Personal Finance - Investment

As reading and writing are essential to participating in society, a person has to be financially literate today to plan for the future. This is essential without indulging deep into technical and jargon-filled financial concepts. The ability to save and the power of compounding is not quickly understood by many people. Investment can be done in various asset classes like equities through mutual funds and stocks, Bonds through mutual funds, Gold, P2P crowd-lending, National Saving Certificate, Public Provident Fund, Fixed Deposits through Banks, NBFC (HDFC Ltd.), Post Office, Real Estate and Currency.

I have started my career in the shadow of the 2008 financial crisis and have been at the receiving ends of the global recession of 2020 due to Covid-19. Both catastrophes have revealed that we could all benefit from a clearer understanding of how markets work. Let us look at the 2007-2010 period for the fall and rise of Sensex. The meltdown in the global financial system proved to be the best time for a stock investment and by March 2009 began the greatest rally seen in equities seen this century.

Companies having good corporate governance and sustainable long-term growth across market cycles recovered from the 2008 crisis. Investment and saving for future shocks take discipline that even middle-income class struggle with. I am hereby sharing the insights before investment:

Checklist for Investment:

1. Systematic Investments (SIPs) are just a methodology to invest, not a winning formula. They are the best means to accumulate. Worst Performing Mutual Funds will deliver poor returns despite the method of investment. And the reality is that not all these investments will generate the expected returns.

2. Don't be a compulsive asset class investors. E.g. a person who loves equity will keep on investing in equity no matter the results. If returns on assets (short or long term) are unconvincing, then there is no point sticking to it. Yet, it is advisable to have a portfolio with different asset classes instead of any single asset class.

3. Get-rich-quick and guaranteed-upside schemes are incubated daily. Investment isn't a poker game! Please do avoid investment in schemes promoted by online marketing companies (Speakasia) and multi-level marketing company (QNET). Whilst investing is not the same as human life, for most people, risk of losing their hard-earned savings can be no less tragic. The moral seems to be that any approach to money-making in the stock market which can be easily described and followed by a lot of people is by its term too simple and too easy to last.

4. IPO is always released in the seller's market with a lot of buzzes and probably have overpriced valuation. Business is not a popularity contest. Avoid hype around a company that didn't even have a basic business model in place. And investment bankers to wealth managers to the media are paid to create hype.

5. Most of the high yield bonds are junk bonds. A combination of macro liquidity and market illiquidity is a time bomb. It always leads only to volatile flash crashes and sudden changes in bond yields and stock prices.

6. The mutual fund market is flooded with multiple schemes: real estate, infrastructure, pharma, technology, close-ended, mid-cap, small-cap, multi-cap, growth, value, and so on. Please do check the last 5 years' performance, exit load factor, and locking period before investment. The investment can be done through direct and distributor in mutual funds.

7. One must find a sound advisor to lay down goals according to their priority and lay emphasis on life goals such as marriage, kids, higher education, and retirement. The fees charged by the advisor should be from you rather than trail end commission from the companies.

8. Public Provident Fund (PPF) is among the best long term investment schemes available in the market. It offers tax-free benefits with an initial lock-in period of 15 years.

Demystifying Stock Investment:

1. Trading is not the same as Investing and its speculation for the majority of the people. Trading is beneficial for the broker by service fee and government through GST. Investing isn't about beating others at their game, it's about controlling yourself at your own game. The right investing process and the ability to hold on for the long term is the way to wealth creation. Not chasing fancies.

2. An individual should own between 10 to 20 stocks as this is an adequate number and avoid excessive diversification. The number can be based on the capital, risk profile, and investment objective. The financial risk lies mostly within ourselves with our habit of feeling restless or relishing a complicated intellectual challenge.

3. We all now know how prominent public and private sector banks in India fudged their NPA figures for years on end until the RBI’s Asset Quality Review forced them to come clean. The same problem exists with several companies exposing them to accounting risk. Most accounting frauds usually come to light when the stock market is tanking and the access to capital starts drying up. Hence, companies with clean management are of paramount importance for investment.

4. A sustainable competitive advantage is a mantra for a successful business. The company’s competitive advantage is the reason for domination in its industry and generates returns much higher than its cost of capital. The sustainability of the competitive advantage enables the company to maintain its dominance and free cash generation ability for long periods. Read about Nestle.

5. Nifty index is not a good representative index. The over-representation of the capital heavy sectors like Power, Construction, Metals, Telecom, Real Estate, and Oil in the Nifty is a key reason for its sluggish performance. The sluggishness of the Nifty makes it relatively easy for reasonably competent PMS managers to outperform the index and unjustifiably claim the presence of skill.

6. Never buy a stock for dividend income alone. Company management and business must be solid and its stock price must be reasonable. If a stock is good 3 months earlier with solid underlying business, it's good now also.

7. Gambling is inherent in human nature. Speculating stock (assumed multi-bagger) should not be more than five percent of the total investment money. Never succumb to the certainty that any industry (eg IT) will outgrow others in the future.

8. There are two methods of investment in the stock market either: dollar cost averaging or buying an undervalued share and simply buying shares of premium companies in a bear market.

10. Don't invest in the sectors in which there is too much government interference (aviation sector). Better to invest in US stock exchange (S&P 500 and NASDEQ) through index funds.

“Invest in businesses that buy commodities and sell brands” is a powerful idea for long-term investing propagated by Warren Buffet. For geeks who want to test this idea, I will share the process (found on the internet )of assessing a stock into a checklist (step 1: check accounting quality; step 2: check the consistency of ROCE generation and revenue growth over the past 15 years; step 3: read the last 15 years of annual reports to assess capital allocation; step 4: assess sustainable competitive advantages, etc)

Footnote: Those have read with patience can get list of companies to invest compiled with limited knowledge.

Acumen Bootcamp - 8th Week Reflection

Part 0, 1, 2, 3 , 4, 5 , 6 and 7 of Acumen virtual bootcamp series can be found here. This is last part of the Acumen Bootcamp series

I had completed all sessions of the bootcamp. And, the interaction with people helped me to define what is leadership. Leadership is an influence. Leadership is born when competence meets character, practical skills meet moral imagination and urgency meets action. I would recommend people to article: Crucibles of Leadership

The last session was reflection exercise by the participants and moderators on the whole 8 week journey. I was introduced to rich network of social-sector leaders from across the world a.k.a Community of Social Innovators. The decline of what sociologists call ‘secondary associations’, where people come together to search and inquire, is one of the processes of atomisation which lead to people being isolated and facing this mass of information alone. I hope a new association can help to navigate me complex and gradually painstaking journey of social change. There is Acumen Academy also, a school dedicated for social change. The goal is to learn and escape from becoming prisoner of my own rhetoric, which makes it even more difficult to adapt new realities.

Feedback: The internal reflection as a leader and a person was the fulcrum of the course. Yet, more time could have been devoted to adaptive leadership in my opinion. The crucible experience was a trial and a test, a point of deep self-reflection that forced participants to question who we are and what mattered to us. Four hours per week is a minuscule time in comparison to the time that is wasted throughout the week. That may be called as a lack of rigor in the whole 8 week sessions. Investment of at-least 8-10 Hours per week would have better returns for fellows and moderators. Thanks to my peers for profound discussions and especially Abbas for moderating interactive session

Asia Landscape - Impact of the COVID-19 pandemic on agricultural value chains

VCB-N has launched a series of Webinars on the COVID crises to offer a platform for learning and exchange about the current situation. This is the summary of the webinar on impact of the COVID-19 pandemic on agricultural value chains by VCB Network.
Speakers:

1. Mr. Barua Kaushik, Country Director IFAD Cambodia & Mr. Fabrizio Bresciani, Regional Economist IFAD Rome - IFAD perspectives
2. Anirban Bhowmik, Country Director, Swisscontact, Bangladesh – the smallholder farmers and the informal sector perspectives in Bangladesh
3. Mr. Andrew Wilson, Regional Coordinator Market Systems, HELVETAS – The market perspective
4. Prof. Liu Yonggong, China Agricultural University (CAU)- The market perspective from China

Summary:

1. The COVID crisis does negatively impact households in three inter-connected areas i) food security ii) income and iii) investment ability. In rural areas, the down-fall of prices has diminished the investment ability thus working capital of smallholder farmers which will again affect the production thus income and broader food security in the mid-term. The decreased ability to invest in next season’s crops is further deteriorated by the insecurity about next season’s markets. Farmers are falling back on local food systems and traditional production and solidarity mechanisms to deal with the crisis.

2. IFAD is using Rural Poor Stimulus Facility having 4 main pillar: i) safeguarding access to inputs and basic access for production purposes ii) facilitating access to markets incl. support to logistics, storage etc. iii) targeted funds to assure access to services mainly through existing programmes and iv) funds to develop / disseminate digital services / tools to farmers. This will help actors to overcome both Income shocks and Asset shocks.

3. Upstream actors like traders and retailers saw their income flow diminishing with falling business volumes and are short of liquidity which hampers their ability to pre-finance inputs for smallholders. Ability to extend credit line to farmers will be reduced for next season as traders are getting hit.

4. Food production chain especially fish will face big trouble in Bangladesh. April and May are the peak season of stocking of fish and many smallholders are not going to stock due to poor transport, price and availability of inputs. Hatcheries are only able to supply at least 50% of their total production and struggling to keep these all fish fry in their limited area.

5. International value chains for non-perishables like the trade in food ingredients are less affected by the logistical complications. As their exists a 6 weeks lag between shipment and retail at destination markets the real impact on trade volumes is still unclear.

6. “Stress reveals the cracks” : Structural weakness of agriculture value chain related to access to finance along the chain (production and forward market linkages) has been exposed in the current food systems.

7. Policy Narrative- Fiscal and Non fiscal: Non fiscal interventions must focus on production support with timely supply of seeds, fertilizers and pesticides. Fiscal support must be given to the farmers to manage their debt and allow them to invest in future production cycles.

8. Technology based entrepreneurs are not enough and form minuscule part of supply chain. Investments should be balanced along the VC (farm-level, storage, processing, logistics, and market access) to avoid bottlenecks which can be a "time bomb" for commodity prices, and farmers' income in the end.

9. Responses at company level should typically include software (adapted procedures, regulations) as well as hard-ware (protective gear etc.).

10. Responses as applied in China might be difficult to duplicate in other countries that lack the mechanisms for direct support to producers or financial reserves to apply similar support measures.

Acumen Bootcamp - 7th Week Reflection

Part 0, 1, 2, 3 , 4 , 5 and 6 of Acumen virtual bootcamp series can be found here.

The topic of 7th session was on Adaptive Leadership. All organizations wants individuals to be invested in the rat race. This always shows better return of investment on the salary.  And we are also engaged in the dance of email, instant messages and meetings. But Reflecting in the midst of action is an age -old wisdom and really difficult to achieve.  The crux of the session was on reflection amid action and vice-versa.

The Practice of Adaptive Leadership Book by Alexander Grashow, Marty Linsky, and Ronald Heifetz was referred for detailed reading.  The best part in the summarized reading was ours Illusion of the Broken System: There is a myth that drives many change initiatives into the ground: that initiatives into the ground: that organization needs to change because it is broken. The reality is that any social system (including an organization) is the way it because people in that system (at least those individuals in that system (at least those individuals and factions with the most leverage) want and factions with the most leverage) want it that way. In sense, on the whole, it that way. In sense, on the whole, the system is working fine, even though it may appear to be “dysfunctional” in some respects to members, and outside observers, and even though it faces danger just over the horizon.

Adaptive leadership requires helping people to gain a clear perspective in midst of action and uncertainty; making sense of complex, often conflicting, signs and data; and sifting through what is most important, and shifting through what is most important, what is at stake, who will support and what is at stake, who will support and who will will resist change.

This transformation is based on “mapping the system” of stakeholders surrounding the challenge mobilizing key stakeholders. A leader has to mobilize resource, goals and transform the organization. Our focus is less about the “problem” and more about other people’s relationship to the problem, and how to engage them in narrowing the gap. This profound shift is done by leveraging leadership capital for excellence into pragmatic steps for the stakeholders.

The stakeholders are spread in the factions like yourself, authority, allies, opposition, causalities and troublemakers with each having their respective Values, Loyalties and Losses. The opinion inside an organization is different and conflict of interest has to be replaced into confluence of interest.

As an adaptive leader, I had not practiced much of the courageous belief in how things should be in the face of persistent problem. I can articulate ‘the gap’ that is a leadership challenge in the development sector. Its about the decay of grant based work and move towards building a service based model. I will use the tool to analyze the problem and relationship of stakeholders in my organization. Hoping the process to be a fascinating reflection on the ways individuals perceive their own experiences but how men and women in particular might forecast the scenario. In the end, I will develop some capability of adjusting to the requirements of different perspectives and transformation agenda.

Acumen Bootcamp - 6th Week Reflection

Part 0, 1, 2, 3 , 4 and 5 of Acumen virtual bootcamp series can be found here.

I approached our readings 14 pages from ‘On Identity by Amin Malouf with great eagerness. Amin Maalouf born in Beirut, is a prolific writer of fiction, non-fiction and operatic librettos. In 2010 he received the Prince of Asturias Aware for Literature. The discussion was focusing on the issue of identity on a very basic level.

The most marketable skill in leaders is the ability to abandon own identity and slip into someone else's. Most of the people have the privilege to associate with identities that can give them access to new opportunities through network only. This was the aspect that was visible in the group. Whatever people understand and enjoy in human products instantly becomes theirs, wherever they might have their origin. This is true in most of the cases.

I stepped up and shared the experience that is related to imposed identities connected with stereotypes. Stereotyping and malign propaganda always led to the labeling of the person under an identity. An individual trapped in an limited identity will be exploited by authoritative state or community politics. Such imposed identities puts constraint on the individual's open interaction with another individual belonging to different belief system. The dilemma of choosing between integration and emigration from mainstream identity & picking either freedom or security are most tough of all decisions for an individual. There is huge relation between identity, tolerance and violence. Due to shortage of time and lack of depth in the panel, the relation wasn't explored in the meeting. There is a huge topic of identity politics and social justice movements that can be discussed in a class of sociology or political science. I will recommend readers to go through Identity and Violence work by Amartya Sen for a deep dive.

Assignment: An assignment was given quite similar to privilege walk.  We have to design a flower petals with each petal representing a factor of influence in society. It is good incubation exercise for individuals who have never wandered into the areas of humanities and social science.