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 crashâŚhistory 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.
Super idea , go for it
This kinda works like a slack itself. This works perfectly I think
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
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 
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.
âIf you donât force yourself to spend what youâve saved beyond the necessary, youâll end up more unhappy than if youâve not saved at all. Fear that youâll die after youâve worked your ass off, without a tale to tell.â
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 wonât 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.
Letâs do a poll:
How much % of your earnings do you manage to save? If not, how by how much % do you overspend?
0 voters
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 
And also what the government did 𤌠rather than forcing UTI to reveal real NAV, it decided to buy the stocks fund held, If you canât bring the NAV down to reality, letâs 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 isnât mentioned in the book, but anyone knows what companies did that fund hold?
I did facepalm earlier, but government actually ended up making 
returns.
Could someone share the photo of chapters of the book.
Yayyy 
My book has finally arrived. After reading the insights on this post I am more excited to start my readings 
Iâm no expert in the stock market industry, but just started with this book and I must say that iâve found it easy to understand, written in casual language (this comes from me who only reads fiction! 
What intrigued me the most is the chapter on Mutual Funds. I recently started investing in mutual funds, and I wish I couldâve come across index funds earlier - low fund management fees, less cumbersome than choosing a new fund each year. No wonder the âadviserâ I invested through didnât pitch index funds to me. With low expense ratios, thereâs 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 â itâs like @deepakshenoy read my mind.
Hi,
I seriously donât know why Index funds always carry this phrase âLow costâ along with it. Itâs like saying I always hire low cost employees in my company (Does your company do that? Do they hire costly / good engineers from IITâs , costly / good managers from IIMâS? 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 âlow costâ) 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 doesnât 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? Iâm the second type of investor.
My philosophy is âTo 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)â. 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 donât.
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. Iâm not that person.
I do research on my active funds. Iâm 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 doesnât know, half the times, what he is talking about (They also donât 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, Iâm 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 donât know what was the scenario, but today they make money only if the investor makes money. PERIOD
I donât prefer the DIY investor for reasons mentioned above. Fee only planners are very important and have their own niche market. They just donât suit me because Iâm 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.
I seriously donât know why Index funds always carry this phrase âLow costâ along with it.
i have always read low-cost as affordable and without unnecessary overheads.
(NOT the same as cheap)
Itâs like saying I always hire low cost employees in my company
Ummm⌠no.
Isnât 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 IITâs , costly / good managers from IIMâS? Or do they hire low cost employees from God knows what institute?)
Let us not go there. 
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 âTo 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)â
âŚand if an index-fund were to meet such requirements that one has,
one should happily invest in it. Correct?
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 wouldnât substitute it with affordable.
Again so long as my RR and MCP are in place, I donât think Iâm 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. Doesnât your employer think so?
I agree with you. There are few rotten unproductive folks even in the best of institutes. Even then doesnât the employer prefer the same institute students over other candidates??? Ever wonder why?
Iâm 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. Iâm not married to these funds. Iâm 70% confident that these funds will not change with time but Iâm 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 Iâm still in the 70% area of confidence or venturing towards 30%.
Open to debate.
My layman thought process is as followsâŚ
(please do poke holes or highlight any aspects i may have overlooked)
Assumptions
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 isâŚ
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? 
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?
Purely my thoughts -
What is human life if not risk mitigation. Right from the time we wake up and brush our teeth, to navigating traffic, crossing the road, climbing up stairs, playing active sports, to sleeping - we are mitigating risk. Controlling risk everywhere.
Why is it that we, most humans, lose our minds when it comes to monetary risk. Iâm a professional trader (Around 80% of my monthly expenses is funded by day trading Nifty Options.). My entire job is mitigating risk. I take calculated risk everyday to get higher returns than the risk taken (I think this summarizes the JD of a trader), sometimes I get it, sometimes I donât.
Overall since the return is higher than the risk, my account curve keeps going up. The most important thing is to control risk (even if it higher), make sure it doesnât go beyond the tipping point (Point of no return)
I have absolutely no problem with assuming more risk (so long as the tipping point is very very far), if the returns are more than the risk taken. In other words Risk reward ratio should be more than 1 (In trading I use minimum 2.5)
I donât know if active fund teams have more info than the layman. Probably they might, simply because this is their job. We have our own devils to fight, so we will never be able to give even our 50% to this. The active fund teams may or may not give their 100% but they definitely will give more than what we, as individuals, can give.
I really do not care about the expense ratio, because the returns shown are after deducting the expenses. If an active fund is assuming 2X risk, it has to show more than 2X returns to justify the risk taken. 2X returns after deducting the expenses (I donât care how much it is).
I look at it in this way. What I canât do (either due to lack of skills or lack of bandwidth or interest) should be outsourced. This is why we have jobs. Just because one entity canât do all the things it hires people to do it for them. Just because many individuals do not have the time and bandwidth (skill can be acquired. Ofcourse you have to consider the opportunity cost) required to evaluate the market and the companies to invest, they should hire a team to do it for them. This team is very costly to hire, so these individuals come together, pool in their money, and hire a team. This is the active Mutual Fund. There are so many funds available that is gets difficult to evaluate them, here comes the advisor.
There are many ways. I use Market Capture Ratio for this. 0.3% returns is definitely not worth 1% risk. But an additional return of 1.3% compared to additional risk of 1% is definitely worth it (My personal belief) since the tipping point is still far away.
Here we are assuming that active funds always take higher risk. This may not be the right assumption. There are funds that have taken lower risk and got higher returns. There are many ways to check this. I use RR and MCR. Only issue is whether these funds will continue to generate this kind of returns. This is where the bi yearly / yearly reviews come in.
Iâve not studied small cases, hence cannot comment on it. Here again, I assume that you need to give time and energy. I can think of atleast 147 better avenues to give my time and energy (few of them are mentioned in previous message)
Iâm a professional trader
(Around 80% of my monthly expenses is funded by day trading Nifty Options.).
My entire job is mitigating risk.
Congratulations! 
I believe this is a significant achievement considering the sheer number of sad stories we hear about folks losing everything due to the unmitigated risky positions they assume. My takeaway from this is that so far you have managed to properly estimate/measure risk. 
If an active fund is assuming 2X risk, it has to show more than 2X returns to justify the risk taken.
Ideally, yes.
But, as an investor into a mutual fund, how does one verify that the fund manager isnât taking significantly higher risk with our money to achieve the slightly higher returns exceeding the benchmark?
There are funds that have taken lower risk and got higher returns.
There are many ways to check this. I use RR and MCR.
This conversation has motivated me to dig deeper and read more about techniques to estimate/measure risk.
But, so far, i still do not understand how RR/MCR can be used to measure risk vs. reward⌠
(maybe iâm misunderstanding something)
You donât owe me any explanation, but if you do find the time, i would love to see some examples/links of when a certain fund got higher returns for lower risk; and how RR/MCR/other-factors can be used to estimate/measure the risk vs. reward. Any personal anecdotes are welcome tooâŚ
Thanks a lot. It took around 10 years of trading experience to understand that trading should be very simple. I have my share of horror stories and account wipe outs too.
MCR - The formula is Up ratio / down ratio.This is calculated every single day Average of every single day in last n years (You define n) is MCR.
Up Ratio - Fund returns / Benchmark returns. This is calculated only on days when benchmark is up (Green). Average of all days in the last n years is Up Ratio. I consider this as reward.
Down Ratio - Fund returns / Benchmark returns. This is calculated only on days when benchmark is down (Red). Average of all days in the last n years is Down Ratio. I consider this as risk.
If MCR is equal to 1. It means the fund has captured exactly the same % of up move and down move. Better google it for better understanding.
Rolling return tells me consistency of the returns. Something like XYZ fund has given >12% returns for any period of 7 years, 99% of the times calculated on a daily basis. That is if I invest some fixed amount in XYZ fund, every day, since it was born in different folioâs (but same fund) and redeem it exactly after 7 years (Gain or Loss). I would have > 12% CAGR in 99% of the folioâs.
Google it for better understanding. It is difficult for me to explain the whole process here. I usually explain it over phone and google meet screen sharing to my clients. If interested, please tell me.
I havenât read it but is any different than Psychology of Money by Morgan Housel
Psychology of money is way way better than this book. The author Deepak has just published his book and Zerodha is doing his book promotion because the authorâs company Capitalmind is a big client of Zerodha. They use Zerodha for its PMS trades. So just a quid pro quo I guess.
One of the important point stressed upon is how people complicate mutual fund investing process. Feel quite related to it.
Investing in mutual fund doesnât have to be complex. Yes, we should do our due diligence and then only invest but here too people tend to run after funds that have given big returns in long run and keep churning their MF portfolio, dumping the losers and again running behind the winners only for them to underperform once again. So we just go on treating this like stocks picking best performers, dumping losers, and repeating it on and on.
Remember: past performance is not guarantee of future returns. Also, MFs are meant for long term investment, we should give time for these to perform, not start managing them activity like stocks and keep switching. And before we realise what we are doing its too late. Not only suffering losses but also the fees we pay to AMC for premature exits. Been there, done that and feel quite stupid a about it
As Deepk points out âLook deeper and you find that most mutual funds struggle to beat the Nifty. And no matter when you look, the Nifty index always seems to be consistently among the top performers.â
One of the most annoying things about MF investing is all the different plans. In terms of Regular v Direct, Direct is clear winner and itâs easy to distinguish between the two. But for first timer, all the siblings (Growth, Dividend Payout, Divided Distribution, Dividend Reinvestment etc.) make it look like picking and investing in MF is some rocket science.
IMO, MFs are effective way to invest but made quite complex by all the needles siblings of same fund. Only if all these are eliminated.
