The wisdom of the grandmothers has it that money can’t buy happiness. But latest research seems to have reached a somewhat uneasy conclusion that the problem is that people don’t know how to spend it.
“If money doesn’t make you happy, then you probably aren’t spending it right,” Dunn, Gilbert and Wilson (pdf) distills tons of research in to eight succinct guidelines. Here’s how you should spend your money:
Buy experiences instead of things
Help others instead of yourself
Buy many small pleasures instead of few big ones
Buy less insurance
Pay now and consume later
Think about what you’re not thinking about
Beware of comparison shopping
Follow the herd instead of your head
And here’s the conclusion worthy of being nailed to the wall:
Our money provides us with satisfaction when we think about it, but not when we use it. Money can buy many, if not most, if not all of the things that make people happy, and if it doesn’t, then the fault is ours.
So go ahead, make more money, minus the guilt, and buy some happiness with it!
Small investors can stay nimble and can buy stocks in companies that big investors or funds cannot. If you are a small and smart investor, you should be able to generate market beating returns over the long-run. But what about funds that generate superior returns in spite of their large size? Given that portfolio disclosures have to be made every month and the manager cannot really predict the cashflows in and out of his fund, if he is consistently beating the market, it points to some real skill (or a really long streak of good luck, we’ll let you be the judge.)
Irrespective of whether it was skill or luck that produced the alpha, it makes sense for individual investors to track what different fund managers are doing. Besides, if you are thinking for buying or selling a fund, you should get comfortable with the manager. But how do you go about visualizing a fund?
NAV based metrics
Our FundCompare tool provides a convenient way to chart fund performance vs. different benchmarks, observe historical drawdowns, etc. For example, if you wanted to compare IDBI Equity Advantage Fund to the MNC index, you can do that with the tool. (http://svz.bz/1CQUAI0)
But what if you wanted to drill into the actual portfolio? Most websites give you a static snapshot of the portfolio on the latest disclosure date. But anybody who has managed money will know that portfolios are path-dependent.
Portfolio Videos
Given the sheer size of the data, it makes sense to try and visualize portfolios through videos. Here’s how the IDBI Equity Advantage Fund portfolio “looks” like:
It is almost as if the manager did his portfolio selection back in Jan 2014 and let his winners ride. An almost static portfolio, much like our Themes.
Contrast that to ICICI Prudential Value Discovery Fund:
This manager is way more active than his IDBI counterpart, going in and out of stocks at a rapid clip. A lot of small positions, except for ICICI bank which is almost 8% of the fund. Given the size of the fund (more than 8,500 crores), the market impact on these trades are likely to be significant.
The UTI MNC Fund takes a different track: a smaller portfolio with concentrated positions and very few high in-and-outs.
There you have it: three different funds and three different approaches to portfolio construction and management, easily told apart through 45-second video clips.
Coming up next
We plan to roll out portfolio videos for the funds that we have recommended our clients and in which we have ourselves invested. If you have any specific funds in mind that you want us to create videos for or looking to invest, give us a call or send us a WhatsApp!
Multinational companies (MNCs) listed in India, like Bosch, Colgate, etc, are generally considered to be well managed, cash-rich businesses. Lets take a look at their past performance and some actively managed funds that focus on them. It may be worth your while to add some MNC goodness to your portfolio.
MNCs vs. Top 100
Our first stop is first check if MNCs indeed outperform the market. For this, lets compare the CNX MNC index to the CNX 100 index.
Between 2005-01-03 and 2015-02-02, CNX MNC has returned a cumulative 453.68% with an IRR of 18.49% vs. CNX 100’s cumulative return of 318.85% and an IRR of 15.26%. (permalink) Apart from a brief period of under-performance between 2007 and 2008, MNCs have generally done better than the rest of the market.
MNCs vs. Midcaps
Between 2010-01-04 and 2015-02-02, CNX MNC has returned a cumulative 108.14% with an IRR of 15.31% vs. BSE MID CAP’s cumulative return of 58.41% and an IRR of 9.47%. (permalink) #winning
MNC funds
There are a couple of funds, one from UTI and the other from Birla Sun Life that focus purely on MNCs. Here’s how the UTI fund has performed:
Between 2006-04-03 and 2015-02-02, UTI – MNC Fund has returned a cumulative 283.13% with an IRR of 16.41% vs. CNX MNC’s cumulative return of 182.80% and an IRR of 12.10%. (permalink)
Between the two of them, UTI’s fund’s IRR of 37.12% is eclipsed by BSL’s 41.52% between 2013-01-02 and 2015-02-02 (a shorter time-period of comparison.) (permalink)
But irrespective of which fund you choose, the excess returns cannot be ignored. And of course, past-performance is not indicative of the future.
We have always maintained that financial prognosticating is harmful to your wealth (see: Prepare – Don’t Predict!) But the lure of prediction is too strong for most investors to ignore.
One recent example is the RBI’s “surprise” rate cut. The media went gaga over it, some pundits did a “I told you so” dance and you probably went and subscribed to a newsletter hoping that you too will be clued in when it happens next. The question is: did you make money?
Positioning your portfolio
Back in September last year, we had pointed out that with the consensus behind RBI rate cuts happening in early 2015, its time to look at long duration bond funds. We had picked the UTI Gilt Advantage fund as our favorite. Between 2014-10-01 and 2015-01-15, UTI – GILT ADVANTAGE has returned a cumulative 11.08% with an IRR of 43.61% vs. CNX NIFTY’s cumulative return of 6.90% and an IRR of 25.85%.
Heck, with the RBI getting serious about trampling down inflation, bonds have been rallying for almost the whole of 2014. Between 2014-01-01 and 2015-01-15, UTI – GILT ADVANTAGE has returned a cumulative 21.90% with an IRR of 21.01% vs. CNX NIFTY’s cumulative return of 34.79% and an IRR of 33.31%.
Good investing is boring
From the Wolf of Wall Street:
Mark Hanna: Nobody knows if a stock is going to go up, down, sideways or in circles. You know what a Fugazi is? Jordan Belfort: Fugazi, it’s a fake. Mark Hanna: Fugazi, Fugazi. It’s a wazy. It’s a woozie. It’s fairy dust.
The difference between trying to predict market events and positioning your portfolio is in the level of excitement you feel. If you feel very smart while putting your money to work, then you are doing something wrong. If you feel that your investments are a “sure thing”, then you are doing something wrong. Good investing will feel like a boring routine that you keep doing – like flossing your teeth – because it is good for you.
Process vs. Outcome
The end result of process oriented investing is a well positioned portfolio. Investors should give up on trying to figure out what the outcome is going to be. Who knows what the NIFTY IRR is going to be this year? Who knew that plain old bonds will give 20% returns in 2014? What is the one-day price target for anything?
Positioning your portfolio would have allowed you to actually realize the returns that the market gave. The alternative is all Fugazi.
