Tuesday, March 22, 2011

Mutual Fund Scheme for Children

Question: The XYZ AMC has come out with a fund for children; 'The XYZ Children's Plan'. Do you think this is good fund to invest?

Mr. Gerard Colaco: 'The XYZ Children's Plan' is a good fund NOT to invest in. This is a classic case of how an otherwise good Asset Management Company (AMC)/Mutual Fund can come out with a lousy investment product just to appeal to parental emotions to increase its Assets Under Management (AUM).

First of all, there is no such thing as a "children's plan". If someone chooses to do proper financial planning, that individual needs to have funds in just 3 investment accounts - an emergency fund, a retirement fund and a general investment fund.

An emergency fund should be generally be equal to one year's normal living expenses and can be liquidated only in case of emergency. The purpose of an emergency fund is to take care of emergencies, as the name suggests.

A retirement fund should be built up with at least 10 percent of your net take home pay going into it each month. In the Indian context, a retirement fund should be predominantly into equity avenues if you are more than 10 years away from retirement. The purpose of a retirement fund is to take care of your wife and you from the time you retire until end of both your lives.

A general investment fund should be built up with at least 15 percent of your net monthly take home income. A mix of debt and equity can be used here. The purpose of a general investment fund is to take care of all non-normal expenditure from the time the fund is set up, until retirement. A general investment fund can be used for down payment on a house, family vacations, vehicle purchases, child education, marriage expenses of children, etc.

So, in investment or financial planning there is no such thing as a "child plan".

The second foolishness of the XYZ Children's Plan is that investments can be made only in the name of a minor. In India, the law is very clear that any asset in the name of a minor cannot be liquidated, even in an emergency, unless the guardian approaches the court of minors and wards and obtains an order for sale of the minor's assets. Such an order will be granted only after the court is satisfied that such a sale is necessary to provide for the minor's genuine needs.

Right now, investments in the name of a minor in mutual funds can be liquidated even during minority of the holder thereof by the guardian signing the redemption form, because most entities appear unaware of this law. If it is discovered, the government and/or SEBI will certainly plug this loophole and liquidity in such investments will dry up.

Third, once a minor attains majority, the asset becomes the minor's property absolutely, and if the minor so chooses the asset can liquidated and used for any purpose that the minor wants, thereby defeating whatever intention the parents/ guardians had in mind at the time of making the investment originally.

For all these reasons it would be extremely unwise to have investments in the name of minor. What is more important is to build and distribute them judiciously between an emergency fund, a retirement plan and a general investment fund. Various investments and strategies can of course be chosen under each of these categories of investment.

The only reason mutual funds, portfolio managers and insurance companies come out with 'child care plans' from time to time is to appeal to the emotions of parents to provide for their children. Any trick will do, so long as they can collect money from you!


Friday, February 25, 2011

Gold Savings Fund - NFO

Question: In India so far one can invest in Gold in the form of ornaments, coins and bars. One can also invest in Gold Exchange Traded Funds (ETFs) in the Secondary Market through Demat and Trading Account. But in 'XYZ Gold Savings Fund' one can invest in gold, lump-sum and also go for monthly investment in gold through Systematic Investment Plan (SIP) like in any other equity mutual fund schemes.

Kindly let me have your advice on investing in Gold and XYZ Gold Savings Fund?

Mr. Gerard Colaco: From any investment parameters, gold is a lousy investment for long-term growth.

Let us first take returns. US$ 1/- invested in the gold in 1802, would have had a value of US$ 32.64/- in December 2006. The same one dollar invested in stocks, with reinvestment of dividends, would be worth US$ 12.7 million in the same period.

Rs. 100/- invested in the BSE Sensex on 1st April 1979 would have a value of Rs. 18,202/- today (14-02-2011). The Compounding Annual Growth Rate (CAGR) works out to approximately 17.7%. Standard gold was Rs. 100/- per gram in 1950. In 2011, 61 years later, it is Rs. 20,285/-. The CAGR is 9.10%.

Second is the factor of safety. Gold is less volatile than equity. But such volatility works in favour of a disciplined and systematic investor over the long-run. Gold also can under-perform for long periods, sometimes a decade or two. Where safety is concerned, no long-term investor has ever had to worry about safety in a diversified equity portfolio or a good piece of real estate in the long run. So a genuine long-term investor does not need the "non-correlated diversification benefit" that gold is supposed to offer.

Third, gold is a sterile investment, offering no cash flows like dividends or rentals that can be reinvested ever if there are no other amounts available to the investor to invest.

The right technique must be used on a good avenue of investment, to get the best out of the good investment. For example, if a parent is planning for the marriage of a daughter, some 5 or 10 years down the line, and thinks that a good amount will have to be spent on gold, an SIP in a well diversified equity fund or index fund should give considerably more returns than an SIP in the XYZ Gold Savings Fund over the said period.

The conclusion is simple. Gold may at the most equal inflation in the long-run. Equity and real estate beat inflation. If there is nothing special about the investment avenue itself, then nothing of value is achieved by debating about whether a lump-sum investment is good or a systematic investment is good.
The XYZ Gold Savings Fund - NFO is nothing but a marketing and AUM-augmentation exercise, capitalising upon the hype for gold because of its current high prices.



Monday, February 21, 2011

Stock Market & Monkeys!

Once upon a time in a village, a man appeared and announced to the villagers that he would buy monkeys for Rs. 10.

The villagers seeing that there were many monkeys around, went out to the forest and started catching them.

The man bought thousands of monkeys at Rs. 10 and as supply started to diminish, the villagers stopped their effort. He further announced that he would now buy for Rs. 20. This renewed the efforts of the villagers and they started catching monkeys again.

Soon the supply diminished even further and people started going back to their farms. The offer rate increased to Rs. 25 and supply of became so little that it was an effort to even see a monkey let alone catch it!

The man now announced that he would buy monkeys at Rs. 50! However, since he had to go to the city on some business, his assistant would now buy on behalf of him.

In the absence of the man, the assistant told the villagers. Look at all these monkeys in the big cage that the man has collected. I will sell them to you at Rs. 35 and when the man returns from the city, you can sell it to him for Rs. 50.

The villagers squeezed up with all their savings and bought all the monkeys.

Then they never saw the man nor his assistant, only monkeys everywhere!!!

Welcome to the "Stock Market!!!"

Wednesday, February 9, 2011

The Stock Broker!

Two women were walking through the woods when a frog called out to them and said: "Help me, ladies! I am a stock broker who, through an evil witch's curse, has been transformed into a frog. If one of you will kiss me, I'll be returned to my former state!"

One woman took out her purse, grabbed the frog, and stuffed it inside her handbag. The other woman, aghast, screamed, "Didn't you hear him? If you kiss him, he'll turn into a stock broker!"
The second woman replied, "Sure, but these days a talking frog is worth more than a stock broker!"

Wednesday, January 19, 2011

Mr. Gerard Colaco's Insights & Wisdom

Mr. Gerard Colaco: Some time back you had sent me a consultation paper on minimum common standards for financial advisers and financial education. A committee on investor awareness and protection had been constituted by the Government of India to go into this subject. I just finished reading the paper, because I had quite a huge reading backlog.

The report is unlike the most other reports, because it is well written. But the contents of the report are nothing new and efforts in this area have been made even in the advanced countries, without much success.

Where the individual investor is concerned, if greed exceeds common sense and fear, no amount of investor protection, financial literacy or investor education will be of any use. On the other hand, if common sense and an awareness of risk are more than greed, such an investor will invest money sensibly and manage his risk, even if there are no investor protection and financial literacy initiatives by the government of regulatory authorities.

In such an environment, compliance officers are not working towards a desired outcome for the customer, but to outwit regulators. Once a regulatory loophole is discovered, it becomes a ract to the bottom, with rest of the industry following, as the report lucidly explains".

When we come to financial intermediaries, the ethical among them will advice and act in the interest of the investor at all times, regardless of financial regulations or financial rewards. The unethical advisers will continue unethical practices taking care to see that they pay lip service to client interests by following or pretending to follow the minimum required regulations.

As the report rightly says, all regulations, rules and compliance, especially when drafted by bureaucrats, falls under the "checklist" approach to staying within the letter of the law, rather than embracing the spirit of the law. Checklist compliance harms customers, as there may be no case of regulatory violation, yet there may be unethical selling, improper advice and malpractice.

In such an environment, compliance officers are not working towards a desired outcome for the customer, but to outwit regulators. Once a regulatory loophole is discovered, it becomes a race to the bottom, with the rest of the industry following, as the report lucidly explains.

Friday, January 14, 2011

Mr. Gerard Colaco' Insights & Wisdom

Question: The Husband & Wife both would like to invest monthly Rs. 10,000/- each in Equity Mutual Fund Schemes through Systematic Investment Plan (SIP) investment strategy. I have advised both of them to Rs. 2,000/- per month into the following five mutual fund schemes as recommended by you. The following are the five recommended mutual fund schemes for your kind notice;

1. FT India Dynamic PE Ratio Fund of Funds - Growth
2. Benchmark S&P CNX 500 Fund - Growth
3. HDFC Top 200 Fund - Growth
4. Fidelity Equity Fund - Growth
5. Sundaram Select Mid-Cap Fund - Growth

But they would like to invest in the different mutual fund schemes because of repetition of schemes for husband and wife.

Kindly let me have your advice on the above issue and oblige.

Mr. Gerard Colaco: What the client is suggesting is most unwise. Please explain to the client that we select the best investment strategy for a particular client, depending upon the client's need. The five funds chosen offer an optimum balance between active and passive fund management, asset allocation and large, mid, small-cap stocks, growth and value stocks.

Please tell the clients that if we choose funds other than these, there will be no additional benefits in terms of diversification because all other mutual fund investment schemes will be having virtually the same stocks. But the strategy may suffer. It does not matter even if there are 20 members of a family investing in the same strategy.

The strategy is important. Individual funds are mere tools to achieve the strategy. Some funds themselves amount to strategies that are unique. For example, if we are to recommend the FT India Dynamic PE Ratio Fund of Funds to one of the family members but not to others, the others will deprived of the superb asset allocation and re-balancing strategy offered by this fund, which no other fund offers.

Similarly, the Benchmark S&P CNX 500 Fund comes very close to being a total stock market index fund. If we are to delete this fund from the portfolio of any investor, that person will not be investing in a broad-based index fund. Once again here, there is no alternative because no other fund has an index plan that tracks the NSE 500 Fund.

The clients should be told that if they insist upon different funds for each individual investor, you can very easily give them what they want simply by referring to our ready reckoner of recommended funds. However, they will not be getting the best possible strategy which it is our aim to give them because it is good for them!

Friday, January 7, 2011

Mr. Gerard Colaco's Insights & Wisdom

Question: Housing is an important step in Personal Financial Planning, and for those who can block the money for at least 10 years, real estate is a good investment. So taking into consideration of needs and returns of investors, can we expect some excellent insights about real estate from you?

When it comes the factor of risks of ownership in real estate, we can shift it to an insurance company by purchasing 'Title Insurance'. So kindly advice me on the importance and use of title insurance.

The Personal Financial Planning says that, "additional real estate investments may be undertaken only if the individual has specialized knowledge and a talent for real estate investments". But what about the common person or investor who can afford to block a reasonable amount for more than 10 years?

Mr. Gerard Colaco: One need to realise that in India at least, investing in real estate is totally different from investing in stocks, equity mutual funds or debt investments. Let me see if I can help increase your client understanding of this subject, even though I am not an expert in real estate. It is absolutely true that equity and real estate are the only two avenues of investment that offer genuine, inflation-beating and wealth-enhancing returns over their respective time horizons or slightly longer. But, there is a huge difference between these two investment avenues when it comes to practically investing money in them.

In India, equity has evolved with stunning rapidity over the last 3 decades. Today, in stock market trading and settlement systems, we have achieved world standards. Computerised trading, settlement and holding systems are in place throughout India for stock market transactions. Market integrity is taken for granted where equity and equity mutual funds are concerned. No investor who has opened an account with a member of the Bombay Stock Exchange (BSE) & National Stock Exchange (NSE) needs to bother about verification of title of shares purchased.

However, the same cannot be said about real estate. As Mr. Sandeep Vaswani has very correctly pointed out, the acquisition of a house should not be confused with acquisition of real estate as an investment. Real estate suffers from several drawbacks, such as:
  • Poor liquidity
  • Difficulties in verification of title
  • Requirement of large amounts of capital for even a single purchase
  • Requirement of large amounts to make additional purchases when prices drop
  • Presence of black money in real estate transactions
  • High stamp duties on real estate purchases
  • Cumbersome purchase and sale formalities
  • Administrative difficulties - squatters, the land mafia, expenses involved upkeep & maintenance, etc.
  • Absence of efficient, continuous and fluid market in real estate
  • Absence of a well regulated, institutionalised mechanism of price discovery in the real estate market
That is why I do not agree with the statement of your client that, "for those who can block money for at least 10 years, real estate is a good investment". Real estate is a good investment for investors with necessary knowledge, expertise and interest in real estate, who have money that can invested for ten years or more. Real estate is not for those who do not have this skill and knowledge and only the money that can be blocked for ten years.

There are several investors with the interest, knowledge and expertise for real estate investment. These individuals can certainly go ahead with their real estate investments. For the rest of us, the best advice I have received is to own only such real estate investment as we have a use for. One use that is universal is housing and so everyone must try to acquire her/his dwelling place. People like you who are financial advisers need both a residence and on office. You must try to eventually own both.

One more example I can give is of a person who designs and sells furniture. Such as person must make efforts to eventually own a house, a factory/old house/industrial shed where the furniture can be designed and manufactured and a posh showroom in a prominent location to display and sell the furniture. It is not that all three pieces of real estate must be acquired simultaneously. They can be acquired one by one, over several years/decades.

So when we advise about real estate investment, we are conscious of the fact that there are two categories of people - the first category that has interest, knowledge and expertise in real estate and a second category (yours truly is in the second category, Sandeep Vaswani in the first!) that may just have a passing acquaintance with real estate.

The first category can actively pursue real estate investments. The second category would do well to only acquire such real estate as it has a use for. If a decision is taken about real estate, then the money blocked in real estate should be money that is not needed for at least 10 years. We must respect the investment time horizon.

Finally, when deciding about whether a price of real estate is fair or not, there is nothing as good as Burton Malkiel's principle for determining what a fair price is. Malkiel states that when you purchase a home, factors like location, facilities, neighbourhood, conveniences and the opinion about other members of the family about the proposed home, are important.

But when purchasing real estate as an investment, the most important factor is that the rental yield on the property must be equal to or greater than the yield on short-term government bonds. Let me give you a an example of Mangalore, which I am familiar with. A really good two-bedroom apartment in a prime location would cost approximately Rs. 50 lakhs. The rent that you can earn on this apartment would be Rs. 12,000/- per month or Rs. 1.44 lakhs per annum, giving you a rental yield of 2.88% per annum. This is well below the yield on short-term government bonds, which is approximately 6.5% today. Hence it is okay to purchase this type of an apartment as your home. But it is best avoided as an investment.

On the other hand, Sandeep Vaswani knows how to identify commercial properties in Mumbai where the rental yields are approximately 8% per annum, significantly higher than the present yields on short-term bonds. These would be superb investments. But the discovery of such opportunities and the acquisition and the structuring of these properties to achieve the desired investment returns would require specialised talent, skill and knowledge. It is clearly not for everyone, regardless of whether they have the money to invest for 10 years.
These are the best insights that I have received on real estate for residential and investment purpose. Your client's mention about title insurance may be relevant to the US, but there is no title insurance available in India. All I know is that a few insurance companies have filed for approval of title insurance in India, but I have not heard of any actual title insurance products available in the market. Even if such products come along, I will not jump at them until I see what sort of experiences the insured have in the settlement of their claims.

The best title insurance is ruthless title investigation, with the help of lawyers, the city corporation authorities and real estate experts. In Mangalore, buyers sometimes even release advertisements about their intended purchases, calling for objections or claims if any, prior to their purchases, after informing the sellers about the fact that they are going to release such advertisements. So, your client must realise that you are all alone when you venture into real estate. In equity, you have a lot of systemic and regulatory organisation and protection. I sincerely hope that this kind of much safer environment will be available to the common investor through genuine real estate mutual funds before long, like the REITs in the US.

I was somewhat uncomfortable answering this mail because I am no expert in real estate. I just shared the little knowledge I have, based on my experience in investment in general, rather than real estate specifically. Also, I did not want to leave an investor query unanswered. So your client may be well advised to read and be guided by Sandeep Vaswani's reply, rather than mine.

Wednesday, January 5, 2011

Mr. Sandeep Vaswani's Insights & Wisdom

Question: Housing is an important step in Personal Financial Planning, and for those who can block the money for at least 10 years, real estate is a good investment. So taking into consideration of needs and returns of investors, can we expect some excellent insights about real estate investment from you?

When it comes to the factor of risks of ownership in real estate, we can shift it to an insurance company by purchasing 'Title Insurance'. So kindly advice me on the importance and utility of 'title insurance'?

The Personal Financial Planning (PFP) says that, 'additional real estate investments may be undertaken only if the individual has specialized knowledge and a talent for real estate investments'. But what about the common person/ investor who can afford to block a reasonable amount for more than 10 years?

Mr. Sandeep Vaswani: We have already heard the advice on Real Estate Investment from Mr. Gerard Colaco and read books by investment gurus that for real estate investment generally the time horizon is 10 years plus. We also know that real estate and stocks are the two asset classes which give returns that beat inflation, taxation and create wealth in the long run.

However what one needs to understand is that investing in real estate is unlike common stocks at least in India. In India today we have a huge population which still does not own a single house forget other real estate. Ideally for such people the first house should not be treated as an investment at all. It is only for people who own a house and then have sufficient surplus income over and above all their other expenses and more importantly have an aptitude and risk profile for real estate should venture here.

Till such time as Real Estate Investment Trusts (REITs) designed for retail investors, start in the true sense in India, retail investors would not be able to access this avenue of investment, unless they are investors having deep pockets and understanding of this market. And the best advice would be to venture directly.

As far as taking 'Title Insurance' does not make any sense to me if my understanding of what it means is correct. In real estate transactions when you zero in on a property, you ought to verify each and every single document of title since the time the building was made and the seller ought to give you the documents since such time. If these documents are missing it is best advised to keep away from such a property. What sought of insurance is an insurance company going to indemnify in case someone purchases a property without clear title? He has to be indemnify in case of someone purchases a property without a clear title? He has to be ready to face the music later. Buying the insurance to me then is something like what AIG did in the US for the subprime mortgage credit default swaps - firing shots in the dark, thinking that nothing will go wrong!

Further, housing is not the only avenue for investment as far as real estate is concerned. In fact, as mentioned earlier, the first house can not be considered as an investment at all. Investors in real estate can look at commercial office, retail space much more than they look at housing.

A common man with investible surplus can therefore venture into real estate investment only through the private REITs operating in India with minimum ticket size of Rs. 25 lakhs plus. But frankly and rather unfortunately not one that I have seen is really up to the mark. Also not to mention their charges levied to manage these monies.
So the answer to your question would be:
1. Catch hold of a good investment advisor who understands real estate to decide if the investor can enter the real estate sector for investments.

2. Be in touch with a good real estate agent.

3. Verify each and every document of the property.

If all these are met, there is no stopping why not to invest in real estate, given the 10 year time horizon!

Monday, January 3, 2011

Mr. Gerard Colaco's Insights & Wisdom

Question: Me and my wife are doing well in US and in the meantime we are trying to set some financial goals for ourselves and have been doing some research to achieve them.

In our present situation, we are interested in mutual fund investments in the US and were wondering if you could suggest any mutual funds with no or low loads and minimal investments of $ 150 per month. We just want to give it a start no matter how small the amounts. Any suggestions will be appreciated.

Mr. Gerard Colaco: It is good that you are thinking of mutual fund investments in the US. As your earnings increase, you must move towards having investments in India too. Let me now deal with investments in the US.

I would advice you to start with only one mutual fund for all your requirements and that is Vanguard Mutual Fund. Vanguard is in my opinion and the opinion of most other financial advisers, simply the best mutual fund in the world, from the point of view of investors.

You can start with a recurring investment plan into the Vanguard Total Stock Market Index Fund, which is more than enough for your equity investments in the US. It is equal to investing in the entire US stock market at the lowest possible cost.

Later on you can also start recurring investments into the Vanguard Total Bond Market Index Fund and The Vanguard REIT Index Fund. The fourth important avenue of investment that you must look at is in TIPS, that is Treasury Inflation Protected Securities. These are inflation indexed bonds issued by the US treasury. The principal is adjusted to the consumer price index (CPI), the most commonly used measure of inflation.

The coupon rate of TIPS is constant, but generates a different amount of interest when multiplied by the inflation adjusted principal, thus protecting the holder against inflation. TIPS are presently offered in 5, 10 and 30 year maturities.

A day will come when between the two of you, you will be able to save at least a $ 1000 a month. At that time, your investment must be into an asset allocation program that looks something like this;
Total Stock Market Index Fund : 50%
Total Bond Market Index Fund : 10%
Total REIT Index Fund : 10%
TIPS : 30%
This will ensure that you follow the classic 60:40 asset allocation plan between growth and debt investments. In fact, the 30 percent allocation to TIPS will provide you with adequate hedge against inflation and stability to you portfolio.

TIPS can be purchased directly from the US treasury. Go to www.treasury.gov When the page downloads, locate the section "Common Questions" and click on "How do I buy and managed savings bonds and securities". When a new page loads, go to the section 'Individuals' on the left hand side. Under this section you have detailed information about a facility called "Treasury Direct".

Locate the section "Welcome to Treasury Direct" and click on "Buy securities in Treasury Direct". In fact, the Treasury Direct page gives you a host of information, tools and forms about investing in TIPS, among other products. Do not go for any securities other than TIPS in the government-securities class.

Since you were excellent student in my class, let me also advise you that financial planning is very important for you even in the US. Therefore, ensure that you have adequate health insurance for both of you and build emergency fund preferably in a money market account with Vanguard, targeting one year's normal living expenses. An emergency fund can be built over a period of time, say three years. I am assuming that both of you will be working and earning money.

One more piece of advice I have to give you is not to neglect tax work right from the beginning. Please note that, you have a multi-layered system of income-tax in the US. You have the federal income-tax, the state income-tax and the local muncipal tax.

One good, brief and easy full of practical advice that you can read about personal finance and investment in the US is " The Little Book of Safe Money" by Jason Zweig. This is an easy read and is well worth purchasing. One more excellent book is " The Elements of Investing" by Burton Malkiel & Charles D Ellis.

Mr. Gerard Colaco's Insights & Wisdom

Question: An article stated that, "Legendary investor Warren Buffett holds Coca-Cola in his portfolio and the stock has multiplied almost 15 times since he first bought in 1988. Among other reasons, the key factor that prompted Buffett to buy Coca-Cola (as he later clarified) was that he believed in the simplicity and sustainability of its business, factors that hold steady to date as well".
If this money was invested in the bank FD in 1988, even after discounting inflation, wouldn't it deliver better returns today? Did the author mean 15 times annual growth?

Some stocks I purchased in the year 2006 are giving me a return more than 200% today. Annual average 50%.
Where I have gone wrong? Please correct my thinking?

Mr. Gerard Colaco: The issue has to be seen in perspective. In the last 30 years, the Indian stock markets have grown at 18% per annum compounded. Long-term Indian bank deposits would have averaged about 9% per annum during the period. However, the US stock market grew by not more than 10% compounded annualized during the same period.

Now, even if we take the US bank deposit growth to be an inflated 6% compounded annualised, $100,000/- invested in the bank deposit would grow to only $ 340,000/- approximately in 15 years that is 3.4 times. This is at compounded annualised growth rates of 6%. What the article read by you is saying is that Warren Buffett's $ 100,000/- in Coca-Cola grew to $ 1,500,000/- during the same time period. Fifteen times is 1,500% simple. The compounded annualised returns here would be something like 13.75%, beating not just the bank deposit returns but also the returns of the US stock market as represented by the S&P 500 index.

Returns in the Indian stock market of course would be much higher, but then so would the risk and volatility. In a diversified portfolio, there will be a leaders and laggards. Some stocks will multiply to such an extent that you will consider them multi-baggers. There will be other stocks that do not give you expected returns even after a long time.

I remember a client at our office who by sheer luck invested approximately Rs. 10 lakhs in the stock market in early 2003 when the Sensex was 3,200 or so. Hardly a couple of years later his investment was worth Rs. 25 lakhs because of the boom. He sold the shares because he wanted to buy an apartment in Bangalore. When we liquidated his portfolio we were surprised to see that out of the 45 or so stocks therein, about half-a-dozen stocks were showing losses. Another 4 o 5 did not show much change from the original prices at which they were purchased. Yet, the portfolio had showed returns of 250%!

As Dr. William Bernstein says, "Appreciate that diversified portfolios behave very differently from the individual assets in them, in much the same way that a cake tastes different from the shortening, flour, butter and sugar. This is called portfolio theory and is critical to your future success".

To conclude, it is better not to get elated because some stocks have given you superlative returns, just as you should never be dejected, because other areas of your portfolio are under-performing. The key factor is whether in period of 5 years or more, your portfolio is returning approximately 15% per annum compounded, which is the optimum return if you are an investor in the Indian stock market. I love the word 'optimum'. Most investors strive for the maximum and end up with a minimum return. But those who attempt to get the optimum return, very often find themselves being awarded with a return that is greater than optimum!