Friday, June 1, 2012

ITS TOMORROW THAT MATTERS...


Prashant Jain is one of the most respected Mutual Fund managers in India. In a recent article, “Its Tomorrow That Matters”, he makes out a very persuasive case for investing in equity-linked products NOW. By giving behavioural, fundamental and philosophical aspects of equity investing, he asserts that this is the time to invest in equity linked products like diversified equity mutual funds. Some excerpts of the same article are given below in point form for easy assimilation. To download the full article, use the link http://poweraxis.com/projects/emailer/hdfcmf/2012/may/6/pdf/its_tomorrow_that_matters_prashant_jain_hdfcmf.pdf

Good returns are seldom made on investments made in good times.
Rather, Good returns are typically made on investments made in adverse times.
1.    Look at the performance of investments made in stock markets at different times:-
Table A: Performance of Investments made in good times
Time
Sensex Level
1 yr forward P/E
Main news / reason
Total returns after 3 yrs
Total returns after 5 yrs
Jan 00
5205
25
High optimism in technology stocks
-38%
26%
Dec 07
20287
26
Booming global economy, optimistic markets
1%
-15%
Table B: Performance of Investments made in adverse times
Time
Sensex Level
1 yr forward P/E
Main news / reason
Total returns after 3 yrs
Total returns after 5 yrs
Oct 01
2989
11
9/11 attack on WTC, global markets collapse
91%
334%
Jun 04
4795
10
Unexpected defeat of BJP in elections
61%
99%
Nov 08
9093
11
Sub-prime crisis – Lehman collapse
77%
NA

2.    Buy low and sell high is what everyone suggests and that is what everyone would like to do. The reality however for a typical investor in equity markets / equity mutual funds is somewhat like this - buy high, buy more higher, buy even more even higher, buy less when market falls, buy lesser if markets fall more and buy nothing when markets are really down.
3.    This pattern of an overwhelming majority of investors mis-timing the markets repeatedly and consistently is a key reason for the unsatisfactory experience of the majority from equities and for the poor equities ownership in India. While there can be many reasons for this collective expertise at mis-timing, the key reason probably is that a majority of investments in equities are not done with a long term view, despite the fact that the best that equities have to offer is only over long periods. This is unfortunate, as by investing with a short term view, investors are not benefiting from the compounding potential of equities.
4.    As the horizon is short term, the entire focus is on guessing the near term market movements. This inevitably leads to extrapolating the markets in either direction and therefore, in rising markets, expectation is that markets will keep on rising. Greed of quick returns leads to higher inflows in equities and as the trend sustains, the confidence and greed both keep on increasing, leading to even larger inflows. Similarly, in downward moving markets, the expectation is that the markets will keep on moving lower, leading to lower inflows; the lower the markets move, or the longer the markets do not move, higher is the confidence that markets will fall further or that markets are going nowhere, resulting in drying up of fresh investments or even redemption of existing investments.
5.    When markets are moving up, the news flow is generally good and vice versa. Therefore, generally, in rising markets the perceived risk is low whereas the actual risk is higher as valuations are high. On the other hand, in adverse times, when the markets are not doing well and the news flow is not good, the perceived risk is high whereas the actual risk is lower as valuations are attractive. The net result of all this is that, time and again, a majority of investors end up investing large amounts at high valuations and small amounts at low valuations.
6.    Such an approach to investments is not returns friendly and it therefore comes as no surprise that a majority of investors probably do not get rich by investing. Faced with unsatisfactory returns, most blame the markets when instead, it is their investment approach that is flawed and needs to be corrected.
7.    However, in case of Gold in India, nobody looks at real returns as the time-period of investment may border on even indefinite. Comparative returns are as below:-
5 year returns (Compounded Annual Growth Rate) of Equities and Gold in India
Period
BSE Sensex
Gold returns %
Excess returns of Sensex over Gold
1981-85
28.9%
-3.3%
32.2%
1986-90
14.7%
11.9%
2.8%
1991-95
24.3%
14.4%
9.9%
1996-2000
5.0%
-1.4%
6.4%
2001-05
18.8%
12.9%
5.9%
2006 - Apr 2012
10.1%
23.3%
-13.2%

8.    It is true that the economy is currently passing through a difficult phase. However, this is neither the first nor will it be the last time the economy is facing challenges. Besides, the problems facing the economy are such that should get resolved over time and through some specific steps. In the face of so many issues and adverse news flow almost on a daily basis, it is easy to forget the several strengths of the Indian economy.
9.    Bargains are available only in challenging environments / in markets characterized by weak sentiment and seldom when the going is good / sentiment is strong. That's why, from an investor's perspective, a more appropriate way to describe the current markets would be bargain markets and not difficult markets.
10.By the end of June or shortly thereafter, Greece will either be in Eurozone or it will not be. Over the same timeframe, steps if any that are undertaken by the government to resolve some of the issues facing the Indian economy will also be known. Irrespective of what happens, markets should discount these outcomes fairly quickly.
11.Times such as present, when the markets are not doing well should actually be looked upon as a window of opportunity for savers to invest more into equities, so that when the good times come, there are meaningful investments in equities to reap the benefits from. The lower the markets are, the bigger is the opportunity and the longer the markets remain depressed, better is the opportunity for savers. In a lifespan of investing of say 30-40 years, it is unlikely that the markets will provide many such windows. In the last 20 years there have been only 3-4 such windows. 

2 comments:

  1. DEAR SIR
    1.OUR GENERALS HAVE RUINED ARMY FOR THEIR PERSONAL GAINS
    2. ARE U SHOCKED .I BELIEVE YES.
    SEE IN ARMY ONLY
    A] EX COAS JJ SINGH: WHEN CASE OF RANK PAY WAS RAKED .HE WAS THE ONE HE PUT HIS FOOT DOWN .SAYING RANK PAY HAS NOT BEEN CLAIMED, SO IT CANNOT BE GIVEN OR WORDS TO THAT EFFECT. SEE LEVEL OF FOOLING HIMSELF & HARMING ARMY TO GET PLUM POSTING OF GUV AFTER RETIREMENT. THE GENERAL MUST BE AWARE THAT PAY IS NEVER CLAIMED . HE HAS PUT EVERYONE IN SPIN FOR HIS PERSONAL RISE. I AM SURE HE TOO MUST HAVE GOT RANK PAY ARREARS BY NOW.A SHAMELESS ACT.
    B] EARLIER THERE WAS ONE IG POLICE IN COMBINED HARYANA+UT+PUNJAB. IN EX COAS MALHOTRA POLICE WENT ONE RANK UP. NEITHER HE UP GRADED ARMY NOR HE PUT HIS FOOT DOWN FOR POLICE. SO IN AID TO CIVIL POWER ARMY OFFICER WENT DOWN IN RANK STRUCTURE.NOW SEE AMOUNT OF DGP+IGP FLOATING IN THESE PLACES
    C] IN 6th CPC GOVT WAS GIVING NFU STATUS TO US.NAVY & AIR FORCE WERE WILLING BUT ARMY DENIED. TO DATE A TIME SCALE IAS/IPS OFFICER GETS PENSION OF Lt Gen. MOREOVER THERE IS COMMAND & CONTROL PROBLEM NOW A CWE IS SENIOR TO MAJ GEN
    D]OUR ACR SYSTEM ALLOWS WRONG ONE TO COME UP. PEN PICTURE HAS NO MEANING WHICH 95% OFFICER MAY NOT KNOW. IT IS NUMERIC RATING WHICH MATTERS . AN EXCELLENT COMMAND WORD IN PEN PICTURE WILL NOT MAKE UP IF AT ONE ODD PLACE 7 REMARKS ARE GIVEN IN QUALITY . ALTHOUGH 7/8 ARE NOT PROPERLY DEMARCATED [ 7 OR 8 HAVE EQUALITY TO FOOL THE RECEIVER]
    E] CORRUPT & GOOD CHAMACHA'S MAKE UP
    F]THERE ARE 2 PAY BANDS FOR OFFICER'S PAY.THERE ARE 2 BAND FOR ACCN .BUT FOR COMFORTS LIKE CANTEEN * OTHERS THERE ARE SO MANY BANDS.
    I] HONY Lt TO COL. CO HAS BEEN CLUBBED WITH HIS JCO'S . WHERE IS STATUS LEVEL FOR BULK OF OFFICER
    II] BRIG ANOTHER BAND
    III]MAJ GEN ANOTHER BAND
    IV] Lt GEN ANOTHER BAND
    V] COAS ANOTHER BAND UNLIMITED LIQOUR. HEIGHT OF GREEDINESS.
    DO NOT YOU SEE A MOCKERY OF SYSTEM WITHIN US. HAVE ONLY TWO BANDS. RED TAPE BELOW & RED TAPE. MORE INTERSETED FOR DATE OF BIRTH ISSUE EX COAS
    G] ALWAYS START CORRECTION FROM HOME ONLY THEN UNITED ACTION AS U DESIRE CAN START.FIRST CLEAN ON MESS
    H] 50% MERGER DA AS ON 1/1/2006. NONE OF CHIEF HAS PUT DOWN FOOT. WHEN SERVING GOT ALL ALLOWNCES ENHANCED WHY NOT MERGER OF DA WAS TAKEN WHICH IS MOTHER OF ALL ALLOWANCES
    K]DUE TO BABUS WRONG ACTIONS OUR PAY/PENSION IS WRONGLY BEEN GIVEN. 13 COURTS INCL SC HAS GIVEN RULING TO PAY SUM OF[ BASIC+GRADE PAY+MSP] WEF FROM 1/1/2006. BUT IT IS LIKELY TO BE PAID FROM WEF 24/9/2012. NO ONE HAS PUT FOOT DOWN & AGAIN WE ARE BACK IN COURT NOW
    2. CHANGE IS IN NOT FAR WAY . DEMOCRACY HAS TO GO AS IT IS ALMOST FAILED & CORRUPTION IS ON ON IT'S PEAK. ARISTOTLE THEORY OF GOVT CHANGE WILL TAKE INTO EFFECT

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  2. PAY COMMISSION "Armed Force pay parity : Meeting on 14th JuneKINDLY PUT STRESS ON THESE POINTS
    1. RANK PAY CASE AS TAKEN UP BY RDOA
    2.[BABU'S FORGOT TO READ CORRECTLY 6tH CPC & CREATED MESS FOR ALL] BABUS'S CREATED MESS FOR READING WRONG "SUM OF PAY BAND " & GAVE MINIMUM OF PAY BAND . NOW 13 COURTS INCLUDING SC HAS DIRECTED TO PAY SUM OF [BASIC PAY+GRADE PAY+MSP], NOW HERE FM HAS TAKEN SMARTLY DATE AS 24 SEP 2012 [THE DAY RECTIFIED REPORT AS PER SC] WHERE AS FM+MOD SHOULD ACCEPT MISTAKE & PAY AS PER 6th CPC REPORT wef 1/1/2006 7 NOT FROM 24 SEP 2012 . NOW WE ARE RUNNING AGAIN IN COURTS FOR IT.3]MERGER OF DA ON ATTAINING DA SLAB OF 50 % .IT HAS NOT BEEN ENFORCED TILL DATE,;IT IS DUTY OF FM TO RECTIFY ANOMALY IN 6t CPC BEFORE IMPLEMENTING IT. BUT FM IS TAKING SHELTER BY SAYING IT CANNOT BE DONE, AS IT HAS NOT BEEN RECOMMENDED IN THE 6thCPC REPORT.IT WAS IN 5th CPC, BUT AN OMISSION HAS TAKEN PLACE IN 6 tH CPC & NEEDS CORRECTION. DA IS MOTHER OF ALL ALLOWANCES. AS SERVING PERSONALS HAVE GOT OTHER ALLOWANCES ENHANCED ON BASIS OF DA AT 50% BY 25% THAN HOW CAN YOU FORGET MERGER DA IN PAY/PENSION AS DP.4]NFU STATUS :
    A.ALL IAS & IPS OFFICER RETIRE IN SUPER TIME SCALE, BUT IN ARMY COL[SELECTION]& BRIG RETIRE IN MUCH LOWER SCALE AND HAVE BEEN DENIED THEIR BASIC FUNDAMENTAL RIGHT OF EQUALITY[ IN SPITE OF DIFFICULT WORKING CONDITION IN FAR REMOTE ]
    B]COL [SELECTION GRADE] SHOULD BE ABOVE SUPER TIME SCALE, SO IS FOR BRIG, BUT IN REALITY IT IS NOT SO. THEY ARE BEING UNDER PAID & DEGRADED PAY & PENSION WITH CLASS IN OFFICER IN CIVIL
    C.TO ADD FURTHER TO IT A DIG WHO WAS ONE TIME JUNIOR TO Lt COL HAS BEEN MOVED TO BRIG PAY BAND AND COL HAS BECOME JUNIOR TO HIM.DIG RANK [TIME SCALE] IS ACHIEVED IN 14 YEARS, WHERE AS LT COL [TIME SCALE] 11 YEARS % COL [TIME SCALE]IS IN 26 YEARS. WHAT AN INJUSTICE TO COL &WHAT A JOKE WITH COL [TS] & GOD SAVE FATE OF COL[SELECTION]Colonel has been equated with Non-Functional Selection Grade (NFSG] WHERE AS HE SHOULD BE IN HAG SCALE & SC DIRECTED GOVT TO REVISE PAY/PENSION OF COL/BRIG BUT NI ACTION.D] A DANGEROUS SITUATION FOR ARMY.BULK OF ARMY OFFICER RETIRES IN COL & BELOW RANK. FOR JUST RS 777/ WHY SLOG FOR LIFE & RISK LIFE.E]A BIRTH TO COWARD ARMY WILL COME TO LIGHT IF THIS SITUATION PREVAIL]5]SUBSEQUENT PAY COMMISSION FIXES PENSION AT MINIMUM PENSION IN THE PAY BAND RATHER THAN THE CORRESPONDING PAY BAND/SCALE FROM WHICH THE RETIREE HAS RETIRED.
    THERE IS TREMENDOUS LOSS TO PENSIONER & LARGE CHUNK OF MONEY GOES TO THE GOVERNMENT. THE BASIC PRINCIPAL OF EQUALITY IS VIOLATED & PENSIONER IS DENIED HIS BASIC RIGHT OF FULL PENSION WHICH GOVERNMENT HAS SANCTIONED AT TIME OF RETIREMENT. IT IS AGAINST LAW OF LAND.IT HAS CASCADING EFFECT
    A] HENCE THE GRADE PAY IS GIVEN AT LOWER RATE,BECAUSE PENSION IS GIVEN AT A LOWER RATE.
    B]DR/DA IS REDUCED; Once basic pension is lowered, THE DA IS ALSO GIVEN LESS YEAR BY YEAR AS DA IS CORRESPONDING TO LOWER PENSION FIXED.
    WITH WARM REGARDS

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