Read for HELP

I have been writing this blog for over 3 years now and one of the most common queries that I get from readers is whether I provide any Financial Planning services. Let me be upfront about this at the start – I do not provide such services in the way they are normally understood, nor am I a SEBI registered Financial Planner. In fact, I have absolutely no intention of being one too as I do not see this as my profession.

However, I do provide a service to select people who approach me directly. I have given the acronym of HELP to it. The expanded form is Holistic Engagement in Life Planning. In this post I will explain about this service and explain as to how interested people can avail of my services for this. As I have explained in several posts of my blog, life planning must precede financial planning. As an individual or as someone responsible for your family well being, you will need to plan the important life events as well as the lifestyle choices you want to maintain. Note that the typical financial planning process assumes that people will by and large plan for typical goals such as children’s education, marriage, own retirement etc. I find this a completely unsuitable way of doing things as the life of each individual is unique and needs to be catered as such.

So what is HELP then? As I said, the starting point is to take stock of your life in terms of where you are today and what are your dreams as a family – individually and collectively. So if you are a family of 4 with two teenaged son and daughter, your dreams could look like this when you are 42 years old :-

• Son wants to take up a career in Bio technology, daughter wants to be a film maker.
• Your wife is 38 and gave up her career for her kids 10 years back – she now wants to open up a boutique of her own in the next 3 years.
• You are interested in starting your Consultancy practice by the time you are 50 and for that you need to be financially independent.
• All of you like travelling and want to take a domestic vacation every year apart from short trips and also an international vacation every alternate year.

The idea of HELP is to bring out these life goals and lifestyle choices clearly, so that it can be determined what kind of financial support these would require and how can that be organized. Yes, the last part will involve financial planning but it will be in a very different way than just how to buy MF through SIP etc. 

As I said, I have provided HELP to several people and all these were people who have approached me after reading my blog. Some examples will make interesting reading:-

• Advised a Colonel in Indian army as to how he could fulfill his dream of migrating to Canada in a teaching role.
• A software professional in Kolkata was worried about longevity of job and worked out an alternate plan should such an event occur.
• Got several people started on building a stock portfolio from scratch.

Note that in all of these cases, the people already had a financial plan made through a SEBI accredited Financial planner but they were not happy with their life and lifestyle.

The question that will definitely be asked is why am I the right person to do this? Let me start by giving some background of myself :-

• BE in Computer Science & Engg from Jadavpur university, Kolkata in 1986.
• PGDM from IIM Calcutta in 1988, with major in Marketing and Systems.
• Overall experience of 30 years plus, 27 years in regular corporate roles and nearly 3 years now in my Consultancy practice.
• I have worked almost entirely in the software services and BPO space.
• Have worked as a CXO for 15 years plus, nearly half of this in 2 publicly listed companies.
• Lived in Kolkata, Delhi, Chennai and Hyderabad besides having travelled widely all through the world for my work.
• Have been financially independent since 2014 and writing a blog since 2015 June. The blog has had views in excess of 3.5 lacs till date.
• My daughter is BE from BITS, PGDBM from XLRI and working in a Consultancy firm now. My son is in his final year at BITS, doing a dual degree – Msc Maths + BE in Computer Science.
• I am associated with helping students in career counselling for Engineering / MBA.
• Am in the Hyderabad panel for IIMC admissions.

I believe in the Indian context, I am one of the few people who are able to deliver a service such as HELP. This has been proven by the 10 situations where this is done.

So if you are interested in knowing more about this, how do you get started? Well, the first step will be to write to me at rajshekhar_roy@yahoo.co.uk expressing your interest to avail of this. I will then ask a few questions over mail to assess your current situation and then we can have an introductory call. After this I will let you know if I can do this for you and what will it cost.

Typical duration for the complete exercise is 1 month, with 2 interactions over phone per week and there is a one time cost initially. Yearly reviews after first year will be 25 % of the year 1 costs.

If you reach out to me, do not get offended on my inability to take you up ( if that happens ). I am doing this to add real value to the lives of the people and therefore cannot spread myself too thin.

Look forward to hearing from some of you – believe me, your life will undergo a serious transformation once you go through this exercise.

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My stock purchases – update #2

To begin with, let me wish all my readers a very happy Dussehra. Though our markets do not offer any cheer right now, I hope all of you had a great time with your family and friends. I certainly had a nice time courtesy both my children being hone during Durga Pujas after quite a few years.

As far as the markets go, they did look up for a couple of days but then the sharp cuts came once more. The opinions are divided along these lines – this is either a bull market with bearish phases or a bear market now. In my opinion, it is really the first for large caps and may well be the latter for mid caps and small caps. Though the results season has not started badly, the markets do not seem enthused by it at all. In the current situation more downsides are normal and stock selection opportunities are galore.

Back to my secondary portfolio that I want to invest 8 lacs in. Read the below in conjunction with my earlier update for better understanding. Right now these are my thoughts as to how I will go about it in October and November.

• I am primarily sticking to large caps and the exceptions are only for companies I have invested in earlier or know reasonably well.
• OMC’s and NBFC’s have been beaten down a great deal and may well give great returns over the time frame of my secondary portfolio.
• It is risky to catch a falling knife – I bought Indiabulls Housing at 800 and again at 685 but it is now trading at 653. While I do not regret the purchases, it shows that stocks can fall to any level when there is selling pressure without any real demand.
• BEML was the other stock I bought at 600. I am quite convinced about the long term prospects of the company, given the business it is in. India will be engaged in a lot of construction over the next decade or so and this company will benefit greatly.
• I also bought some of MOIL and EIL, mainly based on the businesses they are in and my own assessment of how it will do in the future. Prices were attractive too.
• As of now I have invested about 4.25 lacs so there is some way to go yet.

The current stocks in my portfolio then are as follows :-

• BEML
• BEL
• BHEL
• CIPLA
• Elgi Equipment
• Engineers India
• Federal Bank
• Global Vectra
• HPCL
• ICICI Bank
• Indiabulls Housing
• IOC
• Intense Technologies
• ITC
• Just Dial
• MOIL
• ONGC
• Orient Abrasives
• PNB
• Shilpa Medicare
• Spicejet
• Tata Motors
• Voltas
• Yes Bank

My plans are to invest more in these stocks for the secondary portfolio unless there is some compelling opportunity to add other stocks. The losses in the portfolio come largely from Tata Motors, Intense, PNB and Yes Bank. Right now these do not bother me too much as all of them are probably at low points in the pricing cycle. I do have plans to buy more on these.

I am still in cash with current availability of about 1 lac and am looking to get another 3 lacs in the next 2 months. These will be used till the end of 2018 and by then I would have investments of 8 lacs in my secondary portfolio.

So there is a lot of action planned over the next 2 months and more !! Let me come back after Diwali and give an update as to where my portfolio building has reached.

Strategies for your MF portfolio

Over the last month or so, I have been inundated with several queries about the fall in the markets and the effect it is having on the MF portfolio of investors. In August all investors were happy as the large caps did rather well and even the mid caps and small caps seemed to be recovering a tad bit. Just 6 weeks down the line the picture is one of utter despondency – this, of course, makes no sense at all.

I keep reminding readers that equity investments are subject to steep rises and falls at times and they will always need to look long term. However, this is not easy to do temperamentally for MF investors as many have been told that the MF schemes are managed well and would be subject to less volatility. While a good fund manager will be able to do better than a poor one, the fact remains that when the markets fall sharply then the NAV of all MF schemes will decline – some more than others. So, in reality what is happening to your MF schemes and your portfolio is natural, you only need to see what you should be doing right now.

Here are some of the things you must be considering now :-

• Do not stop your SIP investments, if you are doing them regularly. Falling markets are a good time to invest and you will get great value for money at a future date.
• In case you are thinking of making a lump sum investing into MF schemes, hold on for some time and keep studying the 200 DMA levels of the indices. For example, if you want to put 1 lac in a large cap fund, look at the 200 DMA of Nifty. As long as it is declining and 50 DMA or 30 DMA is also declining, do not put your money. When there is a reversal in these figures start putting money in 3-4 instalments.
• Review your MF schemes – if they are underperforming both the benchmark indices and peer group schemes, then you need to think seriously about moving out. However, this is a bad time to sell so hold on till the market improves and then do it in a proper manner.
• For all MF schemes which are in the top 20 % or so there is really no need to change. They may have been beaten down badly but you will just have to give time to them for recovery, there isn’t much else you can really do.
• In case you have any goals coming up in the next 6 months or so, take stock of your entire portfolio and check how you can arrange the money. Do not sell equity MF unless there is no other option at all – redeem your debt, withdraw from your PPF, even take a loan from family/friends if need be.
• If you have done your asset allocation right then you need to stick to it. This is the time to put more money in equity despite the brutal cuts. Do not redeem debt investments for this but put your current surplus in equities largely.
• In case you have time on your side there is no need to panic, markets and economy will do better eventually. You do need to review and get out of bad investments.
• For people retiring or planning FI in the next 5 years or so, think of deploying your assets so that you are able to give more time to equity.
• Mid caps and small caps allocation can be looked into – ideally put 50 % in large caps, 20 % in multi caps and the rest in mid caps and small caps.

So, for people who are trying to change schemes or starting their MF portfolios now, which are the good funds to look at? Here are some suggestions from experts :-

• Multi cap funds
  • Motilal multi cap 35
  • Kotak standard multi cap
  • Invesco India contra fund
• Mid cap funds
  • HDFC mid cap opportunities
  • Kotak Emerging equity
  • L&T mid cap fund
• Small cap funds
  • HDFC small cal
  • Reliance small cap
  • L&T emerging equity
• Large cap funds
  • Reliance large cap
  • ICICI Blue chip
  • Birla Front line

A final point – you will now need to look at the portfolios of MF schemes too. This is really the job of a fund manager but you have to check if they are taking the right calls. Many of you cannot do this on your own, engage an adviser then.

Happy Dussehra to all my readers and their families.

How to build your own stock portfolio

I understand that getting started in stocks is not an easy thing with so many experts giving a lot of conflicting advice to you. Some will tell you that you have no hopes of building a good portfolio unless you can understand all kinds of ratios and read Balance sheets like a CA does, others will tell you that going for direct stocks is akin to a horse race where anything you bet on is almost certainly going to lose. Yet others will chide you for thinking anything beyond Mutual funds. After all they are experts and invest only in MF with all kinds of complex strategies, who are you to even think otherwise?

While all of the above has very obvious counters, read my post on Why you must be in direct equity to satisfy yourself on the importance of being in stocks. Building a long term portfolio of direct stocks does take a lot of understanding of the economy, the industry and the business. You can get these only with experience and there is really no magic potion to make you an expert overnight. There is however, a way to get started on building a portfolio of stocks, while you gain this knowledge and experience over time. Is there a guarantee that you will not lose money if you follow my suggestion? Unfortunately not, but the chances of your losing money are indeed very slim.

Without further ado, let me give you the simple steps to what you need to do from scratch:-

1. Choose the 5 sectors – Auto, Pharma, Banks, IT and FMCG. You can add other sectors at a later date.
2. From each sector choose 2 market leaders. You can do it by their Market caps or the PE ratios. Honestly, it does not matter a great deal as to which method you are using as long as you are consistent in your approach.
3. For people focused on names look at DRL, Cadilla, Lupin etc in Pharma. Tata Motors, Maruti, TVS Motors, M & M in Auto etc. SBI, ICICI, HDFC Bank in banks. TCS, HCL Tech, Infosys, Wipro in IT. HUL, ITC, Marico in FMCG.
4. Decide on a comfortable amount that you can spend every quarter on stocks related investment. Set price triggers based on 200 DMA of the stock. For example, if the 200 DMA of a stock is 3000 and the current market price is 3200 then set the first price trigger at 3000 or just below it.
5. Stick to this discipline and never go beyond 20 % of your quarterly money in one go. You are in no hurry, wait for the stock price to drop. In the next 6 months there will be many ups and downs. Buy only on downs, let the ups go by without bothering too much.
6. In a quarter there are bound to be many more bad days than 5, you just need to be patient.
7. Remember you are building a long term portfolio, so even if you miscalculate and buy at a higher price it does not matter too much. In 10 years the markets will be far higher than 11000 on the Nifty.
8. Keep adding to each stock regularly, do not start chasing other stocks that seem to be doing better.
9. Increase your quarterly allocation based on your surplus availability and your comfort level.
10. Stick to this for 2 years, by then you will have enough knowledge to get to the next level of risk.

Stock investment is like swimming, you will not do it by reading how not to do it. Get started with it and you will see how things work out at a portfolio level – remember, it will never work out for all stocks that you invest in. Also, next time someone advises you on how to pick stocks, ask him about his portfolio and how successful he has been in his own stock portfolio performance. Trust only advisers who put their money where their mouth is.

I will do other more involved posts on stock picking but this one is good enough for all new investors to get started.

My stock purchases – update #1

As I had said in a previous post, I have taken a decision to build a secondary portfolio with an investment of about 8 lacs. The objective of the portfolio is to use it in about 8-10 years time for some life goals such as travel or as a cushion for future health expenses.

I had started building this portfolio more than a year back and there have been some negative surprises in the short term. For example a software product company in the Customer engagement space has great potential but poor results and it’s price has been beaten down much more than what I had anticipated. I had bought 500 of Intense Technologies at an average price of 91 and today it is languishing at 40. However, I have reason to believe that the company will perform in the future and it made sense to invest more in it.

Other investments included Federal Bank and Yes Bank – the first as I like their business model and my batchmate in IIMC being the MD there, the second as it is a private bank with short term problems but real good long term potential. In both these cases, the price fell much below the initial buying price and it made sense to add it.

Then there are others like Tata Motors that form a good part of my primary portfolio ( not to be confused with this one ) and I had invested in it here too. Again, with the brutal price cuts the counter had suffered recently, adding some more there was an obvious choice. It may take time to recover but this is an eight year portfolio after all.

Some midcap companies in my primary portfolio such as Global Vectra and Orient Abrasives had fallen to half their 52 week highs and were a good buy now.

The rest of the stocks added were based on recent market trends. The OMC cuts were again brutal and it was truly a case of the market over reacting to a fairly run of the mill cut in fuel prices, which will not affect these companies in the long run at all. 

So here is a list of stocks I have bought recently :-

• Intense Technologies
• IOC
• HPCL
• Global Vectra
• Orient Abrasives
• Federal Bank
• ONGC
• Yes Bank
• Tata Motors
• BEL
• Elgi Equipment
• ITC
• PNB
• Voltas

Note that I always buy in lots of 10000 or 20000 maximum, depending on the price of the stock. Some other information that may be of interest is as follows :-

• Total investment in the portfolio is about 3.65 lacs as of today.
• Courtesy Intense Technologies, Tata Motors and PNB the portfolio is significantly in the red but I am not worried about that.
• I will continue to put more money in some of the above counters, look at other Nifty stocks that have been beaten down badly and check out some selective midcaps.
• I am expecting some cash inflows in October and November – this will be used to buy stocks for building up the secondary portfolio.
• As of now, I am in some cash and look forward to buying more in the next week, based on where the market heads.

I will come back after Dussehra with another post outlining the new purchases. Wishing all my blog readers a very happy Navratri, Durga Puja and Dussehra.

My stock buying plan in this festive season

The last one month has been terrible for the markets and the brutal cuts witnessed have impacted investor wealth in a hugely negative manner. What has been very surprising about the slide is that it has been a fairly secular sharp decline and, except for IT to some degree, almost no stocks have bucked the trend. I have heard several investors complain that this is a rather inauspicious beginning to the festive season.

For my own stock portfolio, the fall has been a rather traumatic one too. A ballpark estimate tells me that the portfolio is down by more than 16 % when compared to the value it had by end August. Given the fact that my portfolio is a reasonable outlay, the loss in absolute terms comes to a rather significant figure. Over the last one week, I have looked at my individual stocks as well as the Nifty and some Midcap / Smallcap stocks that I do not own. After a lot of deliberation, I have come to the conclusion that the next two months will be a good time to buy stocks and reinforce my portfolio.

I will not go into the details as to why the markets are falling – the point is several macroeconomic issues are acting as a headwind now and pulling out of money by the FII’s is still something our markets cannot handle well. In the short run there may be some relief through good quarterly results in Q2 but the overall trend is negative and I am quite prepared to believe that Nifty can easily go down to 9500 levels. Why am I then talking about buying stocks selectively?

Firstly, I have strong faith in India as a growing economy and therefore think the markets will perform well in the long run. The Nifty level today or the price of an individual stock is immaterial, unless the business is fundamentally a poor one or you need to sell the stock due to the need for money. Secondly, in my present state of FI or even complete retirement in the next 3 years or so, I do not see myself needing money from my stock portfolio for the next 10 years. It seems inconceivable to me that stocks of good businesses will not be significantly higher by the time I need to sell those. Thirdly, in terms of the overall market trends I am convinced that we are in a structural secular Bull market which will necessarily be punctuated by some serious Bear phases from time to time. I think what we are seeing today is a prolonged Bear phase that may last a few months and get determined by both global and domestic situation.

The next issue is obviously how much money can I bring to the table for such stock buying. I am not in favor or redeeming my debt investments and putting these amounts into buying stocks. However, if some Debt investments such as FMP schemes are getting matured in the normal course, then I will now look into using those maturity proceeds for purchasing stocks. In my FI state all of my regular expenditure is fortunately met from my passive income and these are tied up to income from Debt instruments and Rental income. Therefore, any active income from my Consultancy practice can be channelised to this too. In fact, the only Debt investment I will now want to make is the contribution to our two PPF accounts – we always contribute the maximum amount. I am also going to get the maturity proceeds of an LIC policy that I had started ages back. In all the possible outlay for buying stocks will probably be in the range of 7-8 lacs.

Which stocks will I be buying now? Given the battering that many have received in the last month, there are several options but here is how I plan to go about it :-

• Stocks which are already in my portfolio and have fallen the most will be my first choice. I am not looking at whether they have fallen lower than the average price I hold them for, but only checking if current fall is significant.
• For stocks I do not have from the Nifty basket – I will look at adding some stocks which have suffered greatest cuts in the past one month.
• Midcap and Smallcap stocks will have a lower priority and here my idea will only be to invest in good companies where I believe the management to be sound.
• When do I start buying? Well, I do believe that Nifty can fall further to about 10000 levels or below this week and will therefore wait for it. In case there is a pullback in the next couple of days, I will activate the buying plan.
• Specific names of the stocks and buying prices are something I am working on and will share in the blog shortly.

What is my overall expectation from the above strategy? I believe, it will be quite possible to get an annualized return of at least 18 % over a period of the next 8 years or so. This will mean my 8 lacs of investment should amount to 32 lacs in this time period. At that stage of life I will probably use it for more travel to exotic destinations, provided Lipi and I are still having the energy to do so.

For all of you who are looking at any significant goal 8 years away ( or more ), this is a great opportunity to start building your portfolio. If you already have a long term portfolio, create a secondary portfolio like I am planning to do here.

In the next post, I will talk about specifics of building this portfolio over the next 2-3 months.

My current Asset allocation and investments

One of the questions I get asked most is the kind of asset allocation I follow and what are the current investments I am having. While readers of my blog will understand my openness in sharing a lot of personal details, I am obviously a bit uncomfortable in sharing the direct monetary figures of this. At the same time, I do want to share as much information as possible in the blog as I know many people benefit from the same.

I have therefore come up with an idea of Financial Independence Units, where each FIU has a certain value, suppose it is X. Now if I say my net worth is 100X, then it will not reveal my real net worth for you do not know X. Yet, you will be able to understand my asset allocation and the relative investment figures that are currently there.

So, with that background, let me give you the total asset base as of last Friday, 28th September and the asset allocation thereof. Note that I mainly invest in Equity ( both stocks and MF ) and Debt. There is some Real estate I have in terms of a flat in Chennai but I do not have much plans to sell it right now. Ok, the asset allocation and breakup are as follows:-

• Total asset base is 100X
  • Equity allocation is 41X
    • Stock allocation is 21X
    • MF allocation is 20X
  • Debt allocation is 34X
    • PPF allocation is 9X
    • FMP allocation is 10X
    • Fixed income allocation is 9X
    • Hybrid allocation is 6X
  • Real estate current value is 20X
  • Insurance allocation is 5X

Note that this is my current asset allocation and it was obviously a fair deal more before the current drop in the markets. In terms of general asset allocation principle, with the real estate and insurance out of the equation, I normally try to maintain a 60:40 ratio between equity and debt. Right now this ratio is more like 54:46 and therefore I am looking at investing more in stocks over the next 2 months or so.

The other question most people ask me is where do I get my passive income from. As of now it comes from the following sources:-

• Fixed income allocation gives me a certain amount through interest earnings.
• Dividend from some equity MF schemes.
• Dividend from Stocks.
• Capital gains from FMP redemptions.
• Capital gains from any hybrid fund redemption.

I can also withdraw from my PPF account but I have never done it so far in my life and do not anticipate doing it for another 6 years at least.

All this basically means that my PPF will be useful for me in the age band 60-70 and beyond 70 I will be using my equity assets for the rest of my life span.