FASTER ROUTE TO SAVE ENOUGH FOR RETIREMENT

Most of us, during our working lives,  will think and worry whether we have saved / are saving save enough for retirement.

There are two answers for this Question.

1) Savings for retirement -Start early :  If you start at age 20, you have to save $361 per month to hit $1 million at 65. If you wait until age 30, the number doubles to $700. Of course, if wait until 40 or 50, it is bad news. 

2) Invest in wealth creating stocks, for faster wealth creation. If you place your savings in Equity Market, your retirement can be very early.  

To create wealth from equity markets one needs the mind-set of an investor. Remember that when you buy a share, you are not just buying a financial instrument, but rather you are becoming an owner in the business. 

Some quality shares if invested for long term can give significant wealth creation opportunities. These shares can go up many times over few years. These are popularly called as ‘Multibagger’ shares. However, one needs to be invested in quality shares over longer periods for wealth creation in line with performance of the company.  

I have a great friend in Dr Allen, Phd in Finance, who is an expert in Equities and Technical Analysis. Together, we have formed GEMS Wealth Advisory Pvt Ltd (with SEBI Research Analyst License) to help Retail investors make sustainable long term wealth through the power of Equity markets.

To know more, please write to us wealth4layman@gmail.com 

Demonetisation or Demonization - Interesting Aspects of a mini-Black Swan event in India

About a decade & half back, I was working with HSBC Saudi Arabia as Senior Credit Analyst (see http://tinyurl.com/osq7rvt). Since there is a rule in Saudi that all foreign banks shall begin their name with the word ‘Saudi’ it is known as Saudi British Bank (you thought prohibition of 'women drivers' is the only strange rule in Saudi? you won't be disappointed! there are many!). At that time, one of my seniors, Tariq was from Pakistan. He was very jovial and friendly and used to tell interesting events that happened in an undivided India, as told by his grandfather. Tariq’s family was basically from Patna, India and during the partition, migrated to Pakistan because his father was educated and was practicing as lawyer. He ‘understood’ the advantages of the move to newly created theocratic Pakistan ; while many of his father’s relatives who were not that educated, did not move to Pakistan. According to Tariq, now his father deeply regrets his move to Pakistan as their relatives in India is far better off and living in a peaceful, modern and progressive environment compared to the ‘Islamic Republic of Pakistan’, which as the majority opinion goes, is a failed experiment.

Lipton Tea

Now let us come back to the interesting story during undivided India. During the early 1900s, Lipton tea was expanding its operations in India and wanted Indians to consume tea. Unfortunately, tea was not so popular in Patna. One fine day, the police of Patna distributed free cup of tea to all people moving around in Patna city. The catch was that after taking the tea, the person will be led to a counter manned by policemen, who forced the person to buy a half kg pack of Lipton tea. Well it looks like the efforts paid off as tea is now a prominent drink in north India (south India still prefers coffee ‘e.g. Tamilnadu’s filter coffee’). As with typical Indian fashion, the tea has been indianized as we have ‘karak tea’, ‘masala tea’ etc.

It is sure that Patna people likes tea and ought to be thankful that it is introduced to them. Probably, their only wish may be that Lipton could have found another way to introduce tea!

Withdrawal of currencies

Just like the forceful imposition of tea in 1900s, I think Prime Minister Modi is trying hard to bring in banking culture in India, by pursuing demonetisation, although it has some additional benefits (i) stopping counterfeiting of the current banknotes both within and neighbouring countries (ii) crack down on black money in the country and reduce corruption, etc. While the counterfeiting, black money hoarding may come back again and corruption in India is likely to continue (1757 Battle of Plassey is the best example of corruption – Robert Clive paid bribes to a rival General to turn the tables in favour of East India Company and it worked!), the everlasting advantage will be the increase in the number of people using banks and bank facilities.

Advantage Banks

Heads of e-commerce companies and IT experts have hailed the demonetisation as it gives an impetus to bank based digital payments. The demand for point of sales (POS) or card swipe machines has increased manifold across India while more people are using E-payment options as well. Many leading retailers have stated that debit and credit card transactions doubled since 9 November 2016.

Moreover, more than eleven lakh crores currencies have been deposited in Indian banks, making the banks cash rich. One Deputy General Manager of leading bank in India told me (when I was in India in Nov) that even a massive deposit drive would find it difficult to bring half the amount into his bank! No wonder banks are fully supportive and working hard without complaints even into the mid night!  Advantage banks.

Many sharp critics in India and abroad state that Demonetisation has become demonization for common man in India who are forced to stand in ques overnight and postpone purchase of land and other properties & even marriages! But, for Banks it shall be a good news in the long run.

Despite, criticisms, Financial Thoughts believe that the move will bring in long term advantages, if implemented correctly and intelligently.

Is it similar to Pavlov Reform?

Although many are quick to point out about the failed Demonetisation reform of 1991 in the erstwhile USSR ( i.e. Pavlov Reform), the Indian context is different and the circumstances of USSR will not happen in India – e.g. anti-Gorbachev factions led a military Coup in 1991 and Ukraine decided to get out of the USSR; such things will not happen in India thanks to Pandit Jawaharlal Nehru, the freedom fighter and the first prime minister of India, under whose direction the Constitution for Indian Union was drafted (delegated to a team led by Ambedkar) and sealed.

Brexit - Europe & Britain will not be the same again

Napoleon Bonaparte may be turning in his grave again. The French Emperor had a grand vision of United Europe and he almost accomplished his Vision. At his peak day in 1810, the United Europe under him stretched from Spain to Poland. However, his grand vision of ‘United States of Europe’ was squashed by British in the fields of Waterloo around 201 years back on a rainy June 1815. British went on to enjoy one of the best centuries in their history post 1815.

Now on another rainy day in June 2016, British ended the European dream of a ‘United States of Europe’.  Europe will not be the same again after British left European Union (EU). By 2010, the European Union was expanding its geographical reach by including more countries. Even Ukraine was eager to join, divorcing from Russia, who was their long term friend and cousin. In fact, snatching Ukraine from under the nose of Putin irritated him leading to a civil war sponsored by Russia, bringing in misery to many parties concerned. Even here, one can draw some remote / rough parallels of Russia’s war with Napoleon in 1812, which resulted in tactical advantage to Russia. Tsar Alexander declared war on Napoleon as he expanded his empire close to Russia territories. Similarly it can be argued that Russia moved against EU using Ukraine as proxy after European Union decided to annex / add Ukraine to EU.

EU Commission President Jean-Claude Juncker (French) is putting up a bold face and asked United Kingdom (UK) to quit EU as soon as possible. However, will Jean’s bold stand pay off?  What would be the aftermath of British decision of quitting European Union? Will it bring in an era of prosperity and glory to the UK just as the hundred years after Waterloo? Or will Britain will fall into an era of despair and it will go back to pre-1600s, when it was known to be a cold island of fishermen? It is remarkable how a fishing nation transformed into a nation of shopkeepers and spearheaded industrial revolution and finally controlled about a third of the world at its peak.

While many post-colonial generation, who study their own version of history lambast Britain for the colonial era atrocities and excesses, it is undeniable that they have left lot of positive qualities and imprints that still form the strong cornerstones of post colony nations, such as India. In fact, it is through the English language (and not through Hindi or any of the 22 languages spoken in India) that Indian Information Technology industry flourished across the world. The fundamental institutions such as Courts, backbone of Indian bureaucracy Indian Administrative Service (IAS), Companies Act, modern medicine, chartered accountancy, mullaperiyar dam - that sustains the lives of millions in the state of Tamil-Nadu etc - are the legacies of colonial rule in India. They restrained Afghans in the North and ended ‘IS activities’ of Tipu in the south while China never dared to stare across the border or annex Tibet while British moved around in India. However, within 7 years after Britain left India, China conquered Tibet and India watched silently as Tibetan leader (Dalai lama) rushed across the border seeking India’s help!.  Similarly, Iran kept their hands off the islands owned by UAE till 1971. Once UK left UAE in 1971, Shah of Iran snatched and occupied unlawfully the islands that belong to the UAE.  This is not intended to justify the colonial times in India and UAE, but just to give another perspective so that the reader may take a balanced view of those times.

Coming back to 21^st century from the dark & dim aisles of 18^th and 19^th centuries and somewhat brighter 20^th century, how would Britain and rest of Europe evolve after the historic voted in June 2016? Financial Thoughts believe following scenarios are possible, depending upon how the Britain and European leaders will decide:

Scenario 1 : Although Britain is out of EU, it may still continue to be a member of European Free Trade Association (EFTA). In order to do this, Britain should continue some contribution to EU budget. This scenario will enable Britain to get access to European markets stretching from Spain to Greece & Italy to Poland. Possibly, Germany may support this scenario as Germany tops as one of the largest import partner of the UK. The trade will continue unfettered bringing in associated benefits to Britain and Europe. Also under this scenario, it is assumed that other EU nations will continue as one bloc under the leadership of Germany and France, just as Winston Churchill visioned soon after the end of the second world war. This is possibly the best scenario.

Scenario 2: Encouraged by the victory of ‘Leave’ vote, far rights in France, Netherlands may force a ‘referendum’ and if those countries move out; it will spell disaster to EU. Then, of course, the existence of Euro as a currency will also be in doubt. Disintegration of EU and Euro needs a separate study as how it will impact the various economies all over the world. Luckily, the risk of such a scenario seems remote as no thinking leader of EU nations will rush into such a referendum in the near future.

Scenario 3: Encouraged by the victory of ‘Remain’ vote, Scotts have started asking for independence from UK. If that happens and Scotland separates and Britain is denied a member in EFTA by EU as retaliatory measure, that would end Britain’s whatever glory it has hung during the post colonial era. London will cease to be the financial capital of the world and its economy will shrink. The names ‘Britain’ or ‘UK’ will disappear from new headlines just like the mighty USSR disappeared from the contemporary world. Only ‘England’ will remain!. Without ‘Scotts’, England will be a weaker. All the good times, England enjoyed in the world, was with the company of Scotts. Let us see; how events will unfold. Undoubtedly, scenario 3 will be a nightmare for UK and if this happens the next generation of English will regret the vote for ever and will cause Winston Churchill turn in his grave.

Scenario 4: Although UK voters voted themselves out of EU, the UK Parliament has to officially put their stamp of approval and authorize UK Government to invoke Article 50 of EU and notify EU officially that would like to quit. This has not happened yet. There is a speculation in the market that UK may not ratify the referendum in the Parliament in which case the referendum may become void. However, this will tantamount to rejection of people’s choice articulated in a referendum.

It is not clear which of the above scenarios will play out. It depends upon a lot of factors and decisions by UK and European leaders. As of now, it seems that Scenario 1 has some good chance, provided their leaders take right actions.

What all this holds for Indian stock market? Will it be in trouble? Will it continue to be strong performer going forward? Financial Thoughts believe that despite the recent sharp volatilities in the Indian stock market, there is not much to worry as far as Indian stock market is concerned. Now India is officially the fastest growing large economy in the world. India has surpassed China as the fastest growing economy. Every dip in Indian stock market may throw up great opportunities to make Warren Buffet like long term investments that ought to multiply your wealth in the medium to long term.

Is India a Bull Market ?

The Indian stock market has been relatively weak for the last couple of months due to China factor. Also the fact that the ruling party BJP lost a crucial state election to an alliance of strong regional parties added to disappointment.  The regional parties managed to win as they combined forces against the BJP. Prime Minister Modi had personally campaigned extensively, but it failed to reap electoral dividends. This was the second major political loss (first being State of Delhi), after Modi's tremendous win in the national elections in 2014.  There are fears that the economic reforms might get slowed, as the government might have to focus on populism. Nonetheless, soon after Bihar elections, the government announced increased FDI limits in 15 sectors , signalling that it will not slow down on its economic reforms agenda.

A few reasons to remain bullish on the India stock market is given below:

1) Best among Emerging markets - India remains the most attractive emerging market. Brazil has gone into a meltdown mode due to the commodity price crash and the weakness of the current government.  China's economy remains extremely troubled, with growing credit stresses and slowing down of GDP growth. Massive overcapacity is leading to corporate defaults. Russia is not only seeing a GDP decline due to economic sanctions and lower oil prices, but will also have to pay large military costs now due to its war in Middle East. Compared to the other major emerging markets, India is a highly attractive destination. It's massive market, stable political situation and strong growth is already attracting a large number of investors.

2) Structural reforms - Make in India campaign- Changing a country with 1.2 billion people is not an easy task.  The government has been implementing major structural reforms (such as GST, etc) that are slowly starting to show positive effects. India is cutting down red tape and inviting investments from foreign investors. Foxconn recently announced $5 billion investment and other multinational investors are also increasing investments in India's manufacturing sector. The good thing is that the corruption has significantly reduced under the watch of Modi.
Next budget has to be closely watched as wit is expected to introduce a new bankruptcy law and reduce the corporate tax rate . The financial sector is seeing massive changes, with the central bank giving licenses to several new organizations. This will increase competition and improve financial inclusion in a country, where millions do not have a bank account. The defence sector is seeing massive interest, as the government has opened it to the private sector. The roads and ports sector are also humming, with the government increasing capital spending on infrastructure.

3) Falling Commodity Prices - India imports billions of dollars of coal, crude oil and natural gas every year.  The positive effects are already showing in increased profit margins of companies, as well as increased spending on cars and durable goods by urban consumers. Despite a poor monsoon, India's economy is all set to expand by 7%. With commodity prices not expected to bounce back any time soon, India will continue to save more than $100 billion a year from low oil, coal and gas prices. India remains one of the biggest beneficiaries of the global commodity price crash. With such reduced import bills, it is a possibility that Indian Rupee may appreciate as well in the near to mid-term!

Of course, there are a few risks, which we will discuss in another blog. 

Golden moment for Greeks

Finally, thanks to the left leaning Govt of Greece, the voters of Greece got an opportunity to wean away from the burden of Euro. The referendum on 5^th July 2015 is anxiously awaited by the financial world, especially those in Europe. The hyper volatility of European stock markets in these days evidences and captures the mood.

 

Financial thoughts have opined as far as three years back why Greece should get out of Euro, which is created to favour the dominant nations of Euro zone.

The basic reason for the instability is the lack of cohesion i.e. the attempt to have common monetary policy without uniform fiscal policies. Well, since Financial thoughts have mentioned about the same in another blog, we will not dwell much on it now. (Interested readers may please visit   http://www.financialstrategyonline.com/2012/02/lamentations-of-greece.html)

 

The real beneficiaries of Euro mainly includes Germany – who although lost two world wars has won the economic war in Europe just as Japan did it in Asia. The Euro is good for the large business houses of the Europe as it eliminated the foreign exchange risk and brought in more predictability to the turnover and profits.

 

Also for some, it gave a pleasure of a Europe Empire united under one currency, which is something Napoleon Bonaparte planned in early 1800s. However, let the practical considerations prevail rather than the romantic ideas of a United Europe – a Europe united under one currency.

 

Now the common man in Greece, Portugal and Italy is suffering under the burden of the colonial Euro.  Under normal circumstances, Greece would have devalued its currency and attracted more exports (more foreign currency) or tourism mainly from the same Euro zone countries that would flock to Greece to enjoy sun and historical moments. Rest of the world would also flow into Greece. Now the rest of Europe has no added incentive of a devalued currency to plan a trip to Greece. A trip to Greece almost costs the same as a trip to France! This would not have been the case, if Greece have its own currency.

 

Hence, let the Greeks snatch the opportunity to obtain freedom from the yoke and tyranny of EURO.  Any such decision would lead to some financial turmoil; however it is worth it. Of course, many people in the rest of Europe may wish that Greece continue in Euro; however a wise decision may not be satisfying others wish; at the expense of yours.

Disclaimer: Our opinions are based on economic and other conditions now and such conditions may change significantly over relatively short period of time. Should circumstances change significantly after the issue of this report, the conclusions and opinions expressed herein may require revision. The statements and opinions expressed in this report are for academic purposes only and to provoke the thoughts of the reader.

Power of Vision & Mission Statement

Dubai is a fascinating city- a true oasis in the middle of Middle Eastern desert. It hosts all nationalities and the local UAE nationals are always ready with a smile and hospitality - unlike what you may experience in Saudi Arabia.

 

In today's blog, we will speak about Dubai Metro and how it shares some common features with yet another successful business story of GE.

 

Today at 9.30 pm I was sitting at Dubai metro, Burjuman station and it was crowded, which tells about the success story of the only metro in the Middle East. Copying Dubai, some of the GCC countries are trying to implement the metro, however it is slow and time consuming process. Nobody can repeat the speed and efficiency of Dubai.

 

My thoughts fly back to the days when the metro project was announced. It was the first such project in the Middle East. Many doubted its viability. Typical to UAE style, (Dubai in particular) it was built quickly and launched at the middle of the 2008 crisis. Even the promoters stated at the time of launch on 09-09-2009 that it may take more than a decade to see the metro profitable. However, the number of travellers in 2014 was around 160 million per year. Assuming average revenue of AED 10 person, it is whopping revenue of AED 1.6 billion per annum. Surely, the venture might have achieved the break-even levels already. No doubt, Dubai Metro is a thumping success and a winner. How has it achieved this? Amongst several other factors, let us focus on the ‘Vision and Mission’ that was set by RTA, under whose umbrella, Dubai Metro falls in.  

 

Vision & Mission

 

What is Vision and Mission? Is it so important? This was the question asked to me by some of the senior executives of a Singapore listed company on behalf of whom we conducted an internal strategic review of their operations in the UAE. Yes – they are now convinced based on our advice and they have moved ahead on this. We have not only provided them with a Vision that will take the company to fulfil its aspirations, but also prescribed mission, values and behaviours as well as an evaluation platform for senior management, who are in charge of implementing them.

 

Who is the best person who can describe the Vision and Mission? The best advocate of this is Jack Welch, who has been given the title “Manager of the Century” by Fortune Magazine. For those who do not know Jack Welch, he was the longest serving CEO of GE from 1981-2000. During his tenure the market capitalization of GE grew by USD 400 billion, making it the world’s most valuable corporation. How he did it? He changed the Vision and Mission after he became the CEO of GE.

 

A strong mission statement is not a mere announcement – it is a powerful tool for companies to make choices about people, investments, and other resources, and prevents them from falling into the trap of committing their resources into less fruitful ventures.

 

So let us see the Vision of GE put forth by Jack in early 1980s.

 

“The most competitive enterprise in the world”

 

This was an inspirational vision put forth by Jack in 1980s, when its market value was 1/30^th of the value in early 2000 when he retired.

 

So, how this vision was going to be attained? He defined the Mission

 

“By being No. 1 or No. 2 in every market— fixing, selling, or closing every underperforming business that couldn’t get there”

 

And both worked for Jack – and he created the most valuable company on earth when he walked out as the CEO in the year 2000.

 

That should silence the critics who may criticize the Vision and Mission is high sounding hollow words.

 

Vision & Mission of Dubai Metro

 

Another best example is the Vision and Mission set forth by RTA for Dubai Metro. Let us see the Vision & Mission Statement of Dubai Metro.

Dubai metro is a proof of Jack Welch’s belief in Vision and Mission statement.

You can also see the vision and mission displayed at almost all metro stations.

Spend 30 mts at 9 pm at Burjuman on any day to see the Vision and Mission of Dubai Metro in action.

Transcend Consulting, helps its clients to set our clear vision, mission, values, behaviours and strategies to become winners in the chosen field. To know more please contact at cj@consulttranscend.com or admin@consulttranscend.com  or call us on 00971-56-4805552

 

Berkshire Model – will it work for others?

Many investors and business people across the world admire Warren Buffet's business model and try to emulate. However, it has proven to be tough task. This article attempts to help whoever wants to try Berkshire Hathaway (holding company of Warren Buffet’s businesses) model.

Step 1: Become an Analyst

Buffett followed his master, Ben Graham, who taught him value investing. Through in-depth analysis he would find forgotten or discarded companies, trading at deep discounts to the value of their net assets.

He had passion for analysis & over time he became an expert. He would find companies which offered ‘value arbitrage’ i.e which he could extract a little bit of value.  These stocks were often ‘not so great’ companies, but were trading below liquidation value, so offered ‘value arbitrage’. Buffett called them “cigarette butts,” because like discarded butts—from which one could enjoy one last puff—they offered one last bit of value. While most investors looked for some great companies, Buffett mastered extracting that value from such “cigarette butts.

Step 2 – Take calculated ‘big’ risks

When Warren Buffet decided to go big, he decided to close his investment partnerships. Then he bought a textile mill in late 1960s and took charge as its main decision taker. He had no plans in dominating textile industry, but using the funds of the textile mill he bought and insurance company – but it was a brilliant move and the net cash outflow was zero.

After one year, the ‘cash floats’ from the insurance company and whatever surplus (cash) the textile company produced were channeled into ‘value investing’ . But in this second stage, Warren Buffet moved beyond “cigarette butts’ and focused on large companies.

Buffett might have started with unknown companies, but his analytical skills provided him with insights to make his fortune in brand names like Coca-Cola. When he accumulated Coco-Cola shares, the company was coming out of a bad phase – what looked for others as ‘big’ risk, was a ‘value arbitrage’ for Buffet. i.e. the value arbitrage in terms of future performance.  

Step 3 – Develop Passion for what you do

All successful entrepreneurs say this. You have to get passion so that you can be optimistic when everyone around you is pessimistic. This allows you to put more efforts despite initial failures. Buffett’s edge was similar. He was willing to put in the time reading Moody’s manuals and annual reports cover to cover when no one else bothered. It takes immense discipline, patience, time, and lots of energy to know a business inside and out, but the effort is worth it.

Step 4 – Become a Leader

While many books speak about Warren Buffet’s investing techniques, not many speak about his leadership skills. He is a fantastic leader, because he is able to find talented, skillful and passionate CEOs to run his 100+ companies. He rarely speaks to them or gives them guidance. In this auto-pilot system, the CEOs work for Warren Buffet’s holding company without the usual top management push and pulls. I think he trusts his CEOs and seems that if couldn’t trust some CEO, he would fire him and would get a man he could trust in the job. In some cases, empowering others leads to phenomenal results.