funds and then drink champagne all day long while these HARD WORKING FUNDS pay out 20 % (Blended) IRR for me - COMPOUNDED EACH YEAR. (Honestly, very few legitimate businesses turn out 20 % IRR each year) !
SO if you wanna work for me and suck up my money - Guarantee me that you will GET BETTER RETURNS than these for me - AND ALL MY MONEY IS YOURS.
If you can't then GET LOST - coz I have no reason to humor you.
So far, 5 years and counting - NO ONE has accepted my challenge.
And the reasons are very simple:
- ONLY FOOLS think they can make money in 'stock trading'. They are either trading because they don't have a job or they are bored or they are mentally unstable.
- What turns profits today turns losses tomorrow - net net all stock traders barely afford to pay for their meals.
- Most private banking services only churn money via deals because it makes them fees
- Most clients of these private banks LOVE INSTANT gratification of DOING DEALS - buying, selling, trading etc etc - they don't realize that they are lending money to these bankers to churn; generate fees and then pay their own salaries.
- MONEY TAKES TIME TO EARN.
If you don't believe me - ask your grandfather. Stocks are no different.
My approach is to keep investing as and when I get liquidity, in the top listed mutual funds in the large cap ONLY EQUITY basket, and then SIT, SIT, SIT and SIT.
Waiting is the virtue of the rich. Ask Warren Buffett.
And then as the years stroll by, when I need money, I look at my portfolio and just shave (like parmesan cheese) some of the Mutual fund's that I have HELD in the past 7-10 years and it allows me to buy my new car, my foreign trips etc etc
So, fire your bankers and stop wasting your precious time in trading.
Just invest in the top mutual funds for a MINIMUM 10 year horizon and the DO NOTHING
Unfortunately no one will ever give you this advise - because it doesn't suit their purpose.
But its THE ONLY WAY TO GET RICH with your investments.
Oh yeah, and just to add a cherry on this cake - read How Soc Gen scammed me (which really also inspired this blog)
Thank you for this simple explanation!
This is so easy and basic for almost anyone not into trading or investments.
I thought of the three reasons people worry about where to put their money :
1) The Fund House will close down
- This applies to ANYONE, more so a company that you would invest in (if you bought shares directly).
2) Want money quick
- There is no solution - we (I) know of people who've made money on shares to go to that F1 Race or that Europe holiday, and they're always an aberration - that person is simply unable to repeat the feat.
3) Don't have sufficient cash to make lump investments that they can just wait on
- When I look around people I know, those who are invested in happily are either rich in the first place, or have been investing regularly. The really successful ones in this second group have either got fat-paying day jobs (rightly so) after getting into top companies globally (and all they're doing is saving that money each year into funds, playing with excess into specific shares for the fun of it), or (2) have just focussed on improving their careers (their real wealth) and have jumped onto the hockey-stick of their salary graph.
Ha, ha, your observation's are so simple and dead-on-target.....and this is coming from an ex-investment banker and ex-equity analyst. The reason I am "ex" is that I realized that none of these so called professionals know shit-all about anything. As an investment banker, I was nothing more than a well-dressed whore....pay me my 6% commission and I will do any deal....with fancy spreadsheets and pivot tables, I can convince you why buying a crappy xyz company is a great deal for your shareholders. As an equity analyst, I can come up with a thousand justifications why a stock should be a "Strong Buy" or a Buy or a Hold (notice they never say sell because their investment banking group would kill them if they did)!! but if the stock goes against my recommendation, you were dumb enough not to notice the 20 "ifs" and "buts" and "risk factors" that I peppered my report with, just so I could cover my ass at a later date!!
So back to stocks......I decided to re-confirm my firmly-held hypothesis - its called "none of these so-called professionals know shit hypothesis". I found a so called punter experienced trader from a big firm who set off on his own and gave him 10 lakhs and asked him to trade in any manner he wanted - just show me the final returns at the end of the year. In 5 months he has lost 30% of my capital. The market as of Nov 28th as lost only 16% in the same period. Experiment 2: Gave a pestering Kotak broker 3 lakhs (with a promise of another 7 in a couple of months). In 4 months of orgasmic trading - he is flat. My conversations with him are exactly like yours "yes", yes", "yes" and "OK".
A family member in the same busines also confirmed this, and to paraphrase him,"all the guys whose portfolio we mananage, only those guys make money who buy and hold a few good mutual funds for the long run......the guys who trade like maniacs are just doing it for the fun of it and always make much less money than the guy who did nothing".
So I am finally enlightened - ignore the ads, dont bother with a brokerage account - stick 70% of our money in large-cap funds, the remaining 30% in large/mid-cap funds and forget about it. Eventually with patience, you will make absurdly good returns by just doing NOTHING! If you need the money within 7 to 10 years - then don't invest it in the stock market.
Cheers and happy inaction!
Consider this suggestion very seriously.
- See what role you can play in OCCUPY WALL STREET
- Start and spearhead OCCUPY DALAL STREET
It may not be out of place to share a profound quote : ""Those Who Can, Do; Those Who Can't, Teach."
Shridhar - i get ur message. I can't. So I teach.
As you know, I teach too.
I'm enlarging the quote : "...Those who REALLY CAN(but don't want fanfare), MEDITATE".
"Great minds discuss ideas; average minds discuss events; small minds discuss people. BUT THE GREATEST MINDS WORK IN SILENCE".
After reading the following research(http://news.bbc.co.uk/2/hi/8410489.stm), see the following videos. Let me assure you it will take A LOT OF COURAGE to see the truth.
- CENTURY OF THE SELF (Part 1) : Happiness Machines
- CENTURY OF THE SELF (Part 2) : The Engineering of Consent
By Martin Shankleman,
Employment correspondent, BBC News
Hospital cleaners play a vital role, the study found
Hospital cleaners are worth more to society than bankers, a study suggests.
The research, carried out by think tank the New Economics Foundation, says hospital cleaners create £10 of value for every £1 they are paid.
It claims bankers are a drain on the country because of the damage they caused to the global economy.
They reportedly destroy £7 of value for every £1 they earn. Meanwhile, senior advertising executives are said to "create stress".
The study says they are responsible for campaigns which create dissatisfaction and misery, and encourage over-consumption.
Waste workers promote recycling, researchers note
And tax accountants damage the country by devising schemes to cut the amount of money available to the government, the research suggests.
By contrast, child minders and waste recyclers are also doing jobs that create net wealth to the country.
The Foundation has used a new form of job evaluation to calculate the total contribution various jobs make to society, including for the first time the impact on communities and environment.
Eilis Lawlor, spokeswoman for the New Economics Foundation, said: "Pay levels often don't reflect the true value that is being created. As a society, we need a pay structure which rewards those jobs that create most societal benefit rather than those that generate profits at the expense of society and the environment".
Tax accountants are said to destroy £47 in value for every £1 generated
She said the aim of the research was not to target individuals in highly paid jobs, or suggest people in low paid jobs should earn more.
"The point we are making is more fundamental - that there should be a relationship between what we are paid and the value our work generates for society. We've found a way to calculate that," she said.
A total of six different jobs were analysed to assess their overall value. These are the study's main findings:
"Rather than being wealth creators bankers are being handsomely rewarded for bringing the global financial system to the brink of collapse
Paid between £500,000 and £80m a year, leading bankers destroy £7 of value for every pound they generate".
"Both for families and society as a whole, looking after children could not be more important. As well as providing a valuable service for families, they release earnings potential by allowing parents to continue working. For every pound they are paid they generate up to £9.50 worth of benefits to society."
"Play a vital role in the workings of healthcare facilities. They not only clean hospitals and maintain hygiene standards but also contribute to wider health outcomes. For every pound paid, over £10 in social value is created."
The industry "encourages high spending and indebtedness. It can create insatiable aspirations, fuelling feelings of dissatisfaction, inadequacy and stress. For a salary of between £50,000 and £12m top advertising executives destroy £11 of value for every pound in value they generate".
"Every pound that a tax accountant saves a client is a pound which otherwise would have gone to HM Revenue. For a salary of between £75,000 and £200,000, tax accountants destroy £47 in value, for every pound they generate."
"Do a range of different jobs that relate to processing and preventing waste and promoting recycling. Carbon emissions are significantly reduced. There is also a value in reusing goods. For every pound of value spent on wages, £12 of value is generated for society."
The research also makes a variety of policy recommendations to align pay more closely with the value of work.
These include establishing a high pay commission, building social and environmental value into prices, and introducing more progressive taxation.
Well i thought only my parents feel so bad about trading but its not. I feel addressing traders as fools and mentally stable is something that surprised me because i don't think one should talk crap about some legal profession just because you had no one taking up your challenge or something else and that's why you felt so or something else. You seem to have written this as if you were an experienced trader ( were you?). I also feel that you jump into conclusions so soon. And your 5 years waiting for someone who can get you 20% return a year should end as i want to accept your challenge and how about 20% per month just for a change with paper money i mean not your real money. And regarding guarantee, no one in the market can give you guarantee and if someone is giving, he probably is a liar or may be he might compensate the losses with his personal money. And if you want guarantee you can get risk free return of 8-10 % a year from the banks and so, all in all the risk and reward are inversely proportional. You can get a 100% return in a year but this comes with a risk whereas with banks, its just 10% guaranteed. And that's why its told to put in only that much money in the markets that you can afford to lose so that even in the worst case scenario, even if you lose the entire money, your life quality doesn't change except that now you know what markets can do.
Kindly accept my apology if i have somewhere crossed the line.
20% per month??
this is why i dread people like you
no need to dread bcoz its just paper money just to try to prove that what you think might not be what it is. Let me know whether the challenge is still valid.
Reading your articles is a mixed bag for me. While I strongly agree with your views, I often find myself amazed at your (IMHO) shallow study.
Your advocation for the MFs is based on the premises that the funds will, in any case, continue to generate 20% return over the years to come,
Also, your are considering the TOP MFs, and not the average ones. The ones in the TOP today might be at the bottom tomorrow.
No one. I repeat. No one can give you a near-risk free 20% RoI. And numerous mutual funds even fail to outperform the market.
I am not defending the despicable bankers.
whole point behind Alok is very simple.
let me try simple trick, let say you want hire somebody to as CEO of IT company (that has atleast 100 employees). now what kind of person you would prefer?
a fresh graduate or experienced pro?.....answer is simple.....experience guy.
if i want my money to grow...why shud i give to a person who has no proof of doing it ever or has very small history? rather give it to existing guy who has been doing it for long. money making is difficult task, alok's quiz.
i agree with standard risk that market has and any mutual fund can be at bottom tomm, but stock market is one of those places were one gets lot wiser and intelligent as days pass and if a guy has been generating return of 20% for past 10yrs....boss hats of to him....warren buffett has generate in region of 15-18% over some 50-60yrs. plus alok mentioned spread over few mutual funds...why risk it one...that is rule of diversification.