Silly Things People Say about Money #1

Money is an interesting subject. Whether you like this subject or you hate it, you will inevitably be affected by it. What makes the subject of money interesting is the wide variety of views people have on it. Many of these views are not just amusing but also outright silly.

Consider this view for instance: many people like to lock-in their money or go for an auto-debit facility because they think they lack discipline. Since you can’t access the money that has been locked in, you become “disciplined.” Since money will be auto-debited from your bank account periodically, you won’t be able to squander it. 

The problem with the above-mentioned line of thinking is that in both the cases, you compromise on an important element of the investment process: control. In your urge to become disciplined, you actually lose access to your own money or allow others to take money out of your bank account. What sense does it make?

Investing is best done when you have control on the flows. You decide when you should invest. You decide when you should sell your investment. Of course, this requires a certain degree of sophistication, and you must develop that as an investor. If you don’t, you only let others—investment companies, the government, the bank, etc.—assume the control. They may not have your best interest in mind.

There are absolutely no short cuts to the success in investing. You must follow its principles to get successful. Being disciplined is an important principle. But being disciplined about wrong things won’t do you any good in the long term. 

Why the “Technologically Backward” Will Be Rich

Big leaps in technology have resulted in many of us feeling inadequate if we aren’t an active user of it. But the technologically backward have an inherent edge over the technologically advanced: they will become rich.

How? Just by not chasing the latest fad, you can save tons of money. You can then invest this money and become rich. The technologically up-to-date must keep spending to satisfy their false sense of being savvy, thus killing their financial prospects in turn.

This doesn’t mean that you have to turn yourself away from technology. Technology has made our lives easier and by all means you should embrace it. But you shouldn’t chase it. Every day something gets developed. Just because something is out there doesn’t mean you have to use it. Neither do you need to be among the first users of a technology. Wait for a technology to become popular and see if it fulfills your need. If it doesn’t, you are most welcome to shun it.

I know a person who wanted to buy a new phone. She wants her phone to have “everything,” to be the “latest.” When you want “everything,” you have to pay for everything, which pushes up the cost. And you are never going to use many features for which you have paid. What sense does it make to pay for something you are never going to use?

With technology, my personal policy is that it should be “progressively need-based.” This means buy what you need currently, with some enhancements. For instance, if your current requirement is 8 gigabytes of storage, you may go for 16 gigabytes. But not 32 or 64 or 128 gigabytes. The more storage capacity you want, the more you must pay. And you may never use that much storage ever.

While the technologically savvy may appear cool at first sight, it’s the technologically backward who will have the last laugh.

How to Tell if You Can Be an Entrepreneur

You know you can be an entrepreneur. You have plans, and at some point in time you want to start your business. Currently, you are working for your employer, but you are sure that this will go on for just four-five years and then you will be out on your own. Once you are independent, you will enjoy life, while money will keep coming to you. Sounds great.

If you have the line of thinking detailed above, sorry, it’s highly unlikely that you will ever become an entrepreneur.

I frequently come across people who tell themselves the story given above. Such stories are nothing more than a lullaby that employees sing for themselves. These lullabies soothe them for the moment while postponing the need for any initiative-taking to the future. No wonder things never get done. Four-five years simply go by and they realize that almost nothing has changed. Their lives are still what they used to be—plus they have less energy and ambition now. Time keeps flying away and the goal keeps getting postponed until it reaches a point when it is altogether junked or becomes impractical.

One telltale sign of a true entrepreneur is that he/she never wants to put things to the future. He wants them done now, no matter if on a small scale. The spirit of entrepreneurship lies in doing, not just in imagining or daydreaming. So if you want to start something, start now. Starting now doesn’t mean that you have to quit your main job. It means that you start what you want to do on the side. Pursue it in your spare time.

Starting a venture is just a start of a new journey. Just because you start a venture doesn’t mean you will get successful. But in order to get successful, you must start. And the right time is now.

The Only Prediction for 2017 You Will Need

It’s that time of the year again. With the start of the new year, financial pundits have taken out their crystal balls and magnifying glasses and are queuing up to give their predictions for 2017 and analysis of 2016. The media have found a lot of content to keep themselves busy. Newspapers are overflowing with graphical stories on the trends for the new year. 

Here is the problem: they had done the same thing when 2016 was coming. They kept forecasting throughout 2016. And they were wrong almost always. What really happened was very different from what was forecast—remember Brexit and Trump win or the rally in metal stocks when everyone was so pessimistic about their outlook? 

The next “big” event that has got analysts’ and media’s attention is the Union budget. For the next one month, there will be a barrage of what is expected from the budget. News channels will have panels of experts passionately discussing what the budget is going to have. As usual, the reality will turn out to be much different. 

The one prediction for 2017 that is useful to the investor is that the experts are going to be wrong yet again. Don’t trust them. Follow your investment strategies and don’t look here and there. Here is another effective tool: don’t discount the power of the non-event. While most experts paint either a flowery or a gloomy picture, the one possibility nobody talks about is “nothing will happen.” Apply this argument to Trump presidency and demonetization after-effects. 

The penchant of the pundits to predict the future and go wrong isn’t new, yet the stubbornness to do so doesn’t go. In spite of being proved wrong countless times, they can’t help their urge to forecast. It’s pointless expecting them to shut up. As an investor, it’s your responsibility to insulate yourself from their forecasts. That could be the best new-year resolution you can make.

How to Get Rid of Demonetization Pains

Standing in long queues in front of banks seems to have become a full-time profession. People wake up early in the morning, get ready, pack their lunch boxes, and stand in bank queues to withdraw cash. With many employees receiving their salaries, normal snake-like queues are turning into anacondas. Some people have started “hoarding” cash for “bad” times. The political opposition has yet again found another agenda to not let the parliament work.

While the market seems to have recovered from the demonetization setback, the common man (and woman) remains in trouble. Fortunately, there’s a way out: go cashless. Though this solution looks rather obvious, yet it’s not accepted and appreciated both by people and businessmen as much as it should be. The real problem is not a lack of cash. The real problem is the unwillingness to adapt to the change.

Just imagine a scenario where most small businesses and sellers started accepting digital currency. Would the demonetization still look so grim? The other day a news channel was featuring a story that many small-business owners aren’t willing to accept digital cash; they want hard cash. These people who use expensive smartphones don’t want to accept digital payments. Why? Leaving out the tax-evasion angle, the only other explanation is that they are unwilling to adapt to the change. Their unwillingness is causing pains to the general public.

Kudos to those small-business owners who have switched to digital payments and quickly adapted to the change. They show the real flexibility that a true entrepreneur has. As a matter of fact, they have started to reap the benefits of digital before those who are still in their comfort zones. How fast others adapt themselves to digital will determine their existence in business.

Similar argument goes for the consumer also. Consumers should also switch to digital as soon as possible. They should seek out help if they have any reservations regarding it; children should help their parents to adapt to digital. As the business and the consumer push each other toward digital, what looks like insurmountable will turn easy. 

The demonetization has ruffled us out of our comfort zones. It’s time to see the brighter side rather than go after the government and criticize it for the bold step it has taken. Mind you, the world is watching.

Should You Worry about the Demonetization?

The recent demonetization of Rs 500 and Rs 1,000 notes has again unleashed intellectuals, who are debating the positives and negatives of it. The obvious positive is the economic clean-up; the negative is a loss of jobs and the fears of a recession. The market has reacted sharply to the demonetization.

Similar to what I wrote for US election outcome in my previous blog, “How to Protect Your Portfolio from the US Election Outcome,” your best response to the demonetization is no response at all. Don’t let it derail your investments. Don’t wait for some “better” times to make your investments. Don’t exit the market in haste to cut your losses. Simply carry on with your investments normally.

The worst thing you can do in the current uncertainty is respond to it in any way. Many investors feel that it’s smart to sell out presently and buy again at lower levels. Don’t fall for this trap. That’s not smartness but outright fear. Volatility is a part and parcel of the stock market, and this is the time when you need to show some courage rather than run away. Those who run away now will soon find the market taking a U-turn and they will never be able to reenter it, for they will then fear about the market falling again.

The latest evidence of this lies in the way the market reacted on Trump’s victory. It did fall but the very same day, it recovered. What’s more, the US and European markets actually rose. It looked like the market was poking fun at those who had tried to outwit it.

Only time will tell whether the demonetization turns out to be good or not. For now, the financial community has found itself a new stressor to stay busy. If you must worry about something, worry about insulating yourself from the financial pundits.

How to Protect Your Portfolio from the US Election Outcome

US election results will be announced soon. It’s going to be either Hillary Clinton or Donald Trump. Experts are worried that if Trump wins, that could seriously roil the markets worldwide, including the Indian one. Trump has become infamous for his anti-trade, anti-globalization rhetoric, and since the US is an important market for many countries, his getting elected is quite worrisome. On the other hand, Clinton has earned the reputation of being the “politician next door”; not many things are going to change if she gets elected. Since markets hate uncertainty, Clinton’s win is what it wants.

As I write this, the gap between Trump’s and Clinton’s electoral numbers is narrowing. Clinton was ahead of Trump by several percentage points, but thanks to her email controversy, that difference is fast disappearing. The market has also sniffed the trouble in making and has quickly fallen a couple of percentage points. What should you do now? Every market pundit has a strategy to offer, which can only serve to confuse you even more.

Here is the only thing you need to do: Do nothing. Carry on with your investments as usual. If you have money to buy stocks, don’t wait for a better time. Don’t wait for more clarity to emerge. Simply keep investing.

As you may have noticed, there is always something troublesome going on in the market; that’s the way it has been. The financial community will always find something to worry about. Previously, it was Brexit. Still before that, it was the Chinese slowdown. And so on. Once US elections get over, the financial community will quickly find another stressor for itself. Finding new stressors and then musing about them is what earns bread for it, and it’s only natural that it will remain entangled in some event.

Coming to the US elections, I feel that the fears regarding Trump getting elected are overblown. What both political and economic analysts are underestimating is the power of institutions. The US is a strong democracy. Democracies aren’t run by a single person; they are run by the constitution. To me, what seems most likely to happen if Trump gets elected is that he will also be working like any other president, without any boom and bang. Pre-election promises and claims quickly get tapered as a person gets into the governance business. Running a government is altogether a different affair and no matter how much radical a person looks, in a democracy, he has to soon come to terms with reality. Apart from that, given his business acumen, Trump can actually prove good for the world and the US.

So, just digest the temporary volatility in the market and let this phase pass.