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Capital Letter January 2012
Capital Letter January 2012
CAPITAL
LETTER
Volume 4
Issue 01
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Investing in 2012
BY DHIRENDRA KUMAR
This short article is about investing in 2012. Actually, that doesnt define the subject
with enough precision. It could be about how investments will do in 2012; or, it could be
about where to invest in 2012. Those are two different things.
About how investments will do in 2012, frankly, I dont think its possible to make a prediction with any degree of precision. To anyone who is a knowledgeable and aware, and
that would definitely include readers of this newspaper, the business and investment
landscape would be familiar. Indian equities are looking decidedly downtrodden, but
thats not to say that they cant be trodden upon even more. Declining corporate profits,
worsening government finances, high interest rates and the constant overhang of further
drama in Europe could well make things even more difficult in the coming year.
Indeed, the mood djour among the investment and business community is one of extraordinary pessimism. However, its entirely possibleI would say even probablethat this pessimism has now moved from being a rational
response to real problems to being a sort of an irrational melancholythe opposite of Alan Greenspans much maligned irrational exuberance.
One can only hope that this pessimism does not become self-fulfilling prophecy, which can easily happen. Among
business decision makers as well investors, a widespread expectation of bad news will itself become the cause of
bad news. My guess is that sooner rather than latercertainly, long before 2012 endsthere will be a change of
perspective. Investors will start paying more attention to how reasonably-priced investments.
At this juncture, one should step back and take in Indias economic history in large, ten-year swathes. If you select
any ten-year period in the last forty years, there has always been a vast improvement. Were things better in 1970 or
1980? The answer is obviously yes. 1990 or 2000? 1984 or 1994? 2000 or 2010? Its the same answer every time.
When you stand back and take a ten-year perspective, the forward surge of Indian economy and businesses is always obvious. Certainly, some ten-year periods are better than others but the situation never regresses. Some
might say that a ten-year period is too long, but thats not much longer than what would qualify as an appropriate
period for a long-term equity investment.
Now, its possible in theory that the next ten years will be different and the country will be much worse off in 2022
than it is now but I wouldnt give too much to the chances of this happening.
Thats as far as the general investment environment goes. As far as the actual investment strategy for the individual
investor goes, thats no different for 2012 than it was for 2011 or for any other year. Investors should keep money
they might need over about the next two years and keep that in fixed-income options like government smallsavings schemes or debt mutual funds. Everything else that is for the longer-term should be invested gradually
into equity-backed funds. The best way to do this is to choose a small number of balanced and/or diversified equity
funds and invest through monthly SIPs. Its a simple and effective strategy, and has the advantage of not changing
from year to year.
Disclaimer: Mutual Fund Investments are subject to market risks. Please read all scheme related documents carefully before investing.
There are some basic rules for investors and more importantly for Retirees:
1. What you do not understand, is not worth knowing: If a financial planner tells you Sir, you do not understand
this, I will explain it to you please be IMPOLITE and ask him to .. (unprintable!). NOBODY (repeat NOBODY) is interested in teaching you. Normally it is in the interest of the oil skin salesman that you understand
LESS, rarely more. Unless of course he is a professor. If he is a professor, he is not really interested in teaching
you, so he will not attempt.
2. Be careful of what your broker can do for you: First of all have less expectation from your broker. Then meet
him. Then lower your expectations to the right level. He is interested in getting you to fill some forms, buy some
shares, mutual funds, unit linked pension plans, etc. YOU and YOU alone are interested in knowing what is good
for you. Take inputs from your broker, use your OWN brain and then decide. If he pushes you for time, ask him to
take a chill pill.
3. ANYBODY who has a secret way of earning more is telling you a LIE. A pure blatant lie. There are no secrets
that people go around giving free to all and sundry. Sadly some such people go around the world -and they have a
fantastic affinity to recent retirees sitting on Rs. 85 lakhs and wondering what to do with that money. Be damn
careful.
4. Oil skin salesmen today have many qualifications, be careful. Once upon a time you could trust your banker
but like I said that was once upon a time! So in the alphabet soup of qualifications they pick up a few alphabets
and threaten you with their lingo. See point 1. What you do not understand is NOT WORTH KNOWING especially
once you have retired.
5. Do not be overconfident (It cannot happen to me syndrome): Remember that is what everybody thinks, till it
actually happens. Be careful. Ask your kids, friends, neighbors,.but decide on your own.
6. THE MOST IMPORTANT one: know whom to trust. Not your brother, brother -in-law,..boss, exboss,
banker.remember finding the right person is not easy, but it is a MUST and you should have 3-4 people with
whom you can discuss. Choose such a person carefully.
Risks are worth taking, only if you understand them.
If you are sitting in a group where investment advice is being given FREE and you do not know who is paying the
bill, boss it is you. You are sucker who is being had :D
Disclaimer: Mutual Fund Investments are subject to market risks. Please read all scheme related documents carefully before investing.