Tradingqna book club: MONEY WISE: Timeless Lessons on Building Wealth By Deepak Shenoy

Book club
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1 Crore although sounds a hefty amount, it isn’t the same 1 Cr as it was in say 2000 when most of us were growing up. Back then it would be enough to buy say a good house, a car, a vacation and something to spare.

Today with 1 Cr, especially in a city such as Mumbai where I live, you’d be lucky if the flat you bought is more than 400 sq.ft in an average neighbourhood and over its 30 year old mortgage period, the loan amount you’d pay for it, would be somewhere in the vicinity of 2.2 to 2.5 Cr depending on the interest rate. You basically need to hit that mark just to get by in Bombay, not even thrive. I’m sure the situation is not too different in other Metropolitan cities of India as well.

I don’t know claim to know the exact figure, but an average inflation of 5% in a rapidly developing country like India, means by the time you reach there , its value is already almost halved in another 15-20 years. So I am not sure, where the risk taking part to get to 1 Cr figure is required.

If the average millenial employee who works for a moderate sized company works long enough and is still to failing to meet it within their lifetimes, I would be a bit surprised than otherwise. And Urban India has these individuals in good nominal terms atleast if not representative of the population of India as a whole.

The book does have a section on whether the risk you are taking is commensurate with the returns you are trying to get, would like to know your thoughts on that bit.

Also “a bit of risk” is a very subjective term. One man’s risk is another man’s play as they say.

So unless you are willing to define what it is, it may become a moot point.

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17

By “many people” I was referring to around 99% of Indians who don’t fall under the tax bracket. By risk I was referring to a sum of money, the loss of which could have a significant impact on one’s life.

Risk is not always directly proportional to returns. I can buy a Rs.100 lottery and be a crorepati tomorrow. I could buy bit of crypto that shoots to moon tomorrow and make me a billionaire. My risk amount is very low in either case but my returns are very high. Returns are also a function of luck or the right place at the right time like thing.

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Ready!!!

19

The Psychology of Money book should be the next book to be read.

In short, This book tells why money is a piece of paper which does nothing but still people long for it giving up important aspects of life(Health, Time, Freedom) and Some of the perceptions people have on money.

Note: Author also talks about why ,when, how will the money be important.

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Would the booking club be there only this webpage, or would it make sense to create a slack channel around the specific books? Just a suggestion

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Many people get into stock markets thinking of making quick bucks, but this is the hardest place to make money. As pointed out in the book. In initial days, the focus should be on generating income rather than returns. And before investing in volatile assets, park your initial savings in low risk assets to build safety net. Which will come handy in times of emergency, when the going is though. And then start allocating your savings to volatile assets like stocks.

Also, IMO, investing is easy part, the hardest one is to stay put, especially during the drawdowns, with constant flow of information and looking at daily P&L fluctuations, even the slightest drop sends people in panic, leading to prematurely exit their investments. Many of us also try to time the markets, waiting for the next big drop, only to see markets rise all the way up.

There was this nice post by @parth111, I had read on the topic: Does it make sense to time the markets?

This one is worth embedding in your rule book:

“Your emotions won’t let you invest because the market is ‘high’ – and yet, if you had waited for yet another bottom, it would simply not have come. Most of the money in the markets is made by having a position, not by standing outside the airplane wondering if it’s a good time to get in.”

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No one can time the market i.e say market will be at this point at this point of time.

In the capitalistic world market will present an opportunity to buy good business at attractive valuation every decade on an average. Corona crash, sub prime crash, scam crash…history is proof of such crashes. Greed often drives the market to inflate. Fear shall cause it to deflate.

Better take risk when one is young. Lot less to loose and lot more time to rise from a fall.

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Super idea , go for it

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This kinda works like a slack itself. This works perfectly I think

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i have just finished my first chapter and its extremely insightful.

One lesson which is mentioned in the chapter talks about letting the money compound. It sounds incredibly simple. But is it really that simple ?

@deepak.shenoy sir - would love to hear your views on this powerful one liner. how did you realise this powerful mantra for success ? what were your early challenges? We all try to buy n hold the stock but somehow get swayed by various distractions (like short term headwinds and bad news and look to shift to other companies). did u face any initial hiccups like this?

Others investors on this forum too - please share your journey

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Compounding is powerful. Warren buffet grew at a cagr of around 22% to become the richest guy in the planet at a point of time. But the :medal_sports: is for the guy who stays on course till the end. Not someone who decide to go astray midway.

In the information age information is everywhere. Conflicting, contradicting it can confuse the mind. If one make sense of data for a long period of time it can help in building conviction. Having said that I am of a firm opinion that luck matters. Some people are at the right place at the right time.

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27

“If you don’t force yourself to spend what you’ve saved beyond the necessary, you’ll end up more unhappy than if you’ve not saved at all. Fear that you’ll die after you’ve worked your ass off, without a tale to tell.”

While everyone so for is talking about only focusing on saving and building wealth for retirement. While it is the most important fact, because whatever we save from what we earn now is the only this that will support or livelihood then, cause there won’t be any sources of income but only what we have saved over the years.

But in all this, we should also not stop ourselves from enjoying, Here too there are two types of people, one who are so hell bent on saving money that they never enjoy themselves. And then those who overenjoy themselves!!

Finding balance between the two is also very essential.

Let’s do a poll:

How much % of your earnings do you manage to save? If not, how by how much % do you overspend?

  • Save < 10%
  • Save between 10 to 20%
  • Save > 20%
  • Overspend between 1% to 10%
  • Overspend between 10 to 20%
  • Overspend > 20%

0 voters

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28

Chapter 2!!

The story of collapse of UTI US-64 mutual fund is fascinating. The lengths these guys went, fudging funds NAV to hide underperformance and as it always does :boom:

And also what the government did 🤦 rather than forcing UTI to reveal real NAV, it decided to buy the stocks fund held, If you can’t bring the NAV down to reality, let’s try and bring reality up to the NAV.

Btw, government paid 8500 crore for the bailout, in which it paid investors and ended up owning the shares in that fund, which has given returns to the tune of 100,000 crores.

It isn’t mentioned in the book, but anyone knows what companies did that fund hold?

I did facepalm earlier, but government actually ended up making :rocket::rocket: returns.

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Could someone share the photo of chapters of the book.

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Yayyy :nerd_face: My book has finally arrived. After reading the insights on this post I am more excited to start my readings :grimacing:

IMG-9529
IMG-95291920×2560 275 KB

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I’m no expert in the stock market industry, but just started with this book and I must say that i’ve found it easy to understand, written in casual language (this comes from me who only reads fiction! :sweat_smile:

What intrigued me the most is the chapter on Mutual Funds. I recently started investing in mutual funds, and I wish I could’ve come across index funds earlier - low fund management fees, less cumbersome than choosing a new fund each year. No wonder the “adviser” I invested through didn’t pitch index funds to me. With low expense ratios, there’s no room for commissions for them and I get to save some change too!

Also, the secret sauce for a good portfolio:

• A Nifty Index Fund

• An international index fund

The more diversified a portfolio, the better.

Also, this line in the chapter 😅. Take my money too? I seem to do really stupid things with it – it’s like @deepakshenoy read my mind.

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32

Hi,

I seriously don’t know why Index funds always carry this phrase “Low cost” along with it. It’s like saying I always hire low cost employees in my company (Does your company do that? Do they hire costly / good engineers from IIT’s , costly / good managers from IIM’S? Or do they hire low cost employees from God knows what institute?)

Before following some bloke who talked about Index funds (I refuse to use the phrase “low cost”) in some media (social or print) and their associated cost, did you bother to dig a bit and do some research on whether active funds are really that bad?

Every bloke and their aunty is shouting from rooftops that the advisor (MFD) is a villain. Did you bother ask your advisor why you should or should not opt for Index funds? Just because they earn money on your investments doesn’t mean they are villains.

Did you atleast make an investment plan for yourself (assuming you have written down some goals for yourself to be achieved in stipulated time). Did you introspect yourself to find out if you want index beating returns or you want some minimum % returns on your investments? I’m the second type of investor.

My philosophy is “To hell with the index. I want minimum 13% XIRR on my investments (I can live with 12% XIRR. 11.99% is definitely not acceptable. The inflation + GDP mostly hovers around 13%, hence this XIRR is my target) in the next 7 to 10 years. This should come with as little volatility as possible (Volatility can never be 0)”. Most of the times this kind of philosophy tends to beat the index too.

Did you check rolling returns (This talks about consistency of returns) of Index funds?. Some of the best Index funds have given >12% annual returns around 85% to 90% times only. Is that enough for you? I want nothing less than 97% - 98%. Compare it to some of the active funds that have given 100% of the times >12% XIRR and 95% of the times > 15% XIRR.

Index funds is for the person who has achieved most of their goals in life and wants only inflation beating returns with peaceful life (No headache of yearly or bi yearly reviews). Do you fit that description? I don’t.

Index funds is for the person who has the tendency of second guessing every move they make. Rechecking it, who tries to squeeze in 1 % or 2% extra returns, who wants the best performing fund every year (This is impossible to achieve) and anything less than that is unacceptable. Is that you? If yes, please opt for Index funds. I’m not that person.

I do research on my active funds. I’m not looking for the BEST fund. I want the fund with very high consistency of generating minimum 13% returns over a period of 7 years (upto 10 years) and atleast >1 (higher the better) Market capture ratio (This is another metric used to evaluate active funds).

I will review my goals and my funds performance every 6 months based on rolling returns and Market Capture Ratio. I will not look at my XIRR every week / every month and compare it to previous week / month. I will only check if all my parameters are in place once in 6 months and forget them for the next 6 months. I have more important work to do. Play with my kids, flirt with my wife, excel in my chosen field of work and get my employer to increase my pay package. This is more fun and more fulfilling than following some bloke who doesn’t know, half the times, what he is talking about (They also don’t follow their own suggestions and are probably prejudiced with past experiences).

My review process -

Check rolling return, Market capture ratio, and my XIRR once on 6 months. My XIRR is given less weightage as I have not yet completed the minimum 7 years that I want to complete. Once it is completed XIRR gets higher weightage. Till then rolling returns and Market Capture Ratio. Does this active fund get me as excited as it got me when I bought it after checking the rolling returns and Market Capture Ratio (No care what the market is doing) ?. If yes, I’m at a good place. Come back after 6 months.

An MFD helps the investor in this quest as they have experience handling the emotions during market ups and downs. Ofcourse the payment for them keeps increasing slowly and steadily (along with my corpus). The amount I might end up paying them is a big amount over the life time. I think they deserve it simply because they help me loosen up my bandwidth to follow other pursuits (mentioned above) that give me much more happiness and satisfaction than saving some money. Also the pay hike I get because of my pursuits (Because of the freed bandwidth) compensates much more in monetary terms too.

I prefer MFD because they have skin in the game. In the past I don’t know what was the scenario, but today they make money only if the investor makes money. PERIOD

I don’t prefer the DIY investor for reasons mentioned above. Fee only planners are very important and have their own niche market. They just don’t suit me because I’m the growth seeking investor (MFD has a vested interest to see my corpus go up. They make more money when the corpus goes up). Fee only planners are more suited to the stability seeking investor (The index funds type).

Also I prefer the advisor who makes money only when investor make money.

Open for debate. I love a good one.

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33

I seriously don’t know why Index funds always carry this phrase “Low cost” along with it.

i have always read low-cost as affordable and without unnecessary overheads.
(NOT the same as cheap)

It’s like saying I always hire low cost employees in my company

Ummm… no.
Isn’t this more like saying - Does a company pay its employees a few millions just for fun,
or does the company try to pay its employees close to the minimum necessary to function and avoid unnecessary overheads.

(Does your company do that? Do they hire costly / good engineers from IIT’s , costly / good managers from IIM’S? Or do they hire low cost employees from God knows what institute?)

Let us not go there. :slight_smile:
i know my fair share of unproductive folks who graduated from supposedly reputed colleges,
and gems who were self-taught / graduated from totally unheard of institutes.

My philosophy is “To hell with the index. I want minimum 13% XIRR on my investments (I can live with 12% XIRR. 11.99% in the next 7 to 10 years. This should come with as little volatility as possible (Volatility can never be 0)”

…and if an index-fund were to meet such requirements that one has,
one should happily invest in it. Correct?

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34

The fund NAV have already discounted the expense ratio. So long as the RR (Rolling Returns) and MCP (Market Capture Ratio) are awesome, I will not call them unaffordable (Even if the expense ratio is sky high). Index funds, sometimes, might be unaffordable just because > 10% of the times (only in few funds it is 10%, in other funds it is much more than 10%. Some times it goes upto 40% also) the returns are < 13%. So low cost is low cost / cheap. I wouldn’t substitute it with affordable.

Again so long as my RR and MCP are in place, I don’t think I’m paying expenses just for fun. Also So long as my performance in my work is at par or beating expectations of my employer, the expense of my employer (good pay hike, awesome bonus, etc) is justified. Doesn’t your employer think so?

I agree with you. There are few rotten unproductive folks even in the best of institutes. Even then doesn’t the employer prefer the same institute students over other candidates??? Ever wonder why?

I’m still waiting to see an index fund which was born more than 10 years ago and has given atleast 95% to 97% of the times >13% annual returns over 7 year period. MCR is always < 1 with index fund (Wonder why is it so???)

I have few favourite funds. We can always debate over Index funds vs any of these. I’m not married to these funds. I’m 70% confident that these funds will not change with time but I’m 30% flexible to change my views if the RR or MCP becomes sub optimal to me. The yearly / bi yearly review is to check if I’m still in the 70% area of confidence or venturing towards 30%.

Open to debate.

35

My layman thought process is as follows…
(please do poke holes or highlight any aspects i may have overlooked)

Assumptions

  1. In the market, higher returns always involve higher risk.
  2. Index-fund/ETF do NOT involve a cut to active fund-managers/teams.
  3. A Mutual-fund (MF) involves active fund-managers/teams to research/monitor.
  4. To pay-out a return X, a MF will need to earn more than X (to pay for the necessary active staff)

Combining 1 and 4,
compared to the risk one would assume to directly obtain a return of X.
to obtain the same return of X through a MF
one ends-up assuming a slightly larger risk.

Is investing through a MF actually higher risk though?

Additional Factors that can affect the above assumptions :

a. A MF can often possess additional information to help in better decision-making.
What an individual may not know or cannot find out, a MF with multiple full-time dedicated folks can find out in
time to take a better informed decision.
(the same decision is a higher risk for an individual, due to more unknowns.)

b. How often is the scenario described in a above true in the market,
Is it common enough that the MF has an actual advantage over an individual to make better decisions?

c. How does one evaluate/measure how much risk a MF is assuming,
to provide us certain amount of returns.

For example, If a MF is…

  • taking 2x the amount of risk compared to the benchmark index
  • to scrape 1.5x returns
  • to keep 0.2x as their fees
  • and pay-out 1.3x returns compared to the benchmark

In the above example, Is the additional 0.3x returns a MF provides above the benchmark, worth the 2x risk?

Q1. How does one go about finding the actual risk/reward numbers like these for a MF? :thinking:

Q2. To make slightly more than an index fund, how can an indiviual assume slightly more risk?
Could a portfolio that matches the index-fund, but is more frequently re-balanced
be an approach to assume marginally higher risk for equally marginally greater returns
compared to the benchmark index fund?