Gaurav Palvia wrote to me about his investment approach after reading my request on the OneMint poll results post. I am reproducing his email below (edited slightly), as I think it presents an interesting angle to investing, and how he approached the subject.
My favorite part is when he called up all the agents to meet him, and got free advise from them. Pretty clever.
Here is what he says:
I am writing this as a follow up on your suggestion on “Results of the OneMint poll” to write our experiences about investing.
I am a software engineer working in the software industry for last 10 years.
I started looking into investments/finance around 2008 as a hobby/alternate profession ..something to pass my time if I get bored with my daily designing/coding routine.
I got interested in it, so i am pursing CFA from www.cfainstitute.org. Cleared level-1 of it in 2009 and now preparing for level-2 in my spare time.
I thought I will share some info/knowledge/experience I gathered during this period.
I recall somewhere I read that “WEALTH GENERATION IS A VERY SLOW AND BORING PROCESS”. I think it says it all…
I mean… one in a million can become Rakesh Jhunjhuwala who accumulated huge wealth at such a young age.
If you think you have that kind of skill then you should just follow your gut; take as much risk as you can ..in the stock market..do trading…whatever…
For the remaining people like us ; we need to clearly understand the above principal of wealth generation…..and not give up.
In a nutshell – the above principal says…”do your homework on a regular basis and have patience”
Though I have a DMAT account since 2001, and I made a little money during BJP’s disinvestment phase by investing in Shipping Corporation in India and then in VSNL, but that time I was a speculator and I made money just by speculation, – and may be I got lucky.
I had bought SCI at 36 and sold it when it reached 91…so made a real cool profit.
But it’s only after 2005 I started taking investment a little more seriously. I inquired with colleages..and someone recommended me an independent financial advisor who suggested me some XYZ mutual fund using SIP. I sold it last year and made no profits out of it even though I kept it for 3 years or so.
So I said to myself that when everybody is making money from mutual funds…why am I not able to do so? I searched various sites but I was still not able to decide which site to trust for information…so I thought of a different plan..and a witty one 🙂
I called CitiBank and asked them for financial planning…in 2 days time their representative came to meet me..and suggested me varios plans and a 4-6 mutual funds.
I did the same with HDFC/ICICI/AXIS and in 2 weeks time i had all the data suggested by all these representatives.
I just zeroed in on those mutual funds that were suggested by all these representatives…the common ones….and then did a SIP on these Mutual funds on my own from my ICICI Dmat account.
And I could double my investment in exactly 2 years of time…last month I sold them as I needed some cash. So this was my first real profitable venture.
But during the time I kept reading…and reached on some conclusions as how investment should be done by a retail investor.
So I am just listing those ideas ……
1. I think for retail investors SIP / Mutual fund is the easiest way, as it shields us from doing all the equity analysis.
Equity analysis is a real full time job, and I suggest let’s leave it for experts. Mutual fund houses spend all their time/money/energy into it so a retail investor should just choose 4-5 well known mutual fund houses and invest money as per his risk appetite.
It also does not mean that choose any mutual fund from these houses. I think one should look for the following qualities in a Mutual fund:
a. Past 3-5 years annual returns. I guess any Mutual fund that gives above 20% return is good enough. But as we compare returns from other mutual funds…we may think even 20% is less so its best to choose a 3-star to 5-star rated mutual fund.
I normally check the rating of the fund from www.valueresearchonline.com. They have rated all the funds.
b. Credentials of the Portfolio Mgr. If the Portfolio Mgr is a C.A + CFA + IIM and has 15 years of exp in the industry and a proven track record..what else do you need? There are very less chances for him to make mistakes than for people like us who dont have that kind of credentials and experience.
c. Net Assets. Its very important to check the Net Assets of the fund. I will never invest in a fund which has say 10-50 crore of Net Assets only. It may return great returns..but it is that risky as well.
I will rather go for a fund which has atleast 500 Crore of net assets; has a established reputation…in the market for quite some time.
2. The second important question when a retail investor starts investing is..which mutual funds he should choose.
We keep hearing abt lot of sectors (Tech/Realty/Power etc) doing good at times…and keep hearing how some made fortunes by investing in these sectors.
But I think some one who is just starting to invest; he should not get bogged down by such stories.
I think if you areÂ a beginner, and if you can do a SIP in 5 mutual funds then you can choose 3 Equity diversified funds and 2 sector specific funds. But before investing – remember to check their rating/past history from a rating agency.
3. When to invest: I think if you are going the SIP way; it does not matter when you start investing. Because of the regular investing you end up buying units at an average cost…unless one is really unlucky and he bought all the units when the market was doing exceptionally well…and is now not expected to do the same in next 5 years or so.
But I guess it does not happen that way practically..if you choose reasonably well mutual fund and keep invested for 3 years or so ..you will earn reasonable returns.
As I said initially i had invested in a Mutual fund..and kept it for 3 years..but still i could not make much money of it.
It didnt mean that I lost money…I could still recover all my principal. The reason i did not make any money because i was fooled by an independent finacial advisor and I selected a completely wrong mutual fund scheme.
4. When to exit: I can suggest a couple ways as when a retail investor can exit
1. Set a target as when to exit. If i set a target that if i get 35% returns and it is good enough for me; then I should exit when i get 35% returns.
The other way can be that when I will get say 35% return I will just recover my intial amount and keep the remaining 35% to grow.
In this way I will never loose any principal and allow my remaining 35% to grow as well.
One can make it a little interesting as well by first recovering the amount that one could have earned in that much period in a bank F.D and keep the remaining invested. This way one can be sure to earn the bank interest rates on his principal and have the remaining to take all the financial ups/downs. This way I think I won’t lose my sleep atleast.
I think looking at the current times and Indian economy one should be more than happy to achive 35% return annualy and recover his principal when he gets total 50% return. So recover your principal when you earn 50% return and keep the rest of the money invested.
I am not a daily trader and don’t believe in daily trading as my profession is quite time taking and does not leave me with much spare time; but i keep a watch on my funds/economy/markets and I will never sell in panic but I will always sell when I see exceptionally good gains.
Also I am not discouraging some one to not invest directly in equities/commodities. I never found sufficient time to do thorough equity analysis myself …so I cant comment on that. But like an average greedy person I also keep on picking things from time to time 🙂
I thought the email was interesting enough and covered so many aspects that it would make a good read for other readers. More than anything else, it shows that investing is a personal journey, and you need to develop a style that suits you the most.
I’d be interested in hearing more such stories, please leave a comment or email me if you prefer that.