A helping hand from numbers leads to objective opinions and confident decisions!!!

Why have one? Say you are a bit like me and think too much about spending money on certain activities/stuff and always have guilt about splurging on something which you may do without, even though they may give you immense pleasure, even for short term. How do you manage that guilt? Put in a different way, how do you convince yourself that the money you have, let’s say not spent but splurged, is you can well afford, the spending “guilt” is unfounded and you can let go the opportunity cost conundrum. The solution I found for me is to create a separate corpus. I will call it “Splurge Fund Corpus” (SFC henceforth) . Simple excel worksheet did the job for me. I created an excel sheet with different activities like travel, eating out, buying gadgets, etc and allocated annual capital to them for current FY (April 2022 – March 2023). While allocating capital for SFC, to ensure I don’t go overboard and also don’t budget too less an amount, I needed a benchmark. Enter a simple thumbrule – my S...

  Slightly more than 3 years ago, I did something unconventional – I bought into a very high deductible health insurance plan for our family. The deductible was INR 5 Lacs. Essentially, I was on my own for this much money – EVERY YEAR, in case I or any of my family members needed any hospital care. The upshot for this big risk I took: -           I paid a very meagre premium for a policy with no sub limits – especially no daily “room rent” limit which renders Sum Insured of normal “ground up” policies mostly useless to the full extent -           The Sum insured I got was quite high for the premium paid – just under INR INR 5,000/- for a Sum Insured of INR 20 Lacs Why did I go for such a high deductible health insurance policy and took such a seemingly big risk? Because the numbers I did brought out a very different picture and I made my decision to be self insured for first INR 5 Lacs a...

After what seems a really long time, I went on a long vacation to a quaint sea side town with wife, son and my parents in tow. While doing the bookings, I always try to scrimp on paying for a hotel room. However, during my last vacation at Goa, I did realize that if chosen well, some hotels / resorts can be worth the money they charge. Location, space, good upkeep of the property and quality of ancillary services (like F&B service) can justify the asking price of some properties. But still, how much should you be paying for your stay, say on per day basis for a room? We all know that the range is vast, and we need to cap it, as the higher we go, our net worth is getting the hit, while the pleasure derived from the stay experience may not be as high as the price. The rule of thumb I have devised to decide my daily room rent budget when travelling is linked to my primary residence market value, or an amount designated for buying my primary home as I do not own any residential p...

Here I checked how a portfolio of active mutual funds fared against passive index fund – for 1 year horizon. But such short horizon analysis is not a very good way to make long term investment decisions. Going to 10 year horizon now. Selection criteria remains same as earlier. Just reproducing here for ready reference: -           All Large cap funds, excluding index or ETF for April 2002 – March 2012 -           Minimum / maximum AUM: None whatsoever. We don’t want to be biased towards small or large funds -           Top 5 funds, basis only one criterion – “Returns” shortlisted. We are keeping it simple!!! No complex risk parameters like Sharpe ratio, Treynor ratio etc -           Funds allocated in equal proportion to all 5 funds. No bias again!!! -        ...

Assume you have decided to put money in equity mutual funds. This begets another question: be a DIYer or go through a professional (RIA, distributor whatever)? Any choice one makes, this will lead to another dilemma – how do you or the professional choose that killer fund (manager) which will deliver the significant excess ROI over your “safe” fixed income investments. Once could have taken in easy and gone for Index funds. But these never come into picture for most people. High decibel marketing for active funds keeps index funds in the shadows. Circling back to question of utmost importance – how to shortlist, say 5 “best” equity funds to deploy the capital? One will, as most people do look to the best free advisor in the world – google for answers. This will lead you to some mutual fund rating websites. Apply some easily understandable filters and one will have shortlist of “best” performing funds. But some with higher analytical bent of mind will go further – they will look for...

Assume I land up with a large corpus of money from some source. And I am tinkering with an idea to put a decent part of it in equity index funds. Just that I am getting jitters given the risk, even though I am sure of staying invested for good 10 years to come. How do I go about this? With the current yield to maturity (YTM) of low risk overnight mutual funds hovering around 5% ish, I would dump the conventional wisdom of doing it gradually (SIP’ing it as they say) and deploy nearly 48% of the “large corpus” immediately. Yes, you heard it right – ASAP, at one go, market levels not withstanding. Sounds crazy, no? On the face of it maybe, but the numbers I did have a different take, and I would tend to go with the numbers. Read on if you too want to check out the story numbers tell in this case. Equity investing is “risky”, I get it, so does everybody else. But what does the word “risky” stand for in simple terms? While there are various definitions of “risky” when talking money a...

Here I looked at how to get a rough idea of valuing property for own use. I had a doubt whether the oft cited thumb rules make sense or they have long lost their relevance. After making life a bit complex by bringing in host of numbers, I did realize that if you are buying for your use, and with the “popular” capital structure of 25% down payment and rest on "loan", the thumb rule of buying property at maximum 15times is mostly in sync.   Now we look at the rental scenario – you are buying property to rent out and make an income stream. Before we move on, to state it bluntly – I am biased towards “Not being a landlord”, ‘cause it’s too much work for the money to be made going by rental yield in Indian cities. But then, that’s my opinion and still no harm in checking what the numbers say. My opinion may also change!!! That said, for rental property to be a “value buy”, my guess is the costing should be way less than self-occupied property. Why? For starters, when you occup...

  I read a very nice blog on bear market recovery here . While you can check out the blog in detail as every word written is good piece of wisdom, here is the gist: -           If you just refer to nominal returns, you will be looking at a distorted picture. To get an idea of real (pun intended) situation, look at inflation adjusted returns -           For example, if one sees in nominal ROI terms, total length of worst bear market, the dotcom bust was 5 years***. This period includes markets downward leg, to the recovery time to breakeven status -           However, once you bring inflation into picture, the same period stretches to 13 years***. That’s more than double the time for breakeven in nominal ROI terms That said, it is very rare for people to start thinking in real terms. It simply is “out to sight”. For me, the true realization...

In my role as a mutual fund distributor, for equity funds, I have taken to only professing index tracking mutual funds. Various studies across years have shown that most of the active mutual funds do not match up to ROIs given by passively managed, index tracking mutual funds. However, it is commonplace to hear converse arguments in Indian context – statements like “India is not an index market” or “It is still sometime before index mutual funds beat active mutual funds”. Mostly, these are generic statements, backed up by opinionated data. SP Global does bring out performance scorecard every six months for Indian mutual funds also. A detailed study of this document is very revealing and trashes the argument that “India is still an active fund market” That said, I feel even SP Global's SPIVA study compares performance of active funds with respective index. To get a real world feel, one should compare it to index funds which even though low on expenses, do have costs. And then,...

Image source: Atherenergy.com Discussion with self: Me: Let’s buy an electric two-wheeler “The Number’s me”: Why? Me: For pottering around. Ok, for using it for certain tasks where I don’t want to take my car “The Number’s me”: Like? Me: Forget it. I know where you are going. You will say numbers justify driving the car or any other vehicle one own’s to the max and not buying new set of wheels “The Numbers Me”: You can simply say u want to buy the scooter to justify your penchant for buying the latest fad or you like to ride a two wheeler and feel the wind in your hair. Just don’t try to make it appear as if it makes financial sense. That’s it. I said it. Numbers mostly will not be in favor of getting a new set of wheels if you already own one and are the only one who rides / drives. What goes into this number work: -           Cost of two wheeler, depreciated over say 7 years, with 25% remaining as resale value -  ...

How does one know whether that wonderful property you want to call home is valued right and is a good buy? There are no standard parameters – other than few thumb rules like if you buy property at 10 to 15 times going annual rent, you are getting a good value. On the face of it, it seems these thumb rules are not of much help in Indian context. I can’t speak of other countries but here, using this criterion, it seems one will never be able to call himself an owner because most of the property deals never come close to this criterion of “value”. Case in point – I recently sold the only residential property I owned. If I consider what the buyer paid to me and the government (levies like stamp duty, registration cost etc) – it went for quite close to 30 times annual rent. Deals at such price are very common / normal. What is going on in the property market here? All the folks out there can’t be out of their minds in putting so much value on being an owner rather than being a renter. Fac...

Do you believe in doing the numbers before you form an opinion and take decisions about matters wherever monetary considerations are involved? I feel most of us do – some may do back of the envelope workings, while few prefer digging deeper. I fall in the later part and don’t mind firing up MS Excel and let the numbers help me arrive at an opinion. Then, armed with an “objective opinion”, I procced with “decision making”. Arguably, subjectivity cannot be totally ruled out of any decision, though once you have numbers on your side, your confidence levels about the decision you have taken get a boost. Or let’s simply say – you feel good about the decisions you have taken as numbers driven opinion gives you a good shot at arguing your case, especially if your decisions don’t seem getting the desired results. That’s what this blog is all about. Sharing how numbers lead me to “opinions” and then to “decisions”. A word of caution – don’t take my word to for the sake of it: though I will be...