Archive | January, 2021

2021 Global Economy Trends – Highlights from Ruchir Sharma

10 Jan

Whats the outlook for 2021 and where do we invest money? Simple, straightforward, logical insights from Ruchir Sharma 

Here is a summary for you to absorb in 1 minute, detailed 1 hr Interview Link enclosed below. 

  • 2020 Economy had negative growth of 4% and stock markets had a 13% + growth. In 2021 this trend could be the opposite – as economies boom Stock Markets may slow down

  • 2020 Stimulus was 5X of that during the Lehman Crisis, came immediately. Most of it went to savings & Stocks as avenues for spending where limited. 2021 could see pent up spending
  • 2021 – Markets are already pricing in higher consumption / Govt will not have any money for stimulus
  • Inflation is set to rise and interest rates may go up. Global Inflation has been stable for 20 years ~ 2.8%. Could rise steeply in 2021 driven by labour shortage/ less competition / declining productivity / excess money printing

  • Higher Inflation could lead to higher interest rates. In 1980 Global GDP = Valuation of Stock Market, in 2020 Stock markets globally are valued 4X of the Global GDP

  • This is a good time to buy property at Fixed interest. Home prices in US / China surging last few years – India declining. Income has been increasing put prices are declining.

  • USD is declining after maintain global control for 100 years. Driven by excessive currency printing. In 2020,  5 Tn USD printed

  • Distrust in USD is driving alternative Cryptocurrency. Bitcoin emerging as the new Gold. Strong interest in younger generation

  • Revival of Commodity cycle after 10 years. Weakness in USD is directly linked to strong commodity cycle

  • Developing countries make a stronger comeback. More resilient, faster to change. Digitization share of economy is already high.
  • Best companies of one decade perform poorly in the next. New stars will be born.

Full Interview 

Simplifying Investing – A Layman’s guide to leverage compounding

4 Jan

When it comes to life there are 2 rules that are almost universal

  • Everyones wants to be HAPPY
  • Everyone wants to be RICH

While Happiness is a state of mind, being Rich is something that can be actioned. The Universe is constantly showering us with Richness – but we with our confused thinking are looking the other way as opportunity constantly knocks.

In this BLOG I am going to share some simple messages that can be of help to one and all. Definitely to a youngster who has started his career and even to folks my age who missed this common sense investing advise. We may at least be able to create an inheritance for our children or build a corpus for charity in our old age. Almost all the content of this Blog is based on discussions and inputs from Friends. 

The industry can be confusing and many wealth managers try to market products where they make hefty commissions. So do your own research.

 

You make wealth when you understand the power of Compounding

Start early and stick to it. I will share with you almost 50 companies across sectors (and I am sure there are many more) that have created phenomenal wealth over the last 25 years. These are companies in which our friends work, companies we read about every day. We may have in passing bought and sold these stocks, but we missed out on the power of compounding.

Three simple rules 

  • Is it a DIAGONAL Stock (Look at the last 20 year graph of the stock and see if its like a diagonal of a rectangle)
  • Is it a good established Brand with Products / Customers / Revenue / Profit – Is it in the top 3 in its Industry
  • How good is the Management

Good companies run a marathon, you can get in at any point and ride the wave

Its OK if you missed the IPO

Stocks Vs MF 

Last few years MF seem to be lagging the index, and are not delivery an alpha. HNI’s have started shifting to the Index and to select stocks across sectors creating a diversified portfolio of their own. This trend may accelerate.

Before we look at some of the sectors and the market leaders lets look at the Simple Humble PPF.

Company PF & Public Provident Fund are the best examples of the power of compounding. You start early and the corpus quietly keeps multiplying at ~ 8%, you also keep adding to this monthly / annually. Always invest in your PPF on April 1st the max limit and if its a payroll PF do contribute with your Voluntary Contributions. And remember a PPF does not have a 15 year limit you can keep extending it by 5 years for ever. The power of compounding starts to kick in when you have a  30 – 40 Lac corpus after 20 years, that when you see the money doubling every 7 – 8 years. This is TAX FREE Income.

You can’t beat the Index

If in the last 25 years you had invested a few thousand rupees every month in the index you would have made a lot of money. On a weekly / monthly / annual basis we see the volatility but over an extended period the markets have given a 15% +return. You can see the diagonal graphs below.

Indian IT – A Global leadership play that is getting stronger

We all have friends and family working in the large IT companies. All you had to do was invest in Infosys & TCS regularly and stay put. You may have missed the bus but the ride is still on, so get onboard.

The great Indian consumer boom – A billion people eat a lot of biscuits and drink a lot of tea. You buy undergarments, soaps, shoes and slippers. You paint your house. Life goes on and you continue to use the leading Brands of the country.

Make money from select Indian Banks  – A Growing country like India needs banks and India’s Pvt sector banks have done very well. Some like Kotak are world leaders. Kotak Mahindra Bank, has comfortably pipped all lenders in the world to become the most expensive bank stock, a crown which until recently belonged to  HDFC Bank. Investors who bought into these banks early and stayed with them have made a lot of wealth. And the banking game is just starting – as banks consolidate the big will get bigger.  The life insurance story is just beginning and this is the time to look at HDFC Life, SBI Life or other quality companies that have recently hit the markets. Bajaj Finance is a giant amongst NBFC’s and may well be a bank soon. Last 5 years this stock has created a lot of wealth for investors.

Like IT – India is also big on Pharma. This is more complex given the investments and the approvals needed. But many Indian companies have established a position of leadership.While we all know Sun Pharma, Dr Reddy, Alembic, Aurobindo and many others – here are 4 companies that follow the rule of the Diagonal in this sector.

Agriculture – The country is agrarian. Just like Pharma, India is home to many companies that specialises in pesticides/ fertilisers/ seeds / Tillers, here are a few star performers of this industry. Given the small land holding in India where tractors cannot be used VST Tillers is another great idea to explore.

The world of Chemicals & Plastics goes beyond Pharma & Agricultured. Here are some market leaders who have performed well over the years in their own areas of specialisation. Some of them are global players with over 50% MS.

Indian Automobile Sector 

Companies like Maruti, Hero, TVS and many component companies have rewarded investors handsomely in the last 20 years and the trend will continue. Component and battery manufacturers Like Exide & Amara Raja who supply to the Industry and export have also performed handsomely. This year the sector has been impacted and inspite of markets reaching an all time high these stocks still have some distance to go.

Platform Stocks 

Amazon & Flipkart are platforms. The last decade has seen the explosive growth of Platform Stocks. Indian markets have 3 Platform Stocks. Multi Commodity Exchange, India Energy Exchange & IndiaMart. These are relatively new to the market. Stocks like IndiaMart have been explosive and MCX has started performing in the last one year. One hears news about the Energy exchange also. These are again ideas to explore for the future.

 

So how could you go about building your portfolio 

Here there is no rule that fits all. There are many roads – the common rule is stay invested for the long term.

Should you buy 50 stocks or 10? Should you dip your finger in all sectors or choose only the top 3? Do you invest only in the market leader or in the Top 3 in every sector ? Do you buy at one shot or spread your buying over  12 months? Do you book profits periodically or stay put? How much should you invest in a. stock? Do you categorise stocks in your Portfolio as Tier 1/2/3?

These are questions that each person needs to solve for themselves. There is no fixed answer. As I write this Blog markets are at an all time high, so this may not be the best time to invest all your hard earned money.

Finally an important note – the information above is for each person to absorb, research and decide on what is best for them. This is not a recommendation of stocks. 

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