Friday, January 28, 2011

Notes from the USA (Jan 2011) – a guest post

The US economy continues on its slow and tortuous path to recovery. The US stock market is discounting the fact well in advance and seems to be in fine fettle. FIIs are booking profits in more expensive markets like Indonesia and India and redeploying ‘back home’. This is as good a time as any to do a proper health check of your portfolio.

In his inimitable style, that is exactly what KKP has suggested by drawing a parallel between how we try to manage our health, and how we should approach managing our wealth. It is a ‘big picture’ approach that investors should pay close attention to. Some times we get too wrapped up with ‘what to buy’ and ‘what to sell’ and which way the Nifty is headed.


Manage Calories or Lose Weight?

Counting calories has been the most common buzz word for most women at some time in their life or another……Men also choose to do this, although to a lesser extent. Some translate this to another buzz word called "diet". Well, diet does not mean eating less to lose weight—although that’s what we commonly associate it with today. Someone "on a diet" is trying to eat less, or stop eating sweets, to fit into a smaller pant size or dress.

Low calorie and fad diets are common in our society today, but few know that these can have some very serious health implications—insufficient vitamin and nutritional intake, lethargy, slowed metabolism, hormonal effects, and even dehydration. Dieters commonly experience intense feelings of hunger and deprivation, which can lead to "cheating" or bingeing over time.

So, what is it that we should be doing?

  • Managing Calories or
  • Managing our Diet or
  • Watching our Weight or
  • Getting on a Exercise Program or
  • a few more clichés!

Answer is “None of the above”. All of us need only one thing, and that is ‘net-weight-loss” to the point where we get our BMI (Body Mass Index) between 20 and 25 and our Height to Waist line ratio above 2. Getting involved in the ‘variety of actions’ versus focusing on stuff that ‘creates a bottom line’ is what matters. So, it is really all about “Focus on Stuff That Gets Stuff Done”.

So, why is all this relevant here?

Well, investing is pretty much along the same lines. Hang in here for a moment with me and I will share with you the similarities. We all get caught up in the various ‘tactical actions’ or ‘strategic planning’ that does not lead us to a fruitful bottom-line. If you do not get the actions down to the bottom line, then years later, your bottom line shows the poor growth in the accounts.

Small investors have a tendency to move from one strategy to another, not giving any strategy enough time to do its thing. So, what happens in the investment world is that we hear/read/discuss ‘tactical investment methodologies’. We have “Technical Analysis”, “Commodity/Currency”, “Mutual Funds and SIPs”, “Real Estate / Gold”, “FMP / FD”, “Trading Software”, “High Frequency Trading”, “Market Timing”, “Day Trading”, “Long Term Investing”, “ETF Trading” and tons of other tactical choices. All of these elements keep us involved in the ‘variety of actions’ versus focusing on stuff that ‘creates a bottom line’.

So, what is our bottom-line? It is Losing Weight when it comes to health. Some might call it Maintaining Weight (after you get to the ideal point) although nature has provided us a tendency to increase weight with age, so we are back to “Losing Weight”! In the investment world, this translates to “Total Return”. But this is also a cliché. What does that really mean?

In one global definition is it really ‘overall return on all of your assets’ that you have invested money whether you have it around your finger or neck (jewellery), under your feet (real estate), in the locker (diamonds), or in a demat account (stocks)? No. Because it should also include the cars parked in your driveway/garage, protection of assets, estate planning, education planning for kids, retirement accounts, past-and-future-inheritance management, and career growth (that leads to new income). Lets not stop there…..It continues onto the ‘advanced training that one needs to move up in a career’ as well as the ‘time and effort put into educating kids’. Once we include all of these elements (and I am sure I am missing some), it would classify as the variables that feed into the “Total Return”.

My current life style requires more than 24 hours in a day since I am managing so many elements of this Total Return, and making advances on all fronts in the best possible way I can. This is what keeps me motivated, constantly in a learning mode, and hopping from project to project throughout the day to move them an inch or two forward. Everyday is a stretch to learn, add movement to each of the variable-buckets that makes up the Total Return. It all leads to “Focus on Stuff That Gets Stuff Done”, and the “Stuff” here means the variables that make up the Total Return of my family life. With age comes wisdom that allows one to do this well…..The sooner you learn, the more your Total Return….

PS: By the way, I used the simple formula called “Output – Input > 0” meaning Output Calories minus Input Calories has to be greater than zero everyday to lose weight. Once this formula clicked in my mind, I lost 36 lbs or approx 17 kg in a short period of time, and have 18 lbs or 8 kg yet to go……It has been 13 months and 11 days from the day this “formula switch” flipped in my brain! So, to lose 1 lb of weight per week, you have to have a 3500 calorie deficit per week or 500 calorie deficit per day. Mathematically, Output – Input = 500 calories per day and you will be on your way to Net-Weight-Loss. Good luck…


KKP (Kiran Patel) is a long time investor in the US, investing in US, Indian and Chinese markets for the last 25 years. Investing is a passion, and most recently he has ventured into real estate in the US and also a bit in India. Running user groups, teaching kids at local high school, moderating a group in the US and running Investment Clubs are his current hobbies. He also works full time for a Fortune 100 corporation.


sreyO... said...

I've a question, although not related with this post.
Sensex is composed of 30 stocks where as nifty has 50; yet at the end of the day they move with (almost) same percentage points. Why? Is it because arbitraging? If so, then what happens to extra 20 stocks that nifty have?


Kenny said...

Typically, that movement is cause the biggies are the ones that are controlled the market-cap-weighted indices around the world. So, when RIL, HUL, TataSteel etc make some moves, the 20 stock differential will not make much of the movement. If you want to see difference in movement, see SPX and DJIA. You will see variation since there are a larger number of stocks. But, if you see S&P 400 and S&P500, once again they will overlap heavily since they are both market-cap weighted indices. Hope this helps. Good observation.

More importantly, how can you benefit from these little differences in Indian Indices. Follow the BSE Sensex Chart and trade the Nifty ETFs. Great approach to life and easy living. If I was in India, I would make a killing on TA with ETFs.

Good luck.


ps: Sorry for the no relevancy response to the original posting.