Bishoping The Horse – PMS Style


wealthymatters

If you have a few lakhs lying round,then be certain that the PMS guys will definitely seek you out.Most of them are simply not worth your time or money.But that’s not to say that sifting through them you might not find the occasional gem.

So really,its all about being aware of the common ways in which the portfolio management services (PMS) provided are made to look way better value than they are, akin to bishoping horses bound for sale.

So here’s the list of stratagems commonly resorted to. Fairly long,but by no means comprehensive.Please feel free to use the comments section to add to this list:

1.Simplest of all ,gross portfolio returns are reported, with nary a word about fees and expenses and the GST. This might show the investment managers to be investment geniuses.But might leave you with underwhelming net results.Much ado about nothing really and you might have done better simply sticking to less sexy financial products.

2.Because just so often,things look so much greater in theory than in actual practice,you find Jacks talking up model portfolio returns even as they remain rather quiet about actual portfolio returns.

3.Just as diamantaires send their diamonds to the labs likely to give them the best grades,PMS literature speaks of returns in terms of IRR, TWRR, simple average, etc.Whatever looks like the better figure.And as there is no standardized method for calculating returns,you need to do your own calculations to compare various PMS offers.

4. Another nifty trick is to inflate returns by actualizing partial periods.

5.Then there is the trick of omitting the cash component in computing returns thereby erasing the drag that cash exerts on returns.

6.Then there are portfolio managers who include in their firm’s performance, the performance which was achieved either before receipt of PMS licence or the performance of their proprietary account/ portfolio.

7.Then there are chaps selectively disclosing their portfolio, getting the same audited and showing that as the returns of the firm.

8.Additionally there is the dodge of ignoring withdrawn portfolios and thus reporting a return which suffers from ‘survivorship bias’.Obviously those clients experiencing stellar returns were not exclusively the the first to leave.

9.Then there is the little trick of not bringing up benchmarks that are inconvenient or simply changing them to the more convenient ones.

10.Another trick is not expensing out upfront fees and set-up costs but reducing them from your capital contribution.

11. Then performance fees are calculated after taking only realized gains into consideration and deliberately omitting unrealized losses

12.Some fail to widely publicize important factors such as a change in the identity of the fund manager and change in the investment strategy .

13.And many don’t provide the standard deviation figure of their portfolio when reporting performance. That is for you to calculate and figure out if you are cool with such divergence from the returns being touted to sign you up.

PMS products are supposedly for the savvier investor than the general mutual fund investor.So best you be savvy and do your own math and due diligence.

The 8 Rules Of Dividend Investing


wealthymattersDividend investing involves accumulating stocks that issue dividends to generate a steady stream of passive income.

 

Rule #1: The Quality Rule

Invest in high quality businesses that have a proven long-term record of stability, growth, and profitability.  There is no reason to own a mediocre business when you can own a high quality business.Rank stocks by dividend history and corporate history ,the longer the better.  Stocks must have paid steady or increasing dividends through the worst periods of financial stress and turmoil to be eligible for inclusion in your portfolio.

 

Rule #2: The Bargain Rule

Invest in businesses that pay you the most dividends per rupee you invest.  All things being equal, the higher the dividend yield, the better.  Additionally, only invest in stocks trading below their historical average valuation multiple to avoid investing in overpriced securities. So rank stocks by dividend yield. Only stocks trading below their say 10 year historical average valuation multiple are eligible for inclusion in your portfolio. Read more of this post

Voya Corporate Leaders Trust – The Virtue Of Sloth


Ever wondered what might happen if you just bought some leading stocks,once only ,early in your life,and simply held onto them for a life-time ? Generally practiced sloth? Arousing yourself perhaps only if a company went bankrupt or stopped dividends ?

Then here is a story for you : Read more of this post

Edward Zajac – 94 year old investor


This is a story I came across in the Economic Times.It seems to be a reprint from Bloomberg.I have this story pinned to my notice board just to remind me how Dumb Money can become Smart Money.Here is a person who seems to have made good money without trying to become an expert at investing.He has accepted his lack of expertise and found a way to benefit from the expertise of the “smart money”.His method involves just looking at some basic facts before putting his money in a company.The skills required are really basic.The rest of his magic merely seems to be a result of compounding due to his Time in the Market and the wisdom that comes from experience.To follow him we don’t need to understand financial statements or master technical analysis.

 Buy & hold strategy not dead yet for 94-year-old investor

wealthymatters.comNEW YORK: Stick with stocks, says investor Edward Zajac. He should know. The 94-year-old has been trading for 72 years and said he’s made about $2.5 million.

“I am a live, open-hearted investor,” said Zajac. “I’m willing to hold that stock 5, 10 years, if I have to.” Zajac, who lives with his daughter in Henderson, Nevada, bought his first stock, Petroleum & Resources, in 1937 while attending the University of Illinois. He’s invested full-time since 1968, after retiring from installing computer systems to travel the US in a recreational vehicle with his wife. Read more of this post

Rakesh Jhunjhunwala In His Own Words


wealthymatters.comBelow is a favourite but somewhat dated Rakesh Jhunjhunwala interview.I frequently revisit the article to read about how he started out.Every time I wonder  how I might be able to do what I want to do with so few resources,I find reading his story inspiring.Also I like his way of limiting risk,dealing with loss , having flexible targets and dealing with unfavourable opinions.The red ink is mine.It’s to highlight the parts I find interesting.As a side note,I also like reading the account of the 1993 blasts,if for no other reason than to remind myself about the spirit of Mumbai and the grit of all Mumbaikars. Read more of this post

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