Special - Virtues Of Managing Wealth Smartly

Vighnaharta, the name says it all – Remover of the obstacle. To initiate a new beginning, we always first remember the Elephant God – Lord Ganesh. Lord Ganesh is known as the God of intellect and wisdom.

To make you understand the importance of financial management, let us remember a well-known story of Lord Kubera – who is known as the God of Wealth as per Hindu Mythology. They say a combination of money and power is most dangerous, as it corrupts the mind and ego of a person. Something similar happened in case of Lord Kubera, he was too proud of his wealth and wanted to show it off to the world. So, to teach him a lesson, Lord Shiva asked Lord Ganesh, to mild down his pride and ego. Lord Ganesh is also known as Lambodara – Huge bellied lord, ate everything and anything in no time at Kubera’s palace till the time he had nothing left to serve to his guest. This incident came as a shock to Kubera, and he understood that money can’t buy everything and hence, his perspective towards money changed.

 

With money, don’t lose perspective

 

Create wealth to create value, and not to satisfy your ego.

Always remember that wealth creation should come with a pre-determined objective.

Warren Buffett – one of the world’s most respected investor, lives a modest lifestyle despite his net worth of around $85 billion. He purchased a five-bedroom house in Omaha in 1958 for $31,500 and has lived there ever since. Buffett doesn't spend his money on electronics and reportedly doesn't carry a cell phone or have a computer at his desk.

Hence, if you dream of having load of riches to have a splashy lifestyle, use this festive season as an opportunity to think again. Look at those who have not only created wealth but also maintained it. Find out what drives them, their passions and by taking a cue or two use it to imbibe it in your own value system.

 

You define your wealth; your wealth does not define you

 

Be a more evolved person than just the money you own. Your wealth should not be the only one driving you. Just like Warren Buffet several billionaires around the world are known for their drive, their passion, their thinking and their innovation than just the zeros in their bank account.

Your value system should define how you can add value to others life rather than just earning money. Build on that – focus on a more evolved thinking and money will follow. There is a famous dialogue in the much-acclaimed Hindi movie – 3 Idiots, which roughly translates to “be capable and competent person and success and wealth will follow you no matter what”.

So, this Ganesh Charturthi, let go off the Kubera within you, focus on you capabilities and absorb these virtues to enlighten your wealth management techniques.

10 points to create wealth

By Vijay Kedia who turned Rs 10 lakh to 650 crore in 20 years* of investments at componding rate of 55% pa.He explained the same in this video https://www.youtube.com/watch?v=b53nE7tN0zE

In his talk he said 10 points that have helped him to avoid defeat in the market.

*1. Create a fixed income outside the market for your livelihood*: Never be dependent on the income from the stock market because it is volatile. He is applying margin of safety logic even before entering the market.

*2. Be informed and read a lot*: The market rewards you as per your perception. If you think investing is a gamble, then it is a gamble. If you think it is a business, then it is a business. Read a lot and be a maniac when it comes to reading; it will help you connect the dots.  Warren Buffett once held up stacks of paper and said he read "500 pages like this every day. That's how knowledge builds up, like compound interest."

*3.  Invest a part of your savings, not the earnings, into stocks*: So if you have decided to invest 25% of your savings in stocks, invest 12% to 15% as it is a risky business. Also you should only invest a certain amount based on your risk-taking capacity.

*4.  Don't trade and don't leverage*: Trading is a 24-hour business. Don't invest from borrowed money.Don't trade just because you see someone making money by trading.

*5. Invest only for five to 10 years; minimum time frame is five years*: rome was not built in a day. It takes time for a story to mature. I always invest in small caps that go on to become mid to large caps.Whenever I bought a small cap, people discouraged me. No one liked the stock. For two years the company went nowhere; after that it gave multibagger returns.

*6. Invest only with the best management and let it worry about the company*: If you invest with the best management, you don't have to worry. Management is playing golf, and we investors are worrying 24 hours about what will happen to the company, looking at the dollar, macro, etc. What is the use of being an investor? Let management worry because management has its prestige and its name at stake.
Good management in bad business is better than bad management in good business. Example: Indigo Airlines.

*7. Your investment belongs to the market and the profits belong to you*: As long as you are invested, the profits belong to the market. Don't spend just because the stock has risen because tomorrow stock prices can collapse.

*8. Book profits periodically*: Invest profits in buying a house which is very important.

*9. Keep a balanced mind*: Don't be happy in an up market, and don't be sad in a down market. Be physically, financially and mentally sound.He explains how one should avoid regret. He says a stock can go up after you sell it. Don't regret. The stock market is a place of regret. You make money, you regret. You lose money, you regret. You make less money, you regret. That is why it is very important to keep a balanced mind.

*10. Luck plays a crucial role. Do good karma*: Be a good human being. The stock market is a mind game. If you are doing good karma, it will come back to you.

How India Will be Impacted if US Hikes Rate for First Time

If the Fed hikes rates, some foreign investors are expected to book profit in their holdings in Indian shares and bonds; they will likely repatriate funds back to the US, where buying high interest rate bearing bonds will become an attractive bet.
The next two weeks will see a lot of high-volatility trading across financial markets. The ECB (European Central Bank) has come through with an easy money policy, which has, however, disappointed markets, which were hoping for even easier terms. The US Federal Reserve is expected to raise its policy rate for the first time in many years.
This divergent set of actions will impact forex rates. In turn that will alter trading patterns between countries, as the relative value of goods and services change. It might change the assessments of global GDP growth through the next financial year. The markets are already discounting such expectations.
The interest rate parity equation will also change in favour of a stronger dollar if the Fed does hike. The dollar (or any currency) plus interest yield in that currency should equal the euro (or any other currency) plus interest yield for a comparable instrument in the same time period. The interest yield rises on the dollar and it falls on the euro due to central bank actions. So, the dollar should get stronger to compensate.

In the last two weeks of December and early January as well, we often see reduced trading volumes. People go on holiday and this is financial year-ending for many FIIs. Volume reductions often leads to higher volatility. In this instance, the volumes are likely to be higher but the volatility will also be higher.
The dollar/rupee movements and the impact on Indian stocks will probably be in line with moves in other markets. If the Fed hikes the rate, the rupee will fall. There will also be accelerated selling of Indian stocks (the FIIs are already net sellers of Indian equity in this financial year). If the Fed doesn’t hike, the dollar will harden and there will be some bullish impact on Indian stocks.

The impact of a rate hike in the US on India will be limited because of strong fundamentals, In 2013, India saw $12 billion in outflows from May to September due to US rate hike worries. A record high current account deficit, double-digit inflation and record-low rupee led to large-scale destruction of shareholders’ wealth back then.
If Fed maintains status quo
If the Fed succumbs to market pressure and decides to not raise rates, global equity markets might rebound. If the Fed does not give a clear deadline or indication of when it wants to raise rates, we could see a bigger rally.

What are Interest Rate Futures ?

Just like any other Future instrument, an interest rate future is a financial derivative product. The way equity future price is based on stock price of that equity, an IRF price is also based on some underlying. In IRF, the underlying is an interest-bearing asset. The interest rate derivatives market is the largest derivatives market in the world. As an individual, when you take any sort of loan (be it housing loan or educational loan or investing your money in some Government or company fixed deposit), you are part of such interest bearing instruments. As a corporate whenever you raise money from the market by issuing bonds you are linked to these interest bearing instruments. Even institutions like Banks, Insurances etc have their portfolio invested in a money market which are impacted by these interest rate changes. Currently, Interest Rate Futures segment offers two instruments i.e. Futures on 10-Year Government of India Security and 91-day Government of India Treasury Bill.

- Bond Prices and how they move:

A Bond when issued for the first time by GOI, has a face value to it, which is basically the amount of money the issuer pays the holder of the Bond when the Bond matures. The face value of both the Bonds which are underlying in case of the IRF’s  (8.83% GOI 2023 and 8.40% GOI 2024)  is Rs.100.

Along with the face value, the other component is the coupon or interest amount that the holder of the Bond gets paid either annually or semi-annually. So, if you have invested Rs 100 at face value in an 8 % GOI Bond, maturing 10 years from now with a semi-annual coupon, you get Rs 4 (Rs 8/2, Rs 8 is 8% of Rs 100 invested) every 6 months for the next 10 years, and get back the Rs.100 on maturity after 10 years.

In summary, Bond prices are inversely related to interest rates in the economy, so:

--- If your view is that interest rates are going up, “Short” Interest rate futures (you profit because when interest rates go up, Bond prices come down).

--- If your view is that interest rates are going down, “Buy” Interest rate futures (you profit because when interest rates go down, Bond prices go up).

- Interest Rate Futures in India

IRF has been launched twice in India, first in the year 2003 and then in 2009. Both versions had few drawbacks like:
- physical settlement of contracts, - short term underlying
- the calculation of closing price on Zero coupon bond.
All of these shortcomings led the product to failure.  In December 2013, SEBI redesigned the product and had advised the exchanges to launch them after meeting the required constraints. IRF was thus again launched in January, 2014.

Three Biggest Trading Misakes

There's an important reason you need to know what
these mistakes are... which... I can explain by
telling you about this...

Did you know there's a toilet paper shortage in
Venezuela?

According to the gov't, the shortage is due to a
media campaign to undermine the country.

Sounds kinda silly, doesn't it?

In reality, the shortage is due to a big mistake
the Venezuelan gov't is making. The reason for the
shortage is due to state-controlled prices.

Economics experts agree that prices set below market
clearing price always result in shortages.

By not knowing (or admitting) this mistake, the gov't
of Venezuela is causing a rather unnecessary
inconvenience to its people.

Here are the trading mistakes you need to recognize
and correct...

Mistake #1:
-----------
The first trading mistake is not knowing how to
pick the right stocks.

Success in trading stocks starts with research.

Picking the right stocks is half the battle.

You wouldn't get in a car and drive around
aimlessly. You'd have a destination in mind and
a route to follow.

Before you can trade, you need to know WHAT to
trade. You need a list of hot stocks that are
ready to go up in value.

And you can't guess.

Otherwise, you might decimate your account.

Mistake #2:
-----------
Not knowing HOW to trade the stocks you pick.

Countless formulas and trading methods exist.
The big question is...

"What is the best way to turn each pick into
actual gains as fast as possible?"

You can't guess here either.

The wrong trading method can turn a winner into
a loser in no time flat. No two trades are alike.
So you need a flexible formula that works in any
situation.

Mistake #3:
-----------
Getting creamed by your emotions.

Emotional trading is the death of success in the
markets. The reason so many traders get anxious
is because they lack confidence in their plays.
And they lack confidence in their trading method.

Take care of Mistakes #1 and #2 and the third one
almost takes care of itself.

The beginning of the end of any nation

An economics professor at a local college made a statement that he had never failed a single student before, but had recently failed an entire class. That class had insisted that congress food security bill will worked and that no one would sleep without food .

The professor then said, "OK, we will have an experiment in this class on congress plan". All grades will be averaged and everyone will receive the same grade so no one will fail and no one will receive an A.... (that means tax collected from us will be used for food security bill expensed. i.e equally distribution ).

After the first test, the grades were averaged and everyone got a B. The students who studied hard were upset and the students who studied little were happy. As the second test rolled around, the students who studied little had studied even less and the ones who studied hard decided they wanted a free ride too so they studied little.

The second test average was a D! No one was happy. When the 3rd test rolled around, the average was an F.

As the tests proceeded, the scores never increased as bickering, blame and name-calling all resulted in hard feelings and no one would study for the benefit of anyone else.

To their great surprise, ALL FAILED and the professor told them that socialism would also ultimately fail because when the reward is great, the effort to succeed is great, but when government takes all the reward away, no one will try or want to succeed.

These are possibly the 5 best sentences you'll ever read and all applicable to this experiment:

1. You cannot legislate the poor into prosperity by legislating the wealthy out of prosperity.

2. What one person receives without working for, another person must work for without receiving.

3. The government cannot give to anybody anything that the government does not first take from somebody else.

4. You cannot multiply wealth by dividing it!

5. When half of the people get the idea that they do not have to work because the other half is going to take care of them, and when the other half gets the idea that it does no good to work because somebody else is going to get what they work for, that is the beginning of the end of any nation.