Chirag Joshi


Millennial Generation is a group of people born anywhere from the year 1980 till the year 2000. So why is it important to understand the investing trends of this generation? Millennial Generation forms a large part of the total population which is moving into its prime spending years, and therefore, it is essential to understand their financial psychology. Their perception and expectation from various experiences pave the way for the demand for such products. For financial firms as service providers, they need to understand the investing trends of this generation to maximize the profit potential and cater to their demand. E.g., Millennial Generation is known to opt for rented premises over an owned house because of the advantage of geographical mobility. This may dictate the demand for residential real estate in the years to come. Analyzing such trends is essential to forecast the future demand outlook of the economy for various sectors and products. 

Another important reason to focus on this generation is timing. The Millennials are born in the times of rapid change in the technology, business environment, and therefore, their priorities and set of expectations are very different from the previous generations.

Here are a few Millennial investing trends that will define the way of doing business in the future.

  1. Technology at their disposal

Millennial Generation has grown up in the age of digitization and has exploited the use of the internet to the best potential. Technology has allowed access to education and knowledge about investing at a young age to them, making the platform equal for everyone. Millennial Generation is a tech-savvy group that prefer to invest through their mobile phones directly. It has provided access to loads of information, and therefore, the millennials have become independent in their research, financial analysis followed by buying and selling of securities.

2. Risk-takers

The current age bracket for the millennial population falls under 40, making them a young growing community with abundant opportunities. The advancement of technology, access to resources and age on their side has allowed the people from this generation to go high-risk investments like equities. Millennials are risk-takers. With the penetration of the mutual fund industry in India, most of their equity investments are through SIPs in mutual funds. Mutual funds have a more significant benefit with limited capital too. The high risk would mean high return which will enable them to achieve their target goals. They also have an entrepreneurial mindset, and therefore, they are not afraid to experiment. They might accept failures provided if they come with learning. They experimentation include investing in mutual funds for long term goals and simultaneously trading in stocks for quick money. They have a diverse thought process for their action.  

3. Goal-based investment

Millennials are one generation which beliefs in financial planning, retirement planning with the help of long-term wealth creation. They are persuasive in determining their long term goals, quantifying them to an extent and creating a financial roadmap to achieve them. This is known as Goals-Based Investing. Goals like a world tour, watching the Indian Pakistan match in the World cup in London etc. comes at a cost, but they have the plans ready. 

4. Access, not ownership

As discussed, they don’t prefer ownership of residential house because of their dream to move around the country and the globe in different cultures and environment. Similarly, they have been reluctant to purchase capital intensive goods like cars, luxury goods etc. Instead, they get a broader sense of utility and satisfaction if they can use it whenever they want. Such a particular approach towards consumption patterns implies the need to use instead of the need to own an asset. A simple analogy can be drawn from the above facts – use of cabs which give a similar sense of comfort would be preferred over a chauffeur-driven owned car.

5. Informed investment decisions 

With the advent and access to technology, it has become easy to compare between products, services, companies etc. The fundamental business models have changed drastically in the benefit of the end consumer. In the earlier 2010s, we used to have companies selling their products and services online using digital marketing techniques as it was just the beginning of the application of technology. Today, we have companies in the business of comparing similar products and services as a primary business. The limited point that we are trying to share here is that technology has allowed more information to disseminate to the users faster and reliably. This enables the millennials to directly compare the products and make an informed decision to maximize the benefit. Millennials do not mind talking about the help of financial advisors when investing. But millennials are famously known as do-it-yourself generation, and they will conduct their analysis before investing. Technology has brought the world closer and provided access to interact with any professional from all the fields in no time, further helping the people to make more informed choices.

6. Better thinkers

Millionaire generation is known to be better thinkers. Smart thinking is also a result of better access to resources. The ability to postpone an expenditure for something else is something that has been notably seen in this generation, i.e. their ability to prioritize their needs and expenses. They respect the service quality before choosing it. They don’t mind paying a higher cost for the same product if the perceived value of services is more elevated. If the service quality is not up to the mark and is irreplaceable, then the potential of an alternative business idea is enormous. That’s where you could see new fintech businesses coming up in the discount broking space too and capturing a good share of the market. Samco has been instrumental in giving better service qualities to the customers at a lower cost. 

Long term investor believes in buying and holding a particular stock for the long-term as his way of creating wealth and generate passive income. They do not track the price of the stock but analyze the value of the business. This is commonly known as ‘Value Investing Principle of Investment.’ They believe in the fundamentals of the company, and they analyze by comparing ratios, profitability, growth, customer base, geographical presence, quality of management and sustainability of the company with other peers in the same industry. Here are a few things to keep in mind before starting your career as an investor. There are some Costly Investment Mistakes that a naïve investor should avoid in his preliminary phase of the career. 

  1. Timing the markets 

Investors generally wait for the right time to enter. Well, it is important to enter at the right price, but no investor has been successful in predicting the next move of the market. Incorrect entry and exit are one of the most common but costly mistakes that investors tend to make. Their decision to invest in stocks depends on acquaintances. One should not invest in stocks just because other people around are doing so. Such practices often yield subordinate returns in the long term. Instead of timing the markets, it is essential to invest consistently and regularly by spreading out the investment corpus at various time intervals. This will allow the investor to take advantage of rupee cost averaging and watch the investments grow and compound over time.

2. Use of Margin to create leverage for investment

Let us understand the meaning of leverage using Margin money. Margin is simply a loan extended by the broker that allows the investor to enter larger trades on borrowed funds. Leverage in any business means the use of debt to finance the assets. Essentially, leverage will enable you to pay less than the full price for a trade, giving you the ability to enter more significant positions even with a small amount of capital. Historically, debt has proved to be a way for exponential business growth. However, the ability to repay within time is a crucial factor. With long term investing, the leverage can affect the overall returns of the portfolio drastically and wipe out the capital as well.

3. Investment in penny stocks / small caps stocks

One of the most consistent mistakes that the majority of inexperienced investors tend to make is being attracted towards small caps stocks. The reason for this (ultimately dangerous) attraction always comes down to the potential returns and an opportunity to earn higher returns very quickly. In a single week, the price might jump from INR 2 to INR 20. 

Well, it’s an illusion, make no mistake about it. Not all small-cap stocks give such returns. One of the critical investing principles given out by Peter Lynch – ‘Invest in what you understand.’ This has been emphasized and reiterated by many fundamentally profound investors to date. Warren Buffet said that ‘Risk comes from not knowing what you are doing.’

Well, this has been the case for many penny stocks too. With limited information, restricted market participation and lack of liquidity prove to a costly mistake for the investor.

If you pick the right stock, the returns can be exceedingly vast. As against this, choose the wrong stock can erode your entire capital.

4. Lack of Patience

Investors saved money back in the stock market is arguably the single most effective plan to become wealthy. But investing will not make you rich overnight. Unfortunately, many people have high expectations, and when those are not met, such hope can lead to disappointment and cause them to leave investing altogether. Investing is a slow and consistent process that will help an investor to build sustainable wealth. Mr Warren Buffet became the richest person in the early 50s, i.e. after more than 30 years of investing career and continued to remain in the top 10 billionaires list even today. It is essential to be right in your stock selection but more important to be consistent with your decision making.

5. Over Diversification

It is important to have a strategic asset allocation and focus on the benefits offered by Diversification. Mr Warren Buffet had once said that Diversification is a protection against your ignorance. Diversification has proved to be an important risk management technique to mitigate the idiosyncratic risks from specific investments. However, Diversification comes at a cost as it limits the upside returns of the portfolio as well. If an investor is not careful, Diversification could easily lead to over-diversification, impacting the overall profitability of the portfolio over the long term. Over Diversification would lead to loss-making assets evening out the profit-making investments – resulting in lower returns from the portfolio.

To prevent over-diversification, investors must study the business dynamics, industry insights and business models to understand the specific exposure of each investment. 

6. Psychological barriers / Emotional investment

Greed and Fear are the two emotions that drive the market movement daily. The perception of an investor towards risk changes as per the market volatility. The veteran investor Mr, Warren Buffet has said that “Be Greedy when others are fearful and be fearful when others are greedy.” However, it is better said than done as most of the investors are somewhat cautious in a bear market and over-optimistic when the markets have already outperformed. This defies the Value Investing principle leading to improper entries and exit in the market, increasing the potential losses on the portfolio. For a successful investing career, it is imperative to refrain from the emotional biases for any investment. Psychological barriers create a rather inconsistent and indiscipline investing approach affecting the returns from the portfolio.

Investing is not easy, but if the investor steers clear from any one of these pitfalls, it can make a material difference in the portfolio. Making mistakes is not a problem until one learns from the same. 

Raamdeo Agrawal, born in a middle-class family in Chhattisgarh, is a successful investor and the Chairman of Motilal Oswal Financial Services. A Chartered Accountant, by qualification, he always had a keen interest in studying balance sheets and understanding businesses. Along with his friend Mr Motilal Oswal, He started a broking firm in 1987 and commenced with equity advisory vertical and portfolio management services soon in the mid-1990s. He gradually rose to prominence as one of the most sought-after investors in India, known as India’s Warren Buffet. With a net worth of over INR 13,000 crores, majorly from his fruitful investments, his investment philosophy has accrued a large following among all investors.

Here are the 5 top investment lessons you can learn from the master investor himself:


It is crucial to know the kind of business you are investing in. When you understand the specifics of a particular industry, you can gauge its growth trajectory and potential, thus reducing the risk involved in investing in the business. Mr Warren Buffet had once quoted that risk comes from not knowing what you are doing. A good strategy for this is to identify promising sectors, understand businesses and then make an investing decision.


It is a well-defined principle which says, “Price is what you pay, Value is what you perceive!” is a golden rule of investment. Prices are an effect of psychological reactions of market participants to information and news that vary every day in the market. However, the fundamental underlying of any stock is the business that it operates. It is the value of that business that matters to your portfolio in the long run. As Stock Market is a fight between Greed and Fear, the market generally tends to over-react in a bearish market, i.e. the market corrects more than expected, attributed to psychological factors by market participants during a recession. The principles of Value Investing are most likely to be used at such times. It is wise always to analyze a company’s fundamentals and recent history to gauge whether it is worth investing in. These companies have given exponential returns in years after a recession leaving investors with exponential gains in the long term. These are also known as bargain purchases.


Mr Ramdeo Agarwal’s investment style is to invest in the long term appreciating assets. He believes that one should invest the surplus and sell when he is in dire need of funds. Market volatility is one of the biggest problems for any investor. Buying quality business stocks at the right and reasonable price is essential. Further, long term investments have the benefit of compounding of returns as well. The long-term investment thought process allows the investor to withstand the short-term volatility and psychological reactions to stock prices. 


Mr Raamdeo Agarwal believes that success in equity investment can be achieved through the three D’s of investing: Discipline, Diversification and Differentiating between value and prices. 

Mr Agrawal believes that discipline, irrespective of whether the market is good or bad, is an essential trait of any successful investor. He has been very disciplined in his investing approach throughout his investment career of over 30 years now. Discipline brings consistency and creates a habit of winning. When you do the same thing over and over again, you become very good at it. 

It is important not to put all eggs in a single basket. Diversification is a technique used to reduce risks by allocating investment in different industries, financial instruments, etc. It is a risk management technique to minimize the risks by investing in varying sectors with disproportionate correlation to each other. i.e. safeguarding the downside risk from a specific company. In his words, “Diversification within a portfolio can take care of all the challenges of the marketplace”. While it does not guarantee against loss, diversification is an essential component of achieving long-term financial goals while minimizing risk. Diversification is vital to eliminate company-specific risk, also known as idiosyncratic risks.

Differentiating between value and price also becomes essential to building a valuable and stable portfolio. As explained earlier in the article, it is important to stay unaffected by price variations. The long-term value is what needs to be followed. 

Thus, a combination of these three methods becomes crucial for any successful investor.


Mr Raamdeo Agarwal has stressed enough on this formula. QGLP (Quality, Growth, Longevity and Price) strategy for investment looks after the four primary fundamentals of long term wealth creation. This strategy expertly examines the following:

  • Quality (Q) of business and management: The Quality of a business or company is reflected in its ability to extract significant returns on capital invested while prioritizing the interest of stakeholders. This ability should be deep-rooted and hence sustainable in business.
  • Growth (G) of earnings and RoE: Growth is key characteristic investors search for while selecting companies for investing. However, Growth by itself doesn’t mean much. It adds value only when the company’s return on capital exceeds the cost of capital. Thus, Growth is simply an amplifier: good when return exceeds the cost of capital, bad when performance is below the cost of capital, and neutral when profit equals the cost of capital. Higher Growth adds value for high return businesses and discredits value for low return businesses.
  • Longevity (L): A useful practice for an investor is to determine how long a company whose returns on capital exceed costs can continue to find fruitful investment opportunities. Longevity can also be seen in understanding the growth potential for 10-15 years. It analyses the relevance of a business in the long term. Longevity, in simple terms, would mean the sustainability of the company to maintain or increase the level of current profits and its ability to withstand the changing market dynamics.
  • Price (P): Price of a stock has to be seen in concurrence with the value it offers. Price is what we pay; value is what we get. Therefore, stocks are more attractive when the price is less than the intrinsic value of the stock.

These investment lessons are just a few chapters of the investing world that Mr Raamdeo Agrawal has experienced in his 30 years of investing experience. They provide a clear guide to the investment habits and traits one should hone to find success in the marketplace.

Profitable investments are fickle friends. When we invest in securities, we should keep in mind that businesses have ups and downs, just like everything else. A company which is profitable today may or may not continue to be profitable in the future. Therefore, it is very vital for the investor to regularly review the investments, closely watch the business performance, understand the market dynamics of the industry, and rebalance the assets at regular intervals.

Portfolio Rebalancing is done to ensure that the asset allocations are aligned to your desired risk appetite and financial goals as per the original investment policy statement (‘IPS’)

Why Portfolio Rebalancing? 

The portfolio manager is aware of your risk appetite and long-term goals and mentions that in the IPS. The choice of assets and proportion of each asset classes is primarily depended on the overall objective defined in the IPS.

For example: Let’s say, the primary asset allocation happens to be 60 per cent in favour of equities. This will be called your original strategic asset allocation. Over the next year, there could be a change in the market value of different asset classes within the portfolio, thereby, hampering the overall asset allocation. Such modification may expose the investor to the unwarranted risk and may prolong the time taken to achieve the long term goals as per the IPS. It is crucial to re-allocate these excess funds to reduce such unwarranted exposure. 

Rebalancing will enable buying or selling assets in a portfolio periodically to maintain a fundamental level of strategic asset allocation. Hence, rebalancing shall keep the portfolio align with long term goals, desired risk appetite as well as expected return from the portfolio as defined in the IPS.

Frequency of Portfolio Rebalancing (Strategies)

There is no fixed schedule for rebalancing. However, there are a few portfolio rebalancing strategies to decide the frequency of rebalancing.

  1. Constant Mix strategy (Corridor based)

Since rebalancing allows the investors to sell high and buy low, by booking profits from outperforming assets and reinvesting them in underperforming assets, this strategy demands a rebalancing on a variation from the original asset allocation with bands. E.g., When your original asset allocation shifts from its equilibrium beyond 10 per cent. i.e. If the allocation shifts from the original 70-30 to 80-20, then the investor shall sell 10% equity and invest 10% in debt and change the allocation back to original 70-30. 

2. Calendar Rebalancing (Time based)

This is one of the more straightforward rebalancing techniques where a fixed date of a periodic interval, either annually or twice a year, is decided in advance as the date of rebalancing. The portfolio is rebalanced irrespective of the performance of the markets. This is the least costly method of rebalancing; however, it does not react to the market conditions.

3. Constant proportion portfolio insurance: 

This is the most complicated strategy in this list as it involves a floor value for the risky investment and a multiplier coefficient. The rebalancing decisions are taken if the cushioning amount, which is a function of the portfolio value, floor value and the coefficient multiplier, is triggered.

Importance of Portfolio Rebalancing

  • Risk and reward: Asset allocation is all about risk and reward. As we discussed that some asset classes might outperform the other asset classes in the same portfolio over a period of time. Portfolio rebalancing helps to avoid skewness towards a particular asset class, thereby, stabilizing the overall portfolio risk as per the IPS
  • Higher discipline: A psychological trait of the investors does not allow them to put in more money in underperforming assets and securities. Portfolio Rebalancing enforces a certain level of discipline to sell the outperformers and put the same money in the stocks that have underperformed. 
  • Regular Review: Rebalancing is a follow-up activity after a full review of the portfolio. Therefore, every time that a portfolio manager wishes to rebalance the portfolio, all the securities and the asset classes shall be analyzed, scrutinized and reviewed, thereby, able to make an opinion on individual stock holdings too.
  • Stick with the overall plan: The original strategic asset allocation and the investment strategy is tied to the long-term aspirational goals, timeframe for the money and the desired risk tolerance. Periodic Portfolio Rebalancing enables to maintain the strategic asset allocation in line with the IPS.

Rebalancing is an integral part of strategic investment management and financial plan. Therefore, It is crucial to reap the desired rewards from your allocated funds. It should, however, be done keeping in mind the costs that come along, e.g., exit load, brokerage costs, transaction costs and taxation. Therefore, too much frequent rebalancing may be very costly and may outweigh the benefits of Portfolio rebalancing.

Therefore, one should weigh the costs and benefits of the overall portfolio rebalancing activity and then decide the strategy that works best, identify the asset classes and act on it. 

‘All you need is a plan, the road map and the courage to press on to your destination.’ No one knows the future, but proper planning can get you closest to what one would have thought.

Similarly, planning is necessary for all aspects of life. For money-related decisions, ‘Financial Planning’ comes into the picture. Financial planning is a compilation of all the long term goals and related strategies to achieve the same. It mostly keeps a good check on every penny earnt, spent and saved. 

Financial planning is often misunderstood to be just for the ‘rich’. Well, this is a myth since everybody would have financial goals to achieve in the future. Financial planning includes identifying the short term, medium-term and long term goals, creating budgets, cutting down on expenses, planning Investments, mitigating risks by Insurance, Retirement Planning and much more. A financial plan is telling your money where to go, instead of wondering where it went.

Why is Financial Planning Important?

  1. Disciplined Savings

The first step after creating a financial plan is to create a monthly budget. This will give you essential insights into regular expenses and income. Further, to achieve the long term goals, it is vital to convert a deficit budget to a surplus budget by cutting down on unnecessary expenses. 

“The cost of living is not expensive, but the cost of the lifestyle is.”

  1. Creates an emergency fund

As part of an ideal financial plan, it is crucial to prepare for emergencies. There is no harm to believe that there is something that is always coming in the next few months. It is better to be ready for any uncertainty or misfortune. Usually, your emergency fund should amount up to 6 months of your salary

  1. Improves the standard of living

With a sound financial plan, one does not need to compromise on their lifestyle to pay hefty bills. Disciplined savings regularly shall support the improved standard of living as well as help achieve the long term goals.

  1. Financial independence

A proper financial plan will involve regular budgeting exercise, investment planning, retirement planning etc. These are stepping stone to reach financial independence. In this entire journey, individuals can create assets which will be sufficient to generate income post their employment. This could also lead to early retirement plans.

Many people confuse financial planning with wealth creation. However, are they different? What is more important?

Well, it would be safe to assume that proper financial planning can lead to significant wealth creation. Therefore, Wealth creation is, in fact, an outcome of financial planning. ’

Wealth is the ability to experience life fully. — Henry David Thore

What is Wealth Creation?

Wealth Creation is the process of creating a pool of assets (stocks, bonds, real estate, gold and cash), which could be self-sufficient to generate a stable source of income to aid the livelihood. Robert Kiyosaki once said, “Don’t Work For Money; let money work for you.” A part of financial planning includes investment management with the end of goal of Creating Wealth. The simple guide to wealth creation is to start early, Invest in appreciating assets and invest for the long term.

The benefit of investing early in the career and staying invested for a long term is visible exponentially in the latter years of your investment cycle. This is the power of compounding.

Importance of Wealth Creation:-

  1. Regular source of income: Good investments in appreciation assets can provide a source of income (in the form of rent, dividend, interest) even after retirement. It helps to sustain the standard of living in times of emergencies, a sabbatical from work or also a health crisis. 
  2. Healthy Retirement: Building wealth is imperative for a healthy retirement. Wealth creation matters as it will enable you to fund the post-retirement years. 
  3. Goal-based investing: A goal-setting system helps to achieve targeted Wealth. It is always useful to have a goal in front of you to push harder to achieve the same. This works well with finances too. Goal-based investing is a matrix to measure the progress of wealth creation towards specific life goals like a world tour, marriage, children’s education etc. 

What is an Ideal Wealth Creation plan?

Since Wealth creation is a subset of the overall financial plan, the steps for the same are similar too, listed as under;

  1. Creating a budget
  2. Invest rather than just saving. 
  3. Understand the impact of inflation on saving.
  4. Investing in appreciating assets
  5. Becoming Debt-free.
  6. Cutting on unnecessary expenses
  7. Don’t mix insurance with investments

It would be safe to conclude that Financial Planning and Wealth Creation complement each other; it would be impractical to start wealth creation without proper financial planning. A financial plan allows you to identify the essential steps needed to take to be successful and profitable in a sustainable fashion. 

The famous investor Warren Buffet’s quote, “Failing to plan is planning to fail” itself draws out the crucial need to plan and reduce risks in your financial endeavours!

Peter Lynch, chairman of lynch federation, is an investor, mutual fund manager, and philanthropist. He is by far, one of the greatest investors. For 13 years that he had managed the Magellan fund at Fidelity investments, he stretched up to an annual average return of 29.2%, which as of 2003 had the best 20-year performance of any mutual fund ever, invariably more than doubling the S&P 500 stock market index. Asset under management (AUM), with his philosophical management, surged from $18 million to 14 billion. He has coined several investing mantras of modern individual investing strategies, such as to invest in what you know and ten-baggers.

1. Investing Theories

  • Invest in what you know

I have found that when the market’s going down, and you buy funds wisely, at some point in future, you will be happy. You won’t get there by reading “now is the time to buy

Lynch’s investment philosophy is summed up “buy what you know”, and there’s some truth to that and also it’s often way oversimplified.

Lynch uses this principle as the starting point for investors. He always emphasizes on ‘Individual Investor Approach’, rather than ‘Fund Manager Approach’, because individual investors can spot suitable investments in their day to day lives.

He invested in shares of  Dunkin Donuts not after reading about the company but after being impressed by their coffee as a customer. That’s a clear example of a ground reality performance check.

  • Ten-Bagger Approach

Being a baseball geek. Insisted him to coin a term ‘Ten Bagger‘ which represents two home runs and a double, In financial terms, it is an investment that appreciated to 10 times of its initial purchase price. It is used to describe stocks with bombarding growth prospects and has the potential to increase tenfold. A mixture of market research and quality experience is a prerequisite for finding ten baggers. A growing industry shall have more potential ten baggers than a mature industry with already established players.

Behind every stock is a company. Find out what it’s doing” says the writer of three books. In a way to create a domino effect, ‘learn to earn’ was written for beginner investors of all ages, mainly teenagers. In “One Up”, Lynch outlines his strategy of buying all kinds of stocks, like growth, cyclical and potential turnaround situations by giving particular emphasis on discipline by rechecking your stocks every few months and not panicking when everyone is selling. An average investor can beat the money managers at their own game if they invest the necessary time and effort in researching stocks exercising common sense and discipline.

According to his practical experience, one should always count on specific characteristics of a company.

2. Investing Learnings for beginners 

  • Value investing strategies:

He states the company’s ‘duckling nature’ tends to be reflected in the share price, so good bargains often turn up. If there are some negative rumours around the company or disagreeable statement against the company– a higher level of attention should be given to such companies. 

  • Companies under M&A deals:

Investors should focus on companies participating in a proposed M&A transaction. A further check should be done on the insider buying and take advantage of such volume. In most cases, M&A deals have huge potential to generate returns because of the synergies of the combined entity.

  • Focus on Market leaders

Company in a niche business segment having a controlling market share has larger visibility of future profits and sustainable growth because of the barriers to entry in the niche segment.

  • Defensive Industries

The company that produces all season usable products – like drugs, eatables or soft drinks provide stable earnings and regular dividend payouts. They would be a good hedge to the portfolio in times of recession.

  • Track Insider buying activity

He believed that insiders/promoters buy a stock only when they are confident of the company’s long term prospects.

  • No analyst coverage

A multi-bagger stock is identified in its initial phase before it catches the eye of the analysts of the streets. Such companies are often neglected by the market participants and therefore, offering value buying in such companies.

3. Peter Lynch learnings on what a company ‘should not’ have;

  • Companies with big plans that have not yet been proven.
  • Few buyers account for 25% to 50% of the company’s sales (Concentration of customers)
  • A company over diversifying its operations and acquisitions into non-synergistic businesses (financial investments and not strategic investments are not preferable).
  • Hot stocks in hot industries rather than hot stocks in dull  industries

4. Post investment lessons

  • Diversification of portfolio

Do not diversify just for the sake of diversification. Complete research of the market and stocks is essential. Diversification comes at a cost, over diversification will affect the overall profitability of the portfolio. 

  • Price drop scenario

Buy on dips has been well-tested outperforming strategy. However, one needs to understand the price drop. As per Peter Lynch, price drops in a bearish market is a buying opportunity, whereas a price drop in a bullish market is a selling opportunity.

  • Stay in the game

A long-term commitment towards stocks will deliver exponential returns. Using the above principles, the investor must hold the stock for years fulfilling the ten-bagger approach.

  • Regular review of the portfolio

One should recheck one’s portfolio regularly depending upon the investment appetite like weekly, monthly or quarterly. Sell if the stocks have played to your expectations or it fails as per your fundamental analysis.

Lynch doesn’t see smartness in getting into a company that’s going up then take their profits rather hang in with the very high stocks when you sell the great companies and add to the losers, it’s like water in the weeds and cutting the flowers. You have to know what you own and why you own it “This baby is a cinch to go up” doesn’t count.

Increasing Healthcare and wellness expenses have impacted our retirement corpus heavily. But have you ever considered that you could pay hefty medical bills to the hospitals by making profits from their shares? Well, that’s an oxymoron, but yes, that’s very much possible!

The Healthcare and Pharmaceutical sector has consistently outperformed nifty over the years. Below is a chart showing the performance of nifty 50 and NSE pharma.

The pharma sector in India had been underperforming since 2014 with the arrival of US FDA approval. The stocks had not participated in the bull run from 2014 to 2019. However, most of the population across the globe have become more cautious about the outbreak of the current virus. The importance of Healthcare is now at its peak. 

Why Pharma and Healthcare business?

With pandemic hitting other sectors of the economy like a domino game starting from Travel and tourism to Banking, Coronavirus has shown a negative impact in all the sectors except Healthcare. And India being one of the prominent and rapidly growing presence in global pharmaceuticals could be the sector for a boom in the coming years. India has been a significant exporter of medicines and other pharma products to many countries across the globe. The cautious approach of the people shall create a further sustainable demand for these products in the coming future. 

  1. Strong Global standings (Major Exporter) 

It is the largest provider of generic medicines globally, occupying a 20% share in global supply by volume and 62% of global demand for vaccines. India now stands third worldwide for the production by size and 10th by value. India holds 12% of all global manufacturing sites catering to the US Market.

2. Manufacturing Hub and lower costs.

Expertise in low-cost patented drugs and a movement towards end-to-end manufacturing has improved manufacturing demand in India. Further, the shift of business from China to India shall boost the production in India to cater to the global market. Also, most of the Indian Pharma companies have shown decent growth and have taken steps to reduce their costs which makes the manufacturing even more attractive in India. The combined impact on increased volumes and lower costs shall be to improve earnings growth.

3. Innovation and R&D

Indian pharma companies have been investing a large percentage of their income for research and development. This is primarily to improve its wallet share in the export business. With more than 30 vaccines being in different stages of development in India, India holds a strong global position in the Drugs market.

4. Value picks

The Pharma and healthcare sector index had underperformed the nifty drastically over the last three years until 2019. The earnings stabilized in the second quarter of 2019, which then saw a turnaround story for most of the Indian Pharma companies. Some of the pharma companies are available at a dead cheap price, making them long term value picks. The basic idea of value investing strategy is to identify an undervalued stock in times of recession, which have corrected more because of the overreaction of the emotions of the market participants. Pharma companies had been in such a phase and therefore, could generate exponential returns for the investors in the long term.

5. Health insurance sector

With the increasing health risk and the medical costs associated with it, it has become essential to transfer (Risk sharing) to avoid financial discomfort in times of uncertainties. Life and Health Insurance is one such business with limited penetration in the Indian households, i.e. lower customer outreach as compared to the overall population of India. Most of the people fail to have an insurance policy or refrain from having adequate and sufficient insurance, i.e. underinsured. With an increase in financial literacy programs in India, the demand for insurance products is bound to increase. 

Healthcare and Pharma StockBasket

Considering the decisions about Investing, Healthcare and Pharma sectors is one of the industries which every investor should be bullish on. A more vigilant approach from the consumer will bring fundamental change to the spending habits towards precautionary products. 

The first step to fundamental investing is to identify the next trend – the next promising sector. In this case, we have done our bit. Secondly, choosing Stocks can be a more significant burden for any investor. But don’t worry, we have got you covered. Our research team at StockBasket has created a wellness basket and cherry-picked fundamentally sound companies with consistent growth and earnings as well as optimistic future expansion plans.

The basket is diversified across the major sectors in the healthcare space, including Indian Market leaders as well as Multinational companies.

  • Indian Healthcare companies – Dr Lal Path Labs is an international service provider of diagnostic and related healthcare tests. It is the market leader in order diagnostic space and one of the fastest-growing companies.
  • MNC Pharmaceuticals – To have a geographic diversification and global expertise, we have chosen the 6th largest pharma company across the globe dealing in medicines, vaccines and consumer health, i.e. GlaxoSmithKline. It develops and distributes medical products, including respiratory, oncology, vaccines, HIV, and consumer health medicines globally.
  • Insurance – Considering the fact of being in Health crisis, the Insurance sector is given a maximum of weightage at 30% of the portfolio with HDFC Life and ICICI Lombard as holdings. These two firms stand on top of this sector. The former is a debt-free company, and the latter has increasing Earnings per Share.

These are strong runners that have evolved to become high-quality companies operating efficiently on the back of world-class practices and steady growth. This Stockbasket encompassed the entire healthcare value chain right from diagnostics to health insurance to diversify and manage risks. Our perfectly balanced basket would wither all the market volatility to generate our client’s superior long term returns.

Before jumping on to the difference between Risk Ability vs Risk tolerance, let us first understand risk tolerance

What is investing risk tolerance?

Risk tolerance is the amount of loss that an individual is prepared to handle within his/her portfolio. In layman terms, Risk tolerance is the ability of an investor to take the risk. The risk tolerance is determined by a combination of factors like his lifetime goals, timeframe, personal preferences, expertise etc. There is a difference between risk ability and willingness to take the risk. An ideal investment policy statement (IPS) would define the risk appetite as a lower of the two, i.e. lower of willingness to take risk and ability to take the risk. This is further explained in the latter part of the article.

Understand the risk tolerance

An investor needs to understand the proportion of allowed risk (willingness to take the risk) and the types of risks that the investor wishes to be exposed to. Understanding risk tolerance is an essential component of investing. Age plays a vital role in defining the overall risk tolerance. Young investors tend to have a higher ability to take risks and vice versa. Apart from the factors mentioned above, net worth is an essential factor in determining the overall risk tolerance of the portfolio. An individual with a higher net worth tends to have a higher ability to take the risk.

The risk profile constitutes the willingness and the ability to take the risk. The investment plan of any investor should be based on their overall risk profile. 

Risk Ability vs Risk tolerance

Risk ability is the capacity of the investor to take risk. Risk tolerance would mean psychological willingness to take the risk. It is the amount of loss that an investor is ready to handle in his portfolio before deciding to sell the security. 

Risk tolerance is a factor that the investor decides based on his needs, expectations and experience. In contrast, the ability to take risk shall be determined by the financial adviser considering all other external as well as internal factors.  

For eg.: An young investor would be willing to take the risk since age is on his side. However, he would not have sufficient capital to absorb such high willingness to take the risk. Therefore, the ability to take risk is much lower. The overall risk profile of the investor, in this case, could be understood as conservative to moderate.

The critical factor in deciding the risk tolerance of an investor should be the resistance or comfort to handle the volatility and the potential initial losses if any, in the portfolio. 

  1. Based on the risk tolerance criteria, there are three types of investor classification:1. Aggressive Risk Tolerance – Generally, investors with a higher risk tolerance tend to have a deeper understanding of the financial markets and are generally risk-takers, i.e. risk seekers. They would be preferring investing in high-risk security even with a little probability of returns as well. 
  2. Moderate Risk Tolerance – Such investors have a balanced approach to risk tolerance. A single unit of return motivates them to increase a unit of risk as well. Their portfolio would generally combine safe blue-chip securities along with small-cap high volatile stocks to have a balance risk tolerance.
  3. Conservative Risk Tolerance – Newbie investors generally fall within this category who are sceptical about investing and would prefer a lower risk of the overall portfolio. They would demand more units of returns even for a single unit of marginal risk.

 It is very important to understand the fundamental difference between risk capacity and risk tolerance. Both risk capacity and risk tolerance are crucial to define the risk profile of the investor as they’re crucial to determine the asset allocation and percentage exposure to different asset classes. 

Through risk management, one could measure the goals and can prevent unwanted surprises in the future and feel a higher level of comfort to reach his financial goals successfully.

Every Investor dreams of outperforming the market and creating wealth like the legendary Investor, Mr. Warren Buffett. But it takes an enormous amount of discipline, patience and perseverance to be a successful investor. Most of the long term value investors recommend the ‘Buy & Hold’ strategy to investment. 

Buy and Hold is a long-term passive investment strategy where the investor is involved in selecting value stocks. Once the Investor identifies the right business, he locks it for the long term, thereby reducing taxes, increasing wealth and enjoying the benefit of compounding. 

Most of the investors bet on the overall economy. Fortunately, India is a developing economy and therefore, has caught the attention of many investment funds across the globe. The long term story of most of the stocks in India has been beneficial to investors. Buy & Hold strategy has, therefore been a boon rather than a bane for most of the businesses. 

Above is the stock price chart of TCS (since the date of listing). The stock has created wealth for its investors, and the value of investment today is more than 1600 times that of the original IPO price (adjusted for share-split and bonus).

In other words, if you had invested ₹1,00,000 in TCS in 2004, it would have become ₹14,40,000 (without considering the impact of dividend). TCS is the second largest company in terms of market capitalization listed on the Indian stock exchange.

Buy and Hold may seem to be a pretty simple strategy when you look at these 16 years at a stretch. Afterall one would have just held on to this stock all these years. But why is it that only a few were able to achieve much higher returns?

It surely isn’t the most straightforward strategy. For he who had done it, would have fought a hard battle and faced the following;

  • The temptation to sell after seeing handsome profits. 
  • Refrain from shifting to more attractive stocks.
  • Stock ticker tape, which made its presence felt every second.
  • Not bragging like his fellow investors who made an instant profit.
  • Sentiments of the market at the time of a bloodbath. e.g. the 2008 US Financial Crisis. etc. Avoiding panic selling.

This is correct. Identifying the right stock is just 50 per cent of the overall success. There are millions of traders sailing in the same boat, but their earnings tend to differ materially. Timing, price, time frame and temperament decides the returns from your investment as well. The long term growth depends on corporate earnings. However, the short term price fluctuations are based on sentiments. The earnings reported quarterly, but the price of the securities change every day. 

Did you know?

Warren Buffett is one of the most successful investors of all time. His shareholding list is available to everyone. Yet only a few could make a fortune like him. There may be many reasons for this, but it can be narrowed down to only one – ‘Unrest’.

There’s a famous quote by Blaise Pascal which says- All of the human unhappiness comes from one single thing: not knowing how to remain at rest in a room. This is one of the great lessons for an investor who believes in the power of long term investing. He would not only buy and hold but will look for quality businesses that would sustain through the toughest of recessions. Long term investing is all about understanding the value of the business and not the price of the stock. One who understands the difference between the value perceived and the price of the stock – can become a successful investor.

However, if it was so easy to make money in the long run, why are most of the investors not following the same strategy? Also, if the long term story is optimistic, does stock picking even make a difference?

Well yes, business dynamics change from time to time, and so do the emotions. The behavior of other investors and the market conditions affect the investment portfolio. In changing business environment, it is of paramount importance to regularly review your existing portfolio and look for forward-looking opportunities. 

And that’s why holding on to stocks – the ones that remain high quality – is elementary yet not as simple as it sounds. A profitable business today may or may not continue to stay profitable due to the business dynamism. 

Although Buy and hold have provided immense wealth to many, who follow it. But it has undoubtedly been a wrong choice for some too. This is the chart of wealth destroyer Reliance Power since its IPO.

This is the chart of Reliance Power. If you had invested ₹100,000 in Reliance Power in 2008, you would be left with mere ₹1600. 

Had the Investor reviewed the stock at regular intervals, he would have exited much before the crash and could have avoided erosion of capital beyond a point. In addition to periodic review, the Investor should also deploy risk management techniques to reduce the losses beyond a point.

How can one assure wealth creation in the long run?

As the business dynamics keep on changing, businesses may or may not remain profitable for the longest time. E.g. Automotive and fuel industry may become obsolete after the introduction of electric vehicles. 

A long term investor should review a firm’s viability, scalability and sustainability before making a decision. He should be well equipped with the fundamental changes with the company, i.e. change in management, business model, geographies, product range etc. These are some of the ways through which an investor could make a fortune in the market.

To conclude, Buy and hold investing can be thought of as sowing a seed into the ground and just watching it grow to the fullest. You may not get the fruit in the immediate future but will surely receive ample of them after a certain amount of time.

First of all, it is imperative to understand the term ‘Inflation’? 

Let’s take the example of some food. Do you remember the price of the famous vada pav near your college when you had it for the first time? What is the cost of the same vada pav today? Well, it has undoubtedly increased every year. That’s the work of ‘Inflation’. Inflation is the general increase in the prices of goods and services in the economy over time. 

The primary effects of Inflation are on the purchasing power and cost of borrowing. 

Inflation in India has been around 6 percent per annum. This implies that any commodity would cost 6 percent more after a year. Comparing it to the bank savings rate, which is 4 percent currently, Inflation creates a more significant impact on the purchasing power kept in the saving bank account. This implies that a deposit of INR 100 in a savings bank would become INR 104 after one year as against the cost of the commodity becoming INR 106 after one year because of Inflation.

Conclusion: If at any time your savings don’t grow at the same rate as Inflation, you are effectively losing the real value of money.

Robert Orben once said that Inflation is the crabgrass in your savings.

The only way to beat the effect of Inflation is to invest your savings for a better return than you can get in savings accounts (i.e. return higher than inflation). An inflation hedge typically involves investing in an asset expected to maintain or increase its value over a specified period.

What are the investment avenues to beat the effect of Inflation?

  1. Mutual funds

One of the less risky investment options is building a portfolio of Mutual funds for new investors. To create the best portfolio of mutual funds, you must go beyond the sage advice, “Don’t put all your eggs in one basket:” Mutual funds accurately helps you with the benefit of adequate diversification.  In case of lack of knowledge, mutual funds are one of the most excellent investment options as professional experts manage them. 

2. Direct equity

Investing in direct equity means buying shares of a company – becoming a part-owner of that company. Being a shareholder of a company means partly chipping into the ownership of the company. Thus, as a part-owner of the company, one is entitled to the associated business risks as well as the share in profits and growth of the company. Warren Buffet once said, “Wide diversification is only required when investors do not understand what they are doing”. Equity investments have been considered the riskiest investments out of the other investment avenues, thereby, has been instrumental in yielding above than average returns. 

3.   Hard assets / Commodities

One can even prefer investing in Hard assets, i.e. commodities like Gold. When Inflation rises, the prices of hard assets and commodities rise along with it. Another benefit of investing in these hard assets is that they typically are less correlated to the overall market. Therefore, Gold is a seamless hedge to the overall equity portfolio because of its inverse relationship with the equity markets.

4.   Inflation-Indexed Bonds.

Another investment option for further lower risk is ‘Inflation-Indexed Bonds’ where the bond return is at par with the inflation rate in the country, thereby providing a perfect hedge to the rising Inflation.  As the name suggests, the yield of such bonds is adjusted as per the actual rate of Inflation. 

5.   Real estate.

Real estate investments (similar to Gold) are considered as a good hedge against Inflation since the property values and rental income typically increase along with the Inflation. Allocation to real estate can be an excellent diversification to the overall portfolio risk. The main problems with real estate are lack of liquidity, higher capital investments, more extended time frame and limited leverage. 

To conclude, Inflation affects every rupee earned. Therefore, every individual should reassess their investment policy statement, asset allocation and overall risk of the portfolio to map it with the long term aspirations and goals keeping in mind the overall effect of Inflation in the long run.

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