[podcast]

 

Anupam Gupta (b50 on Twitter) speaks with Deepak Shenoy of Capitalmind, about what to focus on when investing. It's more about just regular investing, than other things like returns or timing the market, says Anupam. You'll make more money by saving more , instead of focussing on how much you should invest at what time in what stock.

He talks of a concept that's just plain darn simple: Increase your SIPs. Because your income's going up. Your expenses too, but that means your savings are likely to be going up as well. Just increase your savings each year.

Also - focus on liquidity, he says. Locking in investments in insurance or other such locked in plans isn't cool.

On that and more, about India and abroad, about Bombay and other cities - listen to this episode on Regular Investing.

Transcript:

Deepak: Hello folks and welcome to another episode of the Capitalmind Podcast and today I have with me a very, very special guest. Very special guest because he calls me a very special guest on his show. Apart from that I think he's a very, very special person. He's been with Capitalmind from day one since we launched, and strong supporter, a person who's been through enormous changes in his own personal life now and he's also a Chartered Accountant, Investment Consultant and the podcast host at Paisa Vaisa. Welcome Anupam Gupta/B50.

Anupam: My God Deepak. Thank you so much for the generous introduction. To me, it's an honor, to be... to having a conversation with you on your podcast is nothing short of an honor. I've just been very lucky that you've actually come on my show three times and there in Bangalore, lovely Bangalore, fantastic weather, fantastic food, fantastic roads, and I am coming from Bombay, so.

Deepak: Oh well, I think fantastic roads, we will take a pause on this point and then we will say that mutual friends are subject to market risk. But, at this point, we're also going towards the subject of this podcast. I know that you know, you've been doing Paisa Vaisa, you've talked to a bunch of people. I think the idea that I'm thinking about here is, there is this sexy part for investing, which is, I bought this stock when it was 14 rupees, now it is 5,000 rupees. And I've bought this mutual fund, with the lows. I bought it in 2009, I was sitting waiting for the low, and it happened, and I bought it, and now my life is made. Versus, the non-sexy part, which is just the concept of investing regularly, rather than just focusing on when and what to invest in.

Deepak:  So you've spoken to fund managers, fund advisors, you've spoken to startups who have started businesses that are helping people invest and a lot of them tell you about things like, "I should use my PE to time investments" or "I should use a SIP because I will average my cost or time.

Deepak:  is that really the case and isn't it more a case of boss just putting more money into investments over time, is what makes you a larger Corpus at the end? Is it that? What are your thoughts on it? Is that a good metric? Is that even something that people that you've met or you are considering worthwhile? I know you are a very strong supporter of it, but what do you think?

Anupam: I'm a total believer in the fact that if you want to build a serious Corpus for yourself, at whatever age, I'm not even talking retirement, whatever it is. I think you need to have a very large and a very serious commitment towards investing. I'm not going to get into equity or debt, but I feel that above and beyond the concept of holding Bajaj Finance from a hundred rupees, as I believe everyone on Twitter does for some reason or HDFC bank and all that, but aside from all of that, the real difference that I find even when it is the people that I talked to, the people who are actually managing funds, there are two things out there, right? The communication from the mutual funds, I'm a lot of people has been absolutely on point. They are introducing a concept to investors, so from their perspective they are right.

Anupam: Start investing. Okay. Investing, unfortunately is behavioral based as I think now we know a lot of this is purely on behavior as SIP works. Why? Because it removes thinking from the entire process. Right? So the communication on the manufacturer's side has been perfect and unfortunately mutual funds have to be pushed. Okay. Now if I look at the fund managers that have spoken to well, who invest for a living, some of the biggest regrets have been why did I churn so much. Why did I buy? Why did I sell? Why don't I just consistently invest? Why don't I just just hold on? Okay. Some I've spoken to them and that has always been the feeling, they try to tweak around the tried to challenge themselves. Okay, so fund managers ‘ho gya’ mutual funds ‘ho gya’ unfortunately the conversation of regular investment as in don't even your SIP.

Anupam: There are two things out there. What are the regular investment mean? At the first level it means keep that as SIP going so that at least some money is going and never touch it. Remove thinking out of your decision making. Unfortunately, I think SEBI data also shows that the average SIP length or duration or the amount of time that they will hold on to, and I think it's more than two to three years. Why would you hold a 10 year product for two to three years? All studies on India stock market returns tell you that it's only a 10 years plus does the real kicker come in. Okay, so first fight yourself and keep the SIP going and second exactly what we said, regular investment. The minute you have more money to invest and listen to me, we are growing in an... We are living in an economy that grows.

Anupam: I know that there is a crisis in terms of unemployment or whatever, but people who are in who are in stable jobs who get 10, 15% salary increments, bonuses, incentives, what is their approach towards that money? SIP to is healthy money, but what happens to money that maybe comes to you in one burst? What do you do with it? Okay, you splurge it out, go to US, go to your vacation but have a strategy. Ensure that every year your commitments to the market are increasing. Okay. And again, like I said, figure out your asset allocation. I'm not going to get into all that, but don't ever think that investment is just SIP, investment has to be more than that.

Anupam: So I'm in the second camp, I'm in the camp that believes, forget stock market, forget returns per se. Look at a commitment to investing over the long term, which means increasing your commitment every year. I think mathematically also you'll see that if you want an 18% CAGR okay, or a 20% CAGR for your portfolio over 20, 30 years, and my God, 20% CAGR who wouldn't want that? Is simple, you need a 10% increase in your commitment every year, and a 8% blended portfolio return. You tell me how difficult with an 8% play blended portfolio returns. You tell me that. You know more than this because you do this for a living. Add a 10% increase in your commitment every year. That's it.

Deepak: That's very true. In fact increasing SIP is the way to financial freedom. If you may, I guess, and we were talking about this in the car and you're saying no, even if you put just a hundred rupees extra in your investing under rupees per day, we've talked about 20 years, 20 years would have resulted in a gain and we said, even with 0% gain, it will be seven and a half to eight lacks today in 20 years. That's an amount that is reasonable even today after so much inflation is quite not as much. So you're right. I mean it's just the fact that you invest more, that gives you a bigger chunk at the end of the life cycle.

Anupam: Yes. People liked the way you like to quote Warren Buffett a lot. There's a very obscure quote by Warren Buffett. Okay. Where he's said that even the savings bank compounds, Hey boss, think about it there. You put money in your savings when even 4% but it compounds. So that's it.

Deepak: That I think that is the point. I think the compounding with the eight wonder, it's quite interesting because at some point when people don't invest money, they spend it. They spend it sometimes on things they don't want to spend it because it's only a hundred rupees a day. I keep thinking to myself, I'm sure I had a hundred rupees a day, what did I spend it on? I don't know, I don't remember. I don't have those seven and a half lakh rupees today because I didn't... I obviously spend that money somewhere else and the answer to some of this sometimes tends to be let's lock you in.

Deepak: Let's put you in an investment you can't get out of so that it's a forced saving. So put PF, put PPF, put insurance policies locked in for five years. You've seen and met a lot of people and you've personally probably handled a bunch of this and at some level a person needs liquidity as well. What is there for the right mix? Would you say keep investing in something that locks you in, keep investing something that doesn't lock you in and is liquid therefore you can get out of it when you want and perhaps that when you want is not based on ‘abhi election ha, Modi aaega types’ versus it is actually about I need the money, I want to do some higher education for my child or something like that. So what's the mix between liquidity and non-liquidity?

Anupam: I am damn biased here. Have spent some 20 odd years in stock markets and the beauty of stock market is liquidity. I only know liquidity. I can't...I'm not a person who believes in locking in anything at all. But I also get why people want to do real estate, but I wouldn't ever, ever, ever invest in real estate. Okay. Residential or commercial or the transaction costs, the sheer effort that goes into buying and selling all that is I think a little bit too much for the return that you're getting. That said, okay. There are some lock in products, which are worth every rupee. The most or the only one that I can think of is a Provident fund. Okay, well that's giving you sovereign rated debt, and adds up of 8% or even if I know the rates keep on changing in this day and age, but I think that's the only thing I'd have to look into.

Anupam: Even other products like a tax free bond, they're liquid. They're actually liquid. So you're getting that yield on maybe triple paper on that. So why do you want to lock in your fund? So I am a believer in liquidity. I am not a believer in locking in your funds. Okay. So that to me removes a lot of asset classes. It removes real estate, it probably removes gold also, I don't want to talk about private equity investment because that's a completely... That's not for the average investor any which way. But if I have to set my portfolio, I would only focus on liquidity. I would choose liquid investments over illiquid investments. I would choose mutual funds and stocks over anything that does not allow access to my money in a span of less than five days with the least amount of effort.

Anupam: Today, buying a mutual fund or buying or selling a stock is a few taps on your app. That's how easy it should be. I should not have to go to call a broker. I should not ever do all that manner to get my thing. And most importantly, liquidity means price discovery, illiquidity, the benefit you get is price not discovery. So to say illiquid stuff sells for any random price.

Deepak: As we have seen in the debt fund crisis of recent times where you don't have a price, you don't a security.

Anupam: Exactly. So that's what... So I would choose something like that. Just have a simple... And if you want to, and liquid is beautiful, right? Because it gives you a chance to build up a certain Corpus for meeting your goals. It could be a short term goal, like a foreign vacation. It could be a long term goal like buying a house., You can keep on putting your money in a liquid fund, which will give you, even you assume five, six percent post-tax. Okay. And then you can always keep on taking that money whenever you feel the market's are on shifting into equity. I think your goals can be sorted that way. Liquidity always for me.

Deepak: Oh, brilliant. In fact, there's also somewhere quite interesting because where you're goals start going towards is I can put some money into that debt or liquid instruments. I can put some money into equity or market some money into real estate. But in a country like India where when you buy a house you be, not from Bombay. So even lakhs don't count for anything but grows toward the house and you invest 10 lakhs in the market. So you're so skewed towards this real estate. Is it even possible? Is it something that you find very difficult to do?

Anupam: I think it's bound to be, but it's also all age of life thing and your mentality thing. The house breaks your finances when you're buying it to stay right? So I would never judge anybody who's buying a house for himself to stay and he breaks, he really stretches himself. I don't... For me buying your own houses, not about rental vs yield. If everything in investing was Excel sheet based on the market to be rational, we know, markets are not rational. You're buying your own house boss, then all best to you just know that the value of own house is zero something that both of us have discussed.

Anupam: So once you give 30, 40% of your net take home just towards being an EMI, I don't know where you're going to have left if you can still invest that money and good for you. Okay, so on the other hand if you can go towards rent actually and live a fairly good quality of life, that's fantastic. It just opens up a whole new piece of your take home salary that can be invested in something that's liquid, that something that is visible. That's something that you see most importantly, something that you can sell.

Deepak: In fact, I think today morning, somebody who's talking about it already say there's something else he said, "It makes me mobile because I buy a house and let us stay there and tomorrow I don't know where my job's going to take me, so why should I buy a house?"

Anupam: Well, so I think of it in 2019 I think the real estate resident should tell you real estate. Okay, I want to work commercial because that's still we're in Bangalore for God's sake. You've got the REIT, which is at whatever price it is despite the yield so forget commercial. But residential is gone. I mean that model is broken for the last 10 years. I think 20. Okay maybe not 10 years. 2014 was probably and I'm talking only for Bombay 2014, 2015 was the last time that you had property prices going up. You're now in a five year cycle of stagnancy to probably 10% down. That is yield destruction, honestly. So if you're someone who's invested in the real estate, the last four, five, years haven't been good.

Anupam: So I think people need to look beyond that real estate thing and think about the cost of liquidity. To me, the cost of liquidity is easily 1% to 2% which means that if I'm getting 8% in a liquid investment and 10% in an illiquid investment, I'm going with the liquid one. I'm very happy with getting a lower return at of very liquid costs. That's how I see it.

Deepak: This is very good because you're not focusing on returns. You're focusing, you might just invest a little bit more in the same Corpus, but interesting. Well, and at the same time you've got liquid in India in one way, but now India is no longer just India, right? We use Google products, we use Amazon, we use... So we don't get to participate in any of these companies per se. So what is your... So you've talked to a bunch of... so we talk about Indian market, we talk what Indian stocks, India story, neither India here nor India there. But there's also another world. There is Facebook, there's Twitter, the stuff that's taken more our world as well. But would you consider, or have you thought I will maybe come across people who have and perhaps startups who have done this, investing outside of India into the district companies that we use on a regular basis?

Anupam: So from the conversations I've had on my podcast or people who have come, people that I talk to, I think that whenever you talk about something that nobody really understands. Okay. Because neither me, I for sure don't know how Amazon runs. I don't know how Facebook runs, so forget buying their stock anyway so when it comes to things that people don't understand but they need to give an opinion on they go with 5% to 10% of the portfolio. Bitcoin have 5% to 10% of portfolio, foreign have 5% to 10% of portfolio way riskier to 5% less riskier so 10% you add some NASDAQ, a mutual different 10% of portfolio gold, 10% pull up just take it easy here.

Anupam: I am not a believer on the foreign story. If I have to play it, I will play it through an Indian listed ETF. I believe there are a few that give you the NASDAQ at an Indian cost, add an Indian price, go for that. So I wouldn't look at opening a brokerage account in one of the, I think there are quite a few that have opened up out here. They look very attractive. I think it's a great proposition, but I think do it only if you fully understand what you're getting into.

Deepak: Lets this cost is some painful processes.

Anupam: See the way that I look at it is that India small and mid cap story will remain for ever at least of very a reasonably long period of time. And all ours cycles have shown that if I have to go into risky bet for a higher return, and I have the capability to writeride out that volatility smaller when it comes to gives me what I want to. So why exactly am I investing in Amazon, Facebook, Google, FANGS and all that. So first I started the reason why you're doing it, if you're doing it because you want to own a foreign asset that gives you 10% every year, great. I can tell you in instructs that give you that rather than get into complications of opening a brand new account, figuring out the exchange rate risk and all that. But if you still have to do it the way that I would do it as bio local listed overseas ETF and be done with it.

Anupam: But if I look at people who are advice 5% or 10% of portfolio and I'm sure know that probably works, but what will you get with 5%, 10% of your portfolio and you know for last 10 years the NASDAQ I believe has been the best performing market in the world. I think it's beaten India also. So for the last 10 years greater, but if you believe in mean reversion, I don't know whether you want to be investing in fangs right now.

Deepak: That's also a very good point. I guess that also comes to an interesting point because now at this juncture you want to reduce your decision-making requirements rather than... Because you want to focus on your job, you want to focus on the other things. You just invest in something that you can understand, and where the story is pretty obvious by the India story, by maybe ETFs, you've been in proponent and also saying 50% of NIFTY

Anupam: Hey, that was not mine. That was I think somebody who is in the studio who's smiling out here. But as from us lack conversations, I think what is has.

Deepak: Me said that? I mean we've back tested it as much as he could and we found out that is a difficult problem. Today more of that you've done another podcast on that is, it was a revelation to us that boss active management is not really better management. It's really perhaps even Warren Buffett has not been able to be this and be the last 10 years or so. Then who are we? Smaller human beings type of things but at the same time I think you know you've been also to multiple geographical directly. You've been to Bombay, Delhi, Calcutta, Bangalore. I suppose there is a difference between Bombay as a city in general than all these cities, particularly when it comes to investing, I guess you would notice a difference because ‘market kaisa lagta ha’ is the first conversation you have with anybody in Bombay. They don't say hello anymore, but in it's different in different cities. What do you see? because you've met people from everywhere. Is there a difference?

Anupam: The way that I look at it, anecdotally the interest in the market has just risen over the last, whatever, five, 10 years. It's crazy. But since I didn't awareness level, you're going at level one. One of the most...the example that vividly stays in my mind is this movie called Chef. It was a Hindi remake of the Hollywood movie chef. Okay. It start safely obviously you've not heard about it. Nobody's heard about it because it just came up when nobody really cared. But there was a line in that. The story was that the lead character, which was John Farrow in the foreign movie and Sail Ali Khan in the Hindi movie, loses his job because he slaps a critic. So in the Hindi movie now he's faced with the prospect of not earning any income for some period of time and he's having a conversation with someone and in you what he says, or something, how will I own money? I have to pay my SIPs.

Anupam: I'm like, this is a Bollywood movie, this is Saif Ali Khan, and he actually mentioned the words S-I-P. So to me all the SEBI data which shows... which is about SIPs and increasing flows. I believe the latest number is about two, three crore folios with about 3,000, 4,000 rupees per month that number is massive. That number 10 years ago was literally zero. So that awareness at that level has increased. The conversations though in mature markets like Bombay or Bangalore is still kya lagta ha. And I don't think people have read the third level, which is what you're talking about.

Anupam: About our regular commitment throughout macro cycles up and down. I believe that will require some more communication from the industry, from people who've come to my podcast about handling people through entire cycles and to increase allocation as you go along. That conversation has not started anywhere with whomever I've spoken to. So it works simple like first comes though awareness, which is SIP something. Then depending on where the market goes, you invest, you increase or decrease as for the market goes. Unfortunately, it is still increased when the market goes up, decreased when the market goes down. And I'm not judging people take care, whatever. It's hard is to just keep investing irrespective of wherever the market goes. So I think we are at level one, level two, level three hasn't started. That's what I think.

Deepak: Very interesting. In fact, let me summarize. I think one of the things that you have brought about quite beautifully was is level one, level two level three thing, which is I need to invest. What do I invest in and forget all of that. Just keep investing its always be fine.

Anupam: And I wouldn't judge anyone for splurging his money. You want to buy an iPhone, go buy an iPhone. But it's an age thing. Age allows you to take those luxury splurges. I think by the time you're 35 to 40, I think you've got to look at serious money. Serious money is not going to happen when you do these occasions splurges. Leave your splurges for bigger things, but start getting disciplined as your income keeps going up because as anybody will tell you, mathematically, meaningful wealth happens only later in life. Unless of course you rest at top up founder and by the age of 30 you got 500 crore all the best to you. But I'd say for the vast majority, the serious money actually have is when you go further in your career. And at that point of time I would like that people also change the way they look at markets. Start increasing your commitments as compared to just staying on the pot. So that's it.

Deepak: That's so brilliant. I think the other part that you mentioned was of course you were like liquid investments. You've had your experiences with the liquidity and obviously from private equity to just insurance policies and not allow you to take care of

Anupam: Oh good Lord, no. Insurance as investment no way. Seriously I want talk about the market. What the market arbitrage opportunities of why insurance is better, that's a manufacturer's perspective. But as an investor, no way. Honestly, no way. Unless you'll live and you've done the numbers deeper, you've done blog posts on that. Unless you expect to hold ULIPs you'll live for 20, 30 years, maybe it will be financially, it might make sense to you, but come on, just cheap insurance and just an an SIP will get you that. Why do you want to lock it?

Deepak: That's true. And in fact, when any of these things useful little insurance, it's not even relevant. So 10 lakh rupees of insurance for a policy earning five lakhs a month or two lakhs a month. It's so irrelevant, it is not even funny.

Anupam: You actually, you should put in links out to the posts that the written right there. I saw you've done one post on how I remember this was many years ago, right? About timing the market, doing a DMA based investment, which means that when the market goes down, you keep on investing more versus just staying in an SIP. And if I remember correctly, the SAP gave you more money in absolute terms. The Corpus created in terms of wealth was much more, although optically the strategy of investing with the market goes on gives you a better portion of returns. When I'm 60, 65 who cares if I earned 8% or 9% or 12% I want the Corpus.

Deepak: That is the best way to put it.

Anupam: I mean, come on here, think about it yourself. You have the data, you have the numbers.

Deepak: It's true. In fact, the more you try to time the market and say we need a lower, next month a lower. Next month you're not going to put two X over what you put on this one. And next month you're not able swing on. That one month SIP is gone and that month as SIP gone non-compounded reduces a few lakhs really eventual Corpus, do this five times a year and a you're certainly left with half of what he should have got. Otherwise, even if you got a lesser returns.

Anupam: I am a firm believer in increasing your components each and every year to the markets irrespective of where the market is going. Provided your goal is a 30 year horizon. Which I think should... I think that's fair, isn't it? You start earning at what? at 25, okay. On for 30 years, build a nice corpus at that point of time. And you'll also mentioned on us on a SLACK group, you've left money in liquid funds for five years, which a lot of guys at moment As a liquid literally overnight why? Why can't you leave money in liquid form for five years, 10 years? What's wrong with that?

Deepak: So long as money is giving me 8% a year. It's better than the market last year. The stock market last year was--

Anupam: Works for me.

Deepak: I mean and my point or year is that, it is not really the fact that that money, when they call it liquid is supposed to, it's that they have invested in equity and insurance. I can keep the money in there for as long as I like.

Anupam: That's it. Works for me.

Deepak: And to that question. I think the things that also people get scared about is nomenclature. They think longterm into investing in something for a one year because income tax still do one year as long term. One year is hardly anything and I wouldn't know for it to be only like 2% of my age but when you're younger it makes a difference a whole year of my kid. One year is like my God, we need standard and then what this is now I'm like one year I'll be a little bit older. I'll be a little more gray hair but it's quite interesting because our nomenclature or thought process build around stuff that shouldn't be long term is 10 years. That's a long time as well.

Anupam: Yeah. That's association area. Your mind is playing tricks on you on that though you've just introduced longterm or do mentally or in one more frame. Just yesterday I was talking to someone again, a mutual funds platform which was telling me that, listen, I know the conversation now that's happening is about fees. Okay, don't give it to that guy because he's a regular guy. Give it to this guy because he did it. He said, "boss, you have to take the first step. Now first at least start investing now. You're showing me 25, 30 year corpuses and on that you're making a decision of today at least start your process. Okay, you give me money, I'll put it in indirect, no problem, but at least start". People are hard having...they think too much about that regular versus directing to even start. What you are seeing follows next start that I think that start is really critical.

Deepak: Well, I think if an advisor helps you start one month earlier, than you started yourself, that is 8.66% return just on that guy.

Anupam: Just numbers. That's just math.

Deepak: That basically if you paid him 1% a year to take you eight years to break even from not investing for one month.

Anupam: Imagine.

Deepak:  If for an eight 1% fee or your person, so all it takes is that even for thinking mathematically that makes a difference.

Anupam: It does. I think from the advisor side also, I think if I look at the kind of advice they're giving at least the very few that I have been lucky enough to talk us has been very sensible, very sane, very good advice. But I think that they're still at level one in terms of understanding or in terms of handling because they at introduction level. Unfortunately a lot of conversion goes into rate of returns. which might be good, might be bad. I don't know. Maybe for a starting level that's fine, but I think you're after the same advisor, the same distributors will have to handle people. Okay. Or tell them, "listen, remove the thinking part from your brains and just I'll talk to you twice in a year and on both the times you have to increase your allocation". Cut them. That's it.

Deepak: That is, you know what's painful because they just comes in and says, "Now is the time to increase your SIPS" and it just magically increases. That is worth paying for even if it's a percent.

Anupam: And completely ignore markets up and down. Honestly 23rd may even have the markets are suckered down. You know for someone who is not, who's salary income network depends on the net market...on the stock market day to day. It's unknown even to you. You just move on.

Deepak: This is true in 2004 when the elections results came, the market fell 30% in two months. Who remembers that?

Anupam: I know you want to think that it's even when the market falls 30% you should invest. For the remainder 30 years don't invest. It doesn't work that way.

Deepak: It doesn't absolutely. You'll end up with less money. It's just that the way markets work. It has been lovely to speak.

Anupam: My pleasure, my honor.

Deepak: Thanks so much for coming in.

Anupam: Thank you for having me. What a fantastic office you've got.

Deepak: Proud of little things but I like Warren Buffett has recently said they have taken two floors after hoarding one floor in their office or renting one for that office for 57 years. We are also going to take another floor.

Anupam: Oh, congratulations.

Deepak:  My little way to try and become Buffett, I guess, but it's a little fascinating and new for us to have a good setup as well. I know you've been in Bangalore with family. I hope you have a great time.

Anupam: Thank you so much.

Deepak: As well.

Anupam:  of the city already.

Deepak: Well let's wait til the traffic control a whole day. I'd say let's focus on the good part. So lovely having you here. It's been great. Thanks everyone for listening to the Capitalmind podcasts. Please channel in comments B50 on Twitter is Anupam Gupta. Deep auction on Twitter is Deepak and would love to hear from you guys. Thanks once more again thanks for coming on the show.

Anupam: Thank you Deepak.

 

Anupam is a podcast host at Paisa Vaisa, and also an investment research consultant and a Chartered Accountant. And he is a good friend and an phenomenally nice guy!