Why Women Need to learn Money Management

Source: The Economic Times

Author: Ms. Uma Shashikant

Sometimes it is unclear, especially to inheritors, whether the wealth they receive as bequest is actually theirs to use as they wish. The lady I met last week was somewhat prepared for her husband’s demise. He had been unwell for a long time, and his failing liver did not offer much hope. Their children were grown up, working and living elsewhere comfortably. She remained unclear what she should be doing with her inherited wealth.

In this case, the paperwork was in order. Her husband had listed every single asset they owned, with all the details of ownership and nominations. He did not write a will, but she was the joint owner of every asset they held and he had told her that she was free to write a will and allocate the assets as per her wish. This is a straight-forward case of comfort and agency, right? It did not seem so to her.

Dilemma about routine tasks

She had only known spending when it came to money. She had no clue what needed to be done to manage it. All her life, she had turned to her husband when money was required, and he had made allocations after considering if the proposed spend was reasonable. She told me that he rarely turned her down, but she did not know what he had done to generate the money she asked for. Now that the assets were all hers, she was perplexed about the simplest of questions.

For instance, they receive rental income from another property they own. The lease of this property is drawing to a close in a couple of months. She does not know how to appoint a broker, negotiate the terms with prospective tenants, and close the deal. She worries about the repairs and cost to be incurred; she is tense about the lease agreement that she has to read and can’t simply sign off; and she is not sure if a corporate lease is better than renting to individuals. She receives conflicting advice on every aspect, and is frozen in indecision. They don’t have a pension and she depends on the rental income for routine expenses.

The same anxiety prevails over simple decisions like renewing a bank deposit, redeeming investments for cash needs, and selling equity shares that are in the demat account. She is wary of advice from outsiders and her children do not have the time to explain how all this works. She asked me where she should begin and how she could learn personal finance so that she knows how to take care of her inheritance. This is an otherwise smart woman, who has managed her household efficiently. She just knew nothing about money.

We began with her list of assets. She had no liabilities or loans. I asked her to classify each one; whether it was hers to use or she would just like to be a custodian and pass it on. She found it difficult initially, choosing to be a custodian for most part. As we went through the list of items, she began to relax and understand why it was important to use the assets.

I explained to her the ideas of growth and income; how she needs income from some of her assets, and how she must let others grow in value over time. She grasped the idea well, but worried about growth being volatile. Everyone understands nominal values, but not the changing rate of growth. A negative rate or depreciation in value is an absolute nono. She liked gold and property because their nominal value only goes up. She was anxious about equity shares and mutual funds as the value can go up or down. We decided to revisit this lesson again in greater depth.

We then identified where her income would come from. She quickly understood how her assets must generate the income she needs. She was quick to understand allocation of assets to income and growth because of her focus on income. We worked on this idea and soon were able to put in place an allocation for a five-year period, where her assets would generate the money she estimated she would need. A combination of income-distributing funds, deposits, rental income and a small periodic liquidation of financial growth assets was all that was needed. We kept it simple and agreed to talk through all questions that would arise along the way.

Move beyond spending

My primary concern at the end of this exercise is about the serious repercussions of reducing the role of women in households to mere spenders. They need to learn precious financial lessons about how wealth is built through assets; how assets work for personal financial needs; what it takes to manage them —review, reallocate, revise; why assets make sense even if they seem risky; what one should know to manage returns and risk; and how one can order and understand the hierarchy of assets for various personal financial uses.

Women may be dealing with money in terms of bargaining for the best deal for what they buy. They may be allocating money for various competing expenses, and they may be comfortable saving and hoarding money in physical assets like gold, whose nominal value moves upward with time. Have we somewhat normalised this association in many households, where women’s efficiency is measured merely with respect to her spending decisions, or perhaps a conscientious desire to save, which is also defined by spending lesser or getting a better deal?

What about investment decisions? What about asset allocation decisions? What about strategic decisions with respect to growth and income? Are they making these decisions with the information and involvement that they need? For many independent women who know how to manage money and assets, are there also many who haven’t moved beyond using money merely to spend? This thought leaves me very worried.

Seven money secrets the rich don't want you to know

Source: MSN Money

Ask most personal finance experts and they'll tell you the secret to becoming rich is no secret at all: Work hard, live below your means and save every dime. The nation's One Percenters, however, might disagree.

There's no shame in a modest lifestyle -- even Warren Buffett lives frugally. But if your goal is to get rich, it's helpful to know these seven secrets the ultra-wealthy aren't likely to share.

1. Salary isn't the whole story

Climbing the corporate ladder will only get you so far; at some point, you reach your earning potential and plateau. The rich know that in order to grow wealth, it's important to make your money work hard for you -- not the other way around. In fact, Robert Kiyosaki, author of the No. 1 best-selling personal finance book "Rich Dad, Poor Dad," built his entire money philosophy around this concept.

Generating income from passive, rather than active, income sources is the best way to do this. Investments that yield passive income include dividend-paying securities, rental properties, profits from a business you do not directly manage on a daily basis -- even royalties on creative work or inventions.

2. Take advantage of time, not timing

If the recent Dow Jones crash proves anything, it's that no one can predict what the market will do tomorrow. The wealthy know this and make no attempt to moonlight as day traders.

"Time is more important to investment success than timing," explained Peter Lazaroff, a certified financial planner who manages portfolios upwards of $10 million for Plancorp, LLC. "Most of the population believes that timing the market's moves is the key to growing rich through the stock market. The wealthy, however, understand that time and compound returns are the most important factor in growing wealth."

Though it might seem counterintuitive, getting rich requires investors to adopt an unsexy buy-and-hold strategy, ride out market fluctuations and ignore speculation.

3. Put it in writing

The difference between having an idea and putting it on paper is often what separates the uber-successful from average folks. And if you equate success with wealth, it might be time to start writing down your goals, both large and small, in order to become rich.

Thomas Corley, author of "Rich Habits: The Daily Success Habits Of Wealthy Individuals," noted that 67 percent of the wealthy people he surveyed wrote down their goals, while 81 percent kept a to-do list. If your goal is to become a multimillionaire, write it down along with an action plan for making it happen.

4. Understand value over cost

According to Justin J. Kumar, senior portfolio manager at Arlington Capital Management, "The wealthy person has three best friends: her attorney, her accountant and her advisor. The wealthy tend to use the law and tax code to their advantage when figuring out how to maximize their wealth, especially over multiple generations, and they are not afraid to spend money up front for counsel to get these answers."

Kumar explained it's common for middle-income Americans to cut corners in order to save money, yet ultimately find the results lacking. "The wealthy look at value over cost, but they are still prudent in their decisions," he said.

5. Eat out less

People who are concerned with saving money often skip the daily latte. The rich enjoy small splurges such as Starbucks whenever they want and instead look at saving from a bigger picture.

Author Paul Sullivan and colleague Brad Klontz, a clinical psychologist with an academic appointment at Kansas State University, conducted research on the difference in spending habits of the 1 percent and the 5 percent. The 1 percent spent 30 percent less on eating out and saved it for retirement instead. "And that, more than the cost of a Starbuck's latte, is what, over time, separates the wealthy from everyone else on the wrong side of the thin green line," Sullivan wrote in Fortune.

6. Be your own boss

Employees work to make their bosses rich. If you're aiming for true wealth, consider starting your own business. According to Forbes, nearly all of the 1,426 people on its list of billionaires made their fortunes through a business they or a family member had a hand in creating.

"Many middle class workers think that starting a business is too risky," noted Robert Wilson, a financial advisor and frequent contributor to CNN, NBC and CBS. "The wealthy understand that what's risky is allowing your time and earnings to be dictated by a boss who couldn't care less about whether you get what you want for your life."

7. Use other people's money

To the average person, "it takes money to make money" might sound like a tired cliche used to justify irrational spending. For the rich, it's a golden rule of wealth. The key is leveraging other people's money to increase your own wealth.

"Trading time for dollars is a losers' game, especially as technology destroys many jobs that don't require a highly skilled human being," said Wilson. "Using money from banks/investors and hiring people to work for you is a time-tested formula for building wealth, not to mention the tax laws, which heavily favour businesses."

Whether you're fundraising to start a business or flipping real estate for a profit, relying on other people's money to do the heavy lifting greatly increases the return. Of course, it's also riskier than relying on your own funds. But if you follow the sage words of the great Warren Buffett, consider that "risk comes from not knowing what you're doing."

Credit policy can be your cup of tea

Source: The economic times.

The credit policy uses various esoteric terms such as the cash reserve ratio (CRR), reverse repo rates and increased provisioning. While the broad impact of such policy measures is communicated, many loan takers are at a loss to understand how these impact the rate at which they get their housing or auto loan. This story explains the mechanism by which broad monetary measures initiated by the central bank impact you.

After the recent credit policy, where RBI hiked the CRR, most banks have kick started another round of hikes in the prime lending rate (PLR). A hike in this prime lending rate directly impacts rates on loans. Here is what the measures mean for you.

Hike in CRR and its impact

Cash reserve ratio is a portion of deposits every bank has to keep with the RBI as stipulated by the section 42 (1) of the RBI Act 1934. A hike in CRR curbs liquidity by leaving fewer resources for banks to lend out of every rupee deposit they accept. The objective of a hike in CRR is to mop up the excess liquidity in the banking system. But does a hike in CRR have to translate into a rate hike? The broad rationale is that after such a hike, a smaller pool of money is chased by the same number of borrowers. This increases interest rates. But, banking analysts say a hike in CRR may not necessarily push up interest rates immediately. Even as banks park more cash with the RBI as reserves, the banking system may witness surplus liquidity for a temporary period. Hence, unless the demand for credit picks up to the extent that all the money is lent out, banks will not have an incentive to raise interest rates.

Repo & Reverse Repo Rates

The repo and reverse repo rates are the overnight rates of interest that a bank pays or earns for borrowing and lending money, respectively, to the Reserve Bank of India against/for government securities. These rates set the floor and ceiling for risk-free overnight borrowing and lending. Any loans to corporates/individual will have to be done by adding the risk premium depending on the credit rating of the borrower. The repo and reverse repo rates set the direction for other lending rates. A rise in the reverse repo rate translates into a higher cost of borrowing for ordinary customers because if banks have the option to earn say x% by lending risk-free to RBI, they will want to earn more when they lend to others. Also, when RBI raises the reverse repo rate, it may reduce the overall liquidity available for lending to borrowers as some banks may find it attractive to lend to RBI. Sometimes, RBI may not tinker with the key rates in the monetary policy, but it may drop a hint on the future direction of interest rates. Always read between the lines of the policy to see if the central bank governor says interest rates are likely to be neutral but may harden in the short to medium term. Then you could be more proactive to structure your borrowings and investments accordingly.

Hike in Reverse Repo

Banking experts say, the interest rate on fixed deposits are often triggered by at least a 0.5% hike in the reverse repo rate. But a 0.25% hike in the reverse repo rate is enough to push up the lending rates. This is because of the fine pricing of loans products in the market because of cutthroat competition.

Hike in Provisioning Requirement

This simply means that banks will now need to provide more capital while disbursing loans or on the borrowers’ credit card outstanding. Higher provisioning curtails overall lending to some extent as more money has to be set aside for every rupee lent. These measures result in lending to these sectors becoming more costly, thereby pushing up rates. A higher provisioning, apart from setting aside more capital, also impacts the bank’s bottomline.

Happiness does not buy you money (Book Review)

Source: The Hindu Businessline.

What type of business should you invest in? "A business that even a fool can run, because someday a fool will." If that jolts you, here's another insight: "With enough inside information and a million dollars, you can go broke in a year." And yet another: "No matter how great the talent or effort, some things just take time: You can't produce a baby in one month by getting nine women pregnant." With more of such amusing, inspiring, shocking and irresistible quotes is packed The Tao of Warren Buffett, by Mary Buffett and David Clark, from Scribner (www.simonsays.com). The book dips into the insights of the iconic investor, the oracle of Omaha, `to help guide you to billionaire wealth and enlightened business management.'
To Buffettologists, the aphorisms in the book can be `akin to the teachings of a Taoist master,' notes the intro. `The more the student contemplates them, the more they reveal.' The first rule reads, `Never lose money.' The larger the money you lose, the greater the impact on your ability to earn money in the future, reminds the book. Another rule exhorts: "Never be afraid to ask for too much when selling or offer too little when buying." On this, the authors offer an important explanation: "Once negotiations begin, you can come down in your selling price or up in your buying price. But it's impossible to do the opposite." Of practical relevance is Buffett's declaration — "You can't make a good deal with a bad person." Reason: "People with integrity are predisposed to perform; people without integrity are predisposed not to perform." Thankfully, "the world is filled with enough good and honest people that doing business with the dishonest ones is pure foolishness." A related moral is that `it is easier to stay out of trouble than it is to get out of trouble.'
You may perhaps know that money does not buy happiness. Buffett adds a corollary: "Happiness does not buy you money." Another money-related rule concedes that money can, to some extent, let you be in more interesting environments. "But it can't change how many people love you or how healthy you are." One source of misery with the riches is the worry about passing it on to the next generation. No, don't, Buffett would advise. Because, according to him, "Children who inherit great wealth tend to do nothing with their lives." A country prospers better if society is a meritocracy, with people earning what they get, he believes.

Magic kiss?What is Buffett's view about `businesses with poor economics selling at what seem to be bargain prices'? Turnarounds seldom turn, he'd say. "Poor businesses remain poor businesses regardless of the price you pay for them. The price of the stock may change, but the underlying character of the business tends to remain the same." Isn't there the power of the magic kiss that a dynamic CEO can offer? "95 per cent of the frogs they kiss remain frogs — and the 5 per cent that do turn around probably weren't frogs to begin with." The authors note that after kissing a few frogs in his life, Buffett concluded that they don't taste very good!
A section titled `analysts, advisers, brokers — follies to avoid' begins with this diktat: "Never ask a barber if you need a haircut." The rule holds true for a host of other professionals too, such as `investment bankers, management advisers, lawyers, auto mechanics, lawn-care consultants, and the like.'

Fun read.
Take forecasts with a pinch of salt, counsels the book, because `forecasts usually tell us more of the forecaster than of the forecast.' Remember: "Forecasters don't have a crystal ball that they can see into the future with, but they do have mortgages that need servicing and children who need to go to college." Every profession is ultimately a conspiracy against the laity, rue the authors. "No one ever asks why, if they are so smart, do they need other people's money to get rich? Maybe they need your money because the game doesn't have anything to do with you making money off investments." An apt quote of Woody Allen stares from the pages: "A stockbroker is someone who invests other people's money until it's all gone."

Direct debit: End to payment worries?

Source: The Economic Times.

Direct debit is a facility that allows your bills to be paid automatically using your savings account. For example, let us assume you have a credit card with XYZ Bank and you want to pay the credit card dues through the direct debit facility. All you have to do is fill out a form that authorises your bank to make payments at XYZ Bank's request. Once the bank has accepted your authorisation, your bill payment will automatically be credited to your credit card account from your bank account. You can find this form on your bank's website or at a branch office. The bank usually offers flexibility in this facility: total amount due and minimum amount due. In the former option, you could ask the credit card company to debit the entire outstanding bill amount from your savings account. In the latter, you could assign a limit on the monthly debit. If your credit card bill is more than the stipulated limit, you could pay the outstanding balance by another payment mode altogether. This would help you monitor your outgo to some extent.

Things to know

1. Saves you time effort and the arrears: The most obvious benefit is that you save all the time on writing/signing a cheque and walking into an ATM to drop it. Moreover, since the bill would be paid on time, there is a remote possibility that you would ever get into arrears with bill payments. Hence, you would be saved from the hefty late payment penalties. Disciplined payments would enhance your credit rating, which should help you in getting a better deal on home or auto loans.
2. You lose the control to the banks: If you have a credit card with Y Bank, you have to sign a declaration form to avail the direct debit facility. It reads like, "I promise not to close the account without the consent of Y Bank. I declare that if any transaction is delayed or not effected for any reason, I shall not hold Y Bank responsible." Simply , if your bank is unable to release the full amount, you will incur bank charges if the company requests the direct debit. "I further agree that I shall inform my bank of these debits and that the auto debit instruction cannot be withdrawn/cancelled except with the written consent of Y Bank." So, when you want to withdraw the direct debit facility, you have to seek a formal permission from your credit card company. Moreover, if you do not clearly indicate the option of debiting the minimum amount due or the total amount due, Y Bank can activate the option of minimum amount due by default.
3. Choose the right date: In most cases you can choose the date when you would like the payment to go out. Then, you could avoid the unexpected penalties by choosing the date nearest to when the salary is credited into your account. For example, if your salary is credited on the 25th of each month you can set up a direct debit on the 2nd so that you are comfortable with funds. Avoid setting direct debits in the middle of the month when the balance may be low on account of other expenses.
4. The liability is on you: If your savings account does not have sufficient funds, you will be liable to pay late payment charges as indicated in the terms and conditions of credit cards. In such a case, you do not get a grace period of two to three working days, which you would get in the conventional drop box method while a cheque is being cashed.
5. Direct debit guarantee: This simply means that if your bank or credit company slaps a wrong bill on you, the concerned party would refund the amount directly into your account. This comes into effect when you are wrongly billed for a credit card transaction. Suppose a credit card company has wrongly billed you a sum of Rs 2,000 on apparel and your bank debits the amount from your savings account (as per your auto debit instruction), you are guaranteed to get back your money. All you have to do is talk to the customer executive of the credit card company to complain on the wrongly billed item. You can follow it up with a letter for a written proof. Send an additional copy of the letter to your bank, from where the amount has been debited. The credit card company would refund the amount directly into your bank account.

Is this the right option for you?

Direct debit facility is known to be hassle free with easy maintenance. But is it the right option for you? If you are a person who worries about strangers making payments on your behalf, it is better that you take things in your hands. You can see what you are paying for. Also, direct debit may not be the best option if you are a self-employed individual and see a fluctuating income. You may find it difficult to budget your expenses. Finally, you can lose track of spending and overlook the errors, thereby paying a higher amount.

Smart surfers vs blinded rabbits (Book Review)

Source: The Hindu BusinessLine.

If you don't like to read a book on investment written by a drummer who `once played with a well-known 80s pop group' you can skip this. For the rest of us, though, here is The Next Big Investment Boom, by Mark Shipman, from Kogan Page (www.vivagroupindia.com).
The book is on `the secrets of investing' and on `how to profit from commodities,' and it begins with an exhortation that you take responsibility for your money. "The majority of the working population will spend over 75,000 hours at work and, even on average earnings, will earn over £1 million in wages. However, when it comes to retiring there is a high probability that very little of this money will be left." It's a sad fact that most people never achieve their true potential for building wealth, rues the author.

Take control
The bulk of wealth is created from investment rather than employment, says Shipman. Therefore, "it makes sense to focus more of your time on where you are going to invest your money than on how you can earn more of it," he argues. "You owe it to yourself to take control of your financial planning and your financial future," rather than "burying your head in the sand when the subject of finance or investing comes up." Successful investing doesn't require above-average intelligence, assures the author. "It is not an intellectual challenge; it is an emotional one." All you need is "a certain mental attitude and the discipline to follow an approach that exploits major long-term trends whenever they occur." The path of `trend following' that the author outlines is about `buying assets that are rising in price and selling assets that are falling in price.' Explains Shipman: "As a trend follower, I never set price targets or attempt to predict how far the market will move. Instead, I am just happy to sit and wait for the market to make its first moves and then jump on for the ride — just as surfers look to ride a good wave."
Investing is a mental game, notes a chapter on the psychology involved. "Successful investing is more about maximising your profits when you're right rather than the number of times you are actually right," instructs a section titled `get used to losing.' For, it is a fallacy that a successful investor has to be correct all the time, as Shipman declares. "The only true measurement of our skill is how much money we make."
An essential mental attribute is discipline — "to remain with your investment strategy regardless of what you may hear or read to the contrary." A testing time can be the final stage of a bull market — "when everyone is talking about it and participating in it and the media are giving publicity to anyone who is making wild predictions of `just how high prices could go'." If your strategy finally indicates that you should liquidate your investment and cash in, that's when you'll need the discipline actually to instruct the broker to sell, counsels the author. What happens to those who lose their discipline at such a juncture and choose, instead, to remain invested? "Having already abandoned their plan and now without a clear strategy to guide them, they become mentally paralysed, as they can't believe what's happening to their investment and the profits they once had."
And something more gruesome happens: "Stuck like rabbits in car headlights they often take to staring at their market quote machines, market data websites or the financial television channels in disbelief, hoping and praying that prices will recover to their previous levels so they can close their positions without too much damage." Enlightening read, about how timing works, as much for investors as for drummers.

Keep your New Year resolution

Source: The Economic Times.

Keep your New Year resolution

New Year's Eve has always been a time to look back at the year gone by and more importantly to anticipate the coming year. It's a time to reflect on the changes we want or need to make in our lives. Keeping New Year resolutions can be difficult; whether you have resolved to lose weight or quit smoking. Read on to find out how to stick to them.

Be realistic

The biggest mistake people make is aiming for something unattainable. Deciding to never eat your favourite desserts again could be a bad choice as sooner or later you will give into the temptation so try to stick to resolutions you know you can keep.

Plan ahead

Don't make your resolution on the day before New Year. If you wait until the last minute, it will be based on your mind-set on that specific day. Instead it should be well planned in advance. Take some time to reflect on what you want to achieve for the following year.

Make a thorough plan

Decide how you will deal with the temptation to have one more cigarette or give into your fears. This could include asking a friend for help, or practicing positive thinking. Have a backup plan as well.
Make a list

It always helps to have your resolution written down on paper. This will keep you motivated. Develop this list over time and keep it with you in your purse so that you can refer to it when you are tempted to break it.

Talk about it

Don't keep your resolution a secret. Tell your friends and family who can support you. If it's a resolution to quit smoking they will completely support you. The best idea is to find someone who has a similar resolution in mind.

Reward yourself

As you keep sticking to your resolution reward yourself from time to time. This will keep you focused on your goal and everyone needs some encouragement.

Track your progress

Keep track of every positive step you make towards reaching your final goal. Short-term goals are easier to accomplish and will keep you looking forward to the final goal.

Don't beat yourself up

If you do slip, don't make a big deal of it. Do the best you can and take it one day at a time.

Don't give up

Research shows that to change a particular habit you need lots of time. So don't give up mid-way and try to stick to your goal.

Keep trying

There's no reason not to start over again. Even if you failed once, you can still try again.

New Year resolution facts

63 per cent of people keep their resolutions after two months. 67 per cent of people make three or more resolutions. Top four resolutions: Increase exercise. Be more conscientious about work or school. Develop better eating habits. Stop smoking, drinking, or using drugs. People make more resolutions to start a new habit, than to break an old one.

Azim Premji's seven steps to success

Source: The Economic Times.

It is usually a pertinent question in everybody's mind - how do achievers approach their task at hand - do they do different things or do they do things differently? I came across a beautiful text - that was the essence of the talk delivered by Azim Premji - the architect of Wipro Technologies. This surely gives us an insight into the essence of the shloka from Bhagvad Gita - which says - Karmanyeva Adhikarah Te, Maa Phaleshu Kadaachana... One has the right over one's actions and not the fruits thereof. It was always interpreted the wrong way and people feel that it is the fruit that attracts the performer. However, many events in our life bring us face to face with people - who draw inspiration from the kind of work they do and the way they do it. Interestingly, such people are motivated by the values and the vision that they carry in their heart. Only such people rather rise above others and can give a broader and better meaning to their life. This is how he briefly shared his thought with others:

Lesson 1

I am very happy to be here with you. It is always wonderful to be with young people. The funny thing about life is that you realise the value of something only when it begins to leave you. As my hair turned from black, to salt-and-pepper and finally salt without the pepper, I have begun to realize the importance of youth. At the same time, I have begun to truly appreciate some of the lessons I have learnt along the way. I hope you will find them useful when you plan your own career and life. The first thing I have learnt is that we must always begin with our strengths. From the earliest years of our schooling, everyone focuses on what is wrong with us. There is an imaginary story of a rabbit. The rabbit was enrolled in a rabbit school. Like all rabbits, it could hop very well but could not swim. At the end of the year, the rabbit got high marks in hopping but failed in swimming. The parents were concerned. They said, "Forget about hopping. You are anyway good at it. Concentrate on swimming." They sent the rabbit for tuitions in swimming. And guess what happened? The rabbit forgot how to hop! As for swimming, have you ever seen a rabbit swim? While it is important for us to know what we are not good at, we must also cherish what is good in us. That is because it is only our strengths that can give us the energy to correct our weaknesses.

Lesson 2

The second lesson I have learnt is that a rupee earned is of far more value than five found. My friend was sharing me the story of his eight year-old niece. She would always complain about the breakfast. The cook tried everything possible, but the child remained unhappy. Finally, my friend took the child to a supermarket and brought one of those ready-to-cook packets. The child had to cut the packet and pour water in the dish. After that, it took two minutes in the microwave to be ready. The child found the food to be absolutely delicious? The difference was that she has cooked it! In my own life, I have found that nothing gives as much satisfaction as earning our rewards. In fact, what is gifted or inherited follows the old rule of come easy, go easy. I guess we only know the value of what we have if we have struggled to earn it.

Lesson 3

The third lesson I have learnt is no one bats a hundred every time. Life has many challenges. You win some and lose some. You must enjoy winning. But do not let it go to the head. The moment it does, you are already on your way to failure. And if you do encounter failure along the way, treat it as an equally natural phenomenon. Don't beat yourself for it or any one else for that matter! Accept it, look at your own share in the problem, learn from it and move on. The important thing is, when you lose, do not lose the lesson.

Lesson 4

The fourth lesson I have learnt is the importance of humility. Sometimes, when you get so much in life, you really start wondering whether you deserve all of it. This brings me to the value of gratitude. We have so much to be grateful for. Our parents, our teachers and our seniors have done so much for us that we can never repay them. Many people focus on the shortcomings, because obviously no one can be perfect. But it is important to first acknowledge what we have received. Nothing in life is permanent but when a relationship ends, rather than becoming bitter, we must learn to savour the memory of the good things while they lasted.

Lesson 5

The fifth lesson I learnt is that we must always strive for excellence. One way of achieving excellence is by looking at those better than ourselves. Keep learning what they do differently. Emulate it. But excellence cannot be imposed from the outside. We must also feel the need from within. It must become an obsession. It must involve not only our mind but also our heart and soul. Excellence is not an act but a habit. I remember the inspiring lines of a poem, which says that your reach must always exceed your grasp. That is heaven on earth. Ultimately, your only competition is yourself.

Lesson 6

The sixth lesson I have learnt is never give up in the face of adversity. It comes on you suddenly without warning. One can either succumb to self-pity, wring your hands in despair or decide to deal with the situation with courage and dignity. Always keep in mind that it is only the test of fire that makes fine steel. A friend of mine shared this incident with me. His eight-year old daughter was struggling away at a jigsaw puzzle. She kept at it for hours but could not succeed. Finally, it went beyond her bedtime. My friend told her, "Look, why don't you just give up? I don't think you will complete it tonight. Look at it another day." The daughter looked with a strange look in her eyes, "But, dad, why should I give up? All the pieces are there! I have just got to put them together!" If we persevere long enough, we can put any problem into its perspective.

Lesson 7

The seventh lesson I have learnt is that while you must be open to change, do not compromise on your values. Mahatma Gandhiji often said that you must open the windows of your mind, but you must not be swept off your feet by the breeze. You must define what your core values are and what you stand for. And these values are not so difficult to define. Values like honesty, integrity, consideration and humility have survived for generations. Values are not in the words used to describe them as much as in the simple acts.

At the end of the day, it is values that define a person more than the achievements. Because it is the means of achievement that decide how long the achievements will sustain. Do not be tempted by short cuts. The short cut can make you lose your way and end up becoming the longest way to the destination. And the final lesson I learnt is that we must have faith in our own ideas even if everyone tells us that we are wrong. There was once a newspaper vendor who had a rude customer. Every morning, the Customer would walk by, refuse to return the greeting, grab the paper off the shelf and throw the money at the vendor. The vendor would pick up the money, smile politely and say, "Thank you, Sir." One day, the vendor's assistant asked him, "Why are you always so polite with him when he is so rude to you? Why don't you throw the newspaper at him when he comes back tomorrow?" The vendor smiled and replied, "He can't help being rude and I can't help being polite. Why should I let his rude behaviour dictate my politeness? In my youth, I thought of myself as a rebel and was many times, a rebel without a cause. Today, I realise that my rebellion was another kind of conformity. We defined our elders to fall in line with our peers! Ultimately, we must learn to respond instead of reacting. When we respond, we evaluate with a calm mind and do whatever is most appropriate. We are in control of our actions. When we react, we are still doing what the other person wants us to do. I wish you all the best in your life and career. I hope you achieve success in whatever way you define it and what gives you the maximum happiness in life. "Remember, those who win are those who believe they can."

World’s top 10 financial crises

Source:: The Economic Times.

Money can turn everything into its contrary. If you’re ugly but rich, you can buy the most beautiful women; thus, money negates or flip-flops the very quality that should repel those women. On whom or what precisely this point reflects most poorly -- cash or chicks -- is for people to figure out. Here, we present century’s worth of financial crises, starring that most slippery of trickster characters, money.

Number 10: The Panic of 1907

The Panic of 1907 was brought about by overexpansion & poor speculation. The stock market crashed in March, & the 2nd crash in October led to a run on banks and every trust in New York caused the massive National Bank of North America to fail. The US Treasury department - with help from JP Morgan raced in with federal money and some creative financial redirection. Confidence in the market restored by February 1908, and in May, Congress passed the Aldrich-Vreeland Act, which created the National Monetary Commission that later recommended the Federal Reserve Act to squash future panics before they could damage the economy.






Number 9: El Error de Diciembre - 1994

“The December Mistake” stems from the incoming Mexican government’s pressing need to correct some monumental mistakes left behind by its outgoing administration. The year leading up to the 'Mistake' featured enough turmoil to make any investor more than a little shy. A rebel uprising in Chiapas, rumors of corruption at the highest levels of govt and a pair of political assassinations, to name a few. Incoming President Ernesto Zedillo’s administration devalued the peso; a move that caused cash to flee the country so quickly and so dramatically that the govt nearly defaulted.







Number 8: Argentine economic crisis - 1999

The 1980s were a difficult time for Argentina: military dictatorship, the Falklands debacle, economic collapse & massive inflation. The debt grew throughout the 1990s. Coupled with corruption, Argentina landed in a full-blown recession by 1999. True to form, investors lost confidence, and a drastic run on banks forced the govt to freeze bank accounts for a full year but meager withdrawals were permitted. Demonstrations followed violent riots & fall of Fernando de la Rúa’s government. The next two administrations failed to right the ship and countless public & private cos filed for bankruptcy. The 3rd administration, led by Nestor Kirchner, stabilised the economy.


Number 7: German hyperinflation - 1918-24

In 1914, the exchange rate between dollar & German Mark was about 1 to 4. By 1923, the rate mushroomed to $1 to 1 trillion Marks. The idea of having so much cash that you have to cart it around in a wheelbarrow sounds good, but not when it cannot buy a loaf of bread. In the aftermath of World War I, the winners, blamed Germany for starting the war & demanded financial retribution for the cost of the war. Germany had little in the way of land, goods or precious metals to back it up, and its currency lost value by the day. It started the presses until the 1,000-bn Mark was produced and issued the Rentenmark currency in 1923 to put brakes on inflation. Reichmark replaced Rentenmark in 1924. The hyperinflation ended, but embitted a generation of Germans and specially surly über racist from Austria.


Number 6: Souk Al-Manakh – 1982

Kuwait’s Souk Al-Manakh stock market was an alternative market and not legal, next to the country’s official market. Many new investors had little access to the legal market, which was largely controlled by old money, and began investing in the Souk Al-Manakh. Shares were dealt heavily by postdated checks; an act that created a castle in the clouds that was quick to collapse and the unregulated credit amounted to about $94 billion. Actually the money was never there & only two banks survived the crash. The Kuwaiti government stepped in and had barely begun to turn things around when Iraq invaded the country in 1990.


Number 5: Black Monday - 1987 The very well-known Monday October 19, 1987! A massive stock market crash? How did $500 billion from the NYSE disappear into thin air? Many years later also no clear answers is known. It is because there were so few indicators that it was even coming. By the end of October 1987, the Australian market fell 41.8%, Canada’s plunged 22.5%, the UK fell 26.4% & the HK dropped a ridiculous 45.8%. One popular theory ascribes the crash to instant program trading & growing influence of computers on Wall Street, but that debate rages. One thing which is certain is that lots of people went broke very, very quickly.







Number 4: Russian financial crisis - 1998

Corruption, lack of effective economic reform policy, devaluation of currency & political instability sent Russia into a financial crisis as the millennium came to a close. Exporter of one-third of the world’s oil & natural gas reserves, Russia was hit harder when those prices dropped. When foreign investors pulled their money out of Russia, the banks crippled to such an extent that even an IMF loan was also ineffective. The crisis stung countries like Ukraine & Czech Republic and hit the Dow, which suffered one of its biggest point drops in history.

Number 3: East Asian financial crisis - 1997

The Asian economic miracle turned disastrous in July 1997 when investors lost confidence, particularly in currencies. High yield rates made Asian markets appealing, but when the US tried to stem their own recession by lowering interest rates, they made themselves more attractive & as a consequence, the Asian markets looked too risky. A domino effect followed, beginning in Thailand and spreading through the Philippines, HK, Indonesia, Malaysia and beyond, triggering a global crisis. Asian markets that enjoyed some rare prosperity were slammed: Thailand dipped 75%; HK's HSI 23% & Singapore 60%.



Number 2: Black Tuesday – 1929

On October 29 1929, $10 billion ( around $95 bn today) turned to dust. Sounds more like a Tuesday in the red, but history has stamped it black. The Dow was turning countless men into millionaires. The market became a hobby for many ignorant investors who knew nothing about how the market worked, but poured all their money into the stocks of companies (many fraudulent) that they knew nothing about. When the government raised interest rates, panic ensued as investors were desperate to liquidate their stocks, but the money was an illusion that created instant and unimaginable poverty. Unfortunately, banks also invested in stocks and the panic led to a run on those banks that reduced many to insolvency. As an aside, one wealthy investor who pulled out of the market before it collapsed was Joseph Kennedy, father to JFK, RFK & Teddy.

Number 1: 1973 Oil Crisis
In the midst of the Yom Kippur war between Syria & Egypt against Israel, OPEC employed oil as a weapon with the Arab Oil Embargo against those who supported Israel. Crude oil costs rose while production was cut, specifically to the US & the Netherlands. The embargo lasted only five months, but the affects continue today as OPEC member states realised a level of wealth unfathomable only years before in 6 weeks shares on the NYSE lost $97 billion in value. Japanese car makers began to counter the American-made gas guzzlers with smaller cars, giving them a tremendous market share. The US enacted a 55-mph speed limit in an effort to conserve oil & in 1977, President Carter created the Dept of Energy, which promptly developed the America's strategic petroleum reserve.

Warren Buffet- the legendary investor

Inspirational collection of Mr. Warren Buffet's views::

1) He bought his first share at age 11 and he now regrets that he started too late!
2) He bought a small farm at age 14 with savings from delivering newspapers.
3) He still lives in the same small 3 bedroom house in mid-town Omaha, that he bought after he got married 50 years ago. He says that he has everything he needs in that house. His house does not have a wall or a fence.
4) He drives his own car everywhere and does not have a driver or security people around him.
5) He never travels by private jet, although he owns the world's largest private jet company.
6) His company, Berkshire Hathaway, owns 63 companies. He writes only one letter each year to the CEOs of these companies, giving them goals for the year. He never holds meetings or calls them on a regular basis.
7) He has given his CEO's only two rules. First one is to not to lose any of your share holder's money and second rule is to not to forget rule number 1.
8) He does not socialize with the high society crowd. His past time after he gets home is to make himself some pop corn and watch television.
9) Bill Gates, the world's richest man met him for the first time only 5 years ago. Bill Gates did not think he had anything in common with Warren Buffet. So he had scheduled his meeting only for half hour. But when Gates met him, the meeting lasted for ten hours and Bill Gates became a devotee of Warren Buffet.
10) Warren Buffet does not carry a cell phone, nor has a computer on his desk.
11) His advice to young people: Stay away from credit cards and invest in yourself.

The impact of inflation

Source: Hindu Businessline

Santosh thinks he has his investment plans sewn up. He'd like to move into a three-bedroom apartment in five years and also save up enough to put his four-year-old son through an MBA degree 15 years hence. He reckons he needs to save up Rs 65 lakh (today, the apartment costs Rs 45 lakh and an MBA degree Rs 20 lakh). But proceeding on this premise could well land him in financial soup!
This is because he has neglected to factor in the impact of price rise or "inflation" into his calculations. Assuming prices rise by 5 per cent a year, the apartment would cost Rs 57.4 lakh and the college degree a whopping Rs 41.5 lakh, when it is time to spend. What Santosh needs to save up, therefore, is actually nearly a crore of rupees!
The above example illustrates just one of the ways in which inflation impacts your financial decisions. There are several others. One, the longer the time horizon, higher the impact of inflation on your outlay. Two, inflation steadily gnaws at your effective returns. If you think your bank deposits are yielding a princely return of 8 per cent a year, remember that you give up about 5-7 per cent of that to inflation. Your `real' returns, that is, the rate at which your money is actually growing would be just 1-3 per cent a year. Therefore, a focus on `real' returns and inflation has a bearing on every aspect of your financial plan.
Okay, you are convinced; but how do you go about factoring in inflation into your calculations? Several financial Web sites feature a readymade "inflation calculator" that computes the future value of any investment made today, assuming a steady inflation rate.
So what inflation rate should you assume? Inflation in India is usually measured through two popular gauges — the Wholesale Price Index (WPI) and the Consumer Price Index (CPI) — both of which are indices capturing the price rise in a specific basket of goods. The government's periodic releases on the inflation rate (usually cited in per cent, year-on-year) are published in the financial dailies. From an investors' standpoint, the CPI may be a more relevant gauge of prevailing inflation levels than the WPI, because it reflects prices at the consumer level. (Latest statistics show that the prevailing annual rate of CPI inflation is 7.2 per cent, while WPI inflation is about 5 per cent).However, do remember that the official numbers only give you a rough indication of the inflation rate that you may have to factor into your long-term plans. For better results, you should adjust this number to reflect the expected price rise in the asset you plan to acquire. For instance, property prices have tended to rise far more rapidly than the prices of gold over a 10-year period; this calls for a higher inflation factor when you plan to buy property than when you buy gold.
Location and time horizon may also influence your inflation assumptions. But do not worry too much about whether you've accurately predicted inflation in your financial plans. Factoring in a reasonable inflation rate into your calculations will in itself ensure that your investments are not way out of sync with the requirements, when the time comes to spend that money.

Some view of Mr Peter Lynch- the legendary investor

Peter Lynch has for long been hailed as one of the most successful fund managers in America. He managed the Fidelity Magellan Fund between 1977 and 1990, consistently delivering high returns year after year.
His investing success is attributable partly to his ability to identify companies early in their investing cycle.
His two books, One up on Wall Street and Beating the Street are said to contain common sense advice that will appeal to any stock market enthusiast, be it a lay man or a veteran.
"The person that turns over the most rocks wins the game. And that's always been my philosophy."
"The very best way to make money in a market is in a small growth company that has been profitable for a couple of years and simply goes on growing."
"When stocks are attractive, you buy them. Sure, they can go lower. I've bought stocks at $12 that went to $2, but then they later went to $30. You just don't know when you can find the bottom." "If you stay half-alert, you can pick the spectacular performers right from your place of business or out of the neighbourhood shopping mall, and long before Wall Street discovers them." "I think you have to learn that there is a company behind every stock, and that there is only one real reason why stocks go up. Companies go from doing poorly to doing well or small companies grow to large companies."
"In this (investing) business if you're good, you're right six times out of ten. You're never going to be right nine times out of ten."
"I've found that when the market is going down and you buy funds wisely, at some point in the future you will be happy. You won't get there by reading `Now is the time to buy'."
"The way you lose money in the market is to start off with an economic picture."

Treat the market as a lady and you will be happy

Speculation is a 11 letter word that often gets four-letter treatment. But it need not be so. "Speculation is not a dirty word and neither is it gambling," says Ashwani Gujral in How to Make Money Trading Derivatives: An Insider's Guide from Vision Books (www.visionbooksindia.com). "Speculation is the art of making short term trading and investment decisions based on knowledge, research and trading philosophies."
Markets obey no law, it's lamented, but Gujral devotes a whole chapter to `Trading Discipline' because the cost of not being disciplined is so high in trading. He debunks a common myth — that once you understand the nuances of technical analysis, you will automatically be successful. "This is far from truth," he writes. "Discipline forms 80 per cent of a good trader's make-up, and only 20 per cent of a trader's success is as a result of his trading knowledge." Which explains why there are many successful analysts but very few successful traders, he adds.
If you wondered why analysts have trouble implementing their analysis, Gujral has the answer: "Because the market is not there to favour anyone. It is there to punish the undisciplined... A trader can have cutting-edge software, the best trading system, he may be a master at reading charts and still be unsuccessful if he lacks the discipline to execute his analysis." According to the author learning to read charts is easy. What's tough is "to overcome fear and greed and winning over one's emotions."
But what's discipline? According to Gujralto says "The battle is not won or lost during trading hours but before the markets open." First, as your mom used to say, do your homework. "Winning traders diligently maintain charts and keep aside some hours for market analysis," informs the author, who has been trading stock and derivative markets for a living, for more than a decade.
"Every evening a winning trader updates his notebook and writes his strategy for the next day." Thus, before the market opens, they know "the level they are going to enter at and approximate targets for the anticipated move". Gujral lets you into some of his secrets too: "In a choppy market, not only do I trade the lightest, I book profits while the market is still moving in my direction." Good technical traders do not worry or debate about the news flow, they go by charting signals. Now that's an insight that can wean you away from what's unfolding as tickers on TV screens.
Next, avoid overtrading. Remember that the market "tries its best to mislead traders by swinging in both directions" and it can strip you of your trading capital! "Overtrading is the single biggest malaise of most traders," declares Gujral. "A disciplined trader is always ready to trade light when the market turns choppy and even not trade if there are no trades on the horizon."
Third lesson, don't get unnerved by losses. Each trade is just another trade, counsels Gujral. Loss is an important indicator to take a position in the reverse direction, he advises, and illustrates with a real-life example. The moral he draws is, "Never get into an ego tussle with the market, because the market is always right."
What when the market gives confusing signals? Avoid over-trading, wait on the sidelines till you get a clear indication. "Treat the market as a lady and you will be happy. When a lady says no, gentlemen take it as no. It works well with the ladies, as it does with the market."
The next clue that the disciplined trader offers is that of capturing the large market moves. "Those who trade for a living cannot sustain an equity account that is not growing," points out Gujral. "Thus when you believe you have entered into a large move, you need to ride it out till the market stops acting right." Else, you'd be booking profits too quickly, "to enjoy the winning feeling." That's being "too smart", cautions the author.Novices even take short positions believing that a correction is due. A folly, Gujral explains, because markets do not generally correct when corrections are due.
"The best policy is to use a trailing stop loss and let the market run when it wants to run. The disciplined trader understands this and keeps stop losses wide enough so that he is balanced between staying in the move as well as protecting his equity." That way, a few large moves every year makes worthwhile trading profits.
Learn also that "a disciplined trader always keeps learning new trading techniques". Read the latest research on technical analysis and get your hands on what's new. "Also read a number of books every month about technique, about trading psychology and about other successful traders and how they manage their accounts."
Seminars are useful, "as even one great trading idea gained can be worth the seminar's fee." One can say that of books such as this.
Yet, at Rs 395, Gujral's book is heavily under-priced for the content it offers so liberally.

The long and short of investment

Economic Times, Friday, November 10, 2006

There has been a shift in the nature of debt investments for several individuals. Short-term deposits, as well as other short-term instruments, are suddenly a big hit with certain sections of the investing population. However, investors need to understand how these can be utilised effectively and can benefit individuals in the overall planning process.
Nature of instruments
Short-term instruments are available across a range of investment options. Two of the most popular ones are bank fixed deposits (FDs) and short-term mutual funds (MFs). Short-term FDs usually range from a couple of weeks to a year. Instead of months, the banks notify these deposits in terms of the number of days. These deposits are meant for individuals who want to park their money for a short period of time. Mutual funds, on the other hand, pool together the resources of a large number of people and then invest these in the specified instruments, as laid out in the offer document of the scheme. Short-term funds invest in short-term instruments that mature within a year, so that the risk-return equation matches the investor’s requirement. These are useful for individuals who want to put away their money for a short period of time and also want it back by a specified date. The options here include liquid funds, short-term funds and fixed maturity plans.
Risk-return measures
Investors have to carefully analyse the risk-return equation for both these types of investments. The return on these instruments is traditionally lower than that earned on long-term instruments, but this has to be seen in the context of the risk element. The risk is reduced to a large extent because safety is the primary feature of this investment, which is often at the cost of some extra return that could have been earned. Hence, investors should not expect a very high rate of return — 5-6% has been the norm in the past couple of years in terms of earnings on the investment.
Change in rates
The returns generated by bank FDs have witnessed a change recently. Several banks have pushed up short-term rates and hence, in several cases, the rates on short-term instruments are similar or just marginally less than that earned on long-term deposits. Rates for short-term deposits may even rise to 8% on an annual basis. Similarly, short-term rates have risen on several debt instruments, especially fixed maturity plans. Hence, investors can make the best use of the situation.
Check for a final calculation
While the rates are attractive and several investors are opting for these instruments, there are certain factors that individuals need to consider before taking the final decision. The first is whether individuals want to take the advantage of higher rates in the short term or park their money in long-term instruments. The danger in using short-term instruments is that when the initial investment matures, the tide could have turned and the rate of earning may have reduced. Hence, the person may be worse off than what he would have been, had he gone in for the long-term investment. The next point to consider is whether the individual needs money at a specific point of time in the short term. If this is the case, then he should go in for short-term instruments. The final point to be considered is whether a good bargain is available, such as high rates on short-term instruments on a net or after-tax basis. The gross rate may be high, but if a large amount goes towards paying taxes, the net earnings may not justify the effort taken to invest in these instruments.

Trading Rules:

Never risk more than 10% of your trading capital in a single trade.
Always use stop loss orders.
Never do overtrading.
Never let a profit run into a loss.
Don't enter a trade if you are unsure of the trend.
When in doubt, get out, and don't get in when in doubt.
Distribute your risks equally among different markets.
Never limit your orders; trade at the markets.
Extra monies from successful trades should be placed in a separate account.
Never average a loss.
Never get out of the market because you have lost patience, or get in because you are anxiously waiting.
Avoid taking small profits and large losses.
Never cancel a stop loss after you have placed it.
Avoid getting in and out of the market too soon.
Be willing to make money from both sides of the market.
Never buy or sell just because the price is low or high.
Never hedge a losing position.
Never change your position without a good reason.
Avoid trading after long periods of success or failure.
Don't try to guess tops or bottoms.
Don't follow a blind man's advice.
Avoid getting in wrong and out wrong; or getting in right and out wrong, this is making a double mistake.
When you lose don't blame it on luck.