Swing Trading Presentation by Sudarshan Sukhani

GOLD or SILVER – Which is the best investment option?

Posted on March 3, 2009July 21, 2019 by Jagoinvestor

Precious metals market is on a roll these days !! GOLD and SILVER are everyone’s Darling.

GOLD

Gold has given good returns from this year start and finally broke its trading range. Its expected to give good returns in future too.

SILVER

Silver has outperformed Gold in 2008 and is expected to do so in future too. But I am hesitant with an idea of buying Silver from some local jeweler. It should be bought from some recognized Bank only as per my view.

I don’t think that its a good idea to buy gold or silver in physical, People who want to do it to invest for marriage and all is OK, but still its only for Investment and to gain from the price appreciation in these metals, the best idea would be to go for ETF’s. They are easy, secure, more cost-efficient and tax efficient.

Some Notes

Silver ETF’s are still to come, currently we only have GOLD ETF’s, so given a choice of investments in precious metals, I would prefer GOLD ETF to Physical Silver even though Silver is expected to outperform GOLD in coming future.

Even GOLD has broke out of its trading range and now its expected to go upto the levels of 1750 per gram, and then upto Rs.2000 levels as expected by some analyst in coming times. See :
https://manishanalysis.blogspot.com/2009/02/gold-breaks-out-from-its-trading-range.html

Guys, When it comes to ETF’s, Benchmark mutual funds are the leaders, that company mainly focuses on ETF’s and manage them in a better way. So there ETF’s are recommended. (that does not mean, others are not good or can outperform them).

How safe private insurance companies are?

Posted on February 27, 2009July 21, 2019 by Jagoinvestor

Many people have this concern about taking policies from Private Insurance companies. Let us try to understand about the factors which takes care of financial stability and ability to repay back customers there money.

In reality the only things differentiates one insurance company from other is the service the provide, there settlement track record.

Want to know why Insurance is Important ? Read this

Private insurance companies

Solvency Margin

It indicates how solvent a company is, or how prepared it is to meet unforeseen exigencies. It is the extra capital that an insurance company is required to hold to meet all the claims which arise.

In other words, Solvency margin refers to the excess amount of asset the insurance company has to maintain over its liabilities. Basically, it is the amount the insurer has to stash away in order to pay the claims during emergency.

IRDA requires the insurance companies to maintain a particular level of solvency margin for their smooth functioning.

Why is Solvency Margin there?

Companies have Assets and Liabilities. In some adverse situation, Assets are used to payoff all the Liabilities. Suppose there is company which has assets of 100, and liabilities of 100. In ideal case it would be able to payback the liabilities. But what if some adverse situation occurs and liability increases unexpectedly.

In that case company will be declared Insolvent (Bankrupt). This will be a bad situation which every customer does not want to experience.

Thats the reason, Solvency margin comes into picture, The excess margin maintained by the company provides that extra cover which may be required in case some thing totally unexpected happens.

by the way, i am now on twitter, so you can follow me and get updates on twitter.

What is the current Solvency Margin?

Current Solvency Margin is at 150% for Life Insurance Companies. It means for every Rs 100 insured the Insurer should have 150 with them.

Does it mean customers are totally safe?

You must have understood Solvency margin till now, but what if some bad event of High Magnitude happens and then Liabilities of company (the claims they have to settle) crosses there total assets + extra margin, in that case they will not be able to pay back, but the chances of this happening is very very small, and generally Solvency margin takes care of it.

Some bad unexpected event like Earthquake or some terrorist attack which kills say 1000’s of people can dramatically increase Insurer’s Liability, but in most of the cases its always taken care by choosing adequate Solvency margin. But there are always that small percentage chances of the Failure which you have to live with and we cant do anything.

So what does it mean for us common Investors while choosing Insurance Products?

Solvency Margin has to be maintained by all the Insurance Companies in India whether its Private or Public sector. All the companies are at same level, Some of them are old, some are new, some are big and some are small, but its same for all and everything is under IRDA norms and scrutiny.

So decisions based on How safe or unsafe a company is not relevant now . Risk is with every company and that is equal for all.

So for people who are going to take Term Insurance, the best thing is to go with the cheapest price and good record of claim settlement. There are many new players in this market who are so new that we don’t have any long track record . like for Religare Aegon (which is my favorite).

So for term Insurance, just break your cover into 2 parts and take insurance from 2 companies to diversify the risk further.

Read tips while taking Term Insurance

Summary

This is what many people never knew and they take there decisions based on just trust and how long company has been in existence. Huh, people trusted Satyam and Lehman Brothers also, so what !!

Investor alert – Beware of Mis-selling of financial products

Posted on February 24, 2009July 21, 2019 by Jagoinvestor

From many years there has been a lot of mis-selling happening in some products and investors are getting trapped in it. In this article I’m going to tell you about mis-selling of financial products so that you avoid getting into this trap.

beware of Mis-selling

What is Mis-selling ?

Mis-selling means selling a product by giving a wrong picture of a product , it may include .

Giving Wrong Information
Giving Unrealistic Information (some times based on previous performance)
Not giving full information about the product.
Selling the product with proper information, even if it does not fit customers requirement.

Why is mis-selling happens?

Mis-selling happens because of following reasons

Low Awareness : Financial awareness is very low in our country and that’s the reason we do not understand products and how they can fit our requirement, Agents put a picture of a product in such a way that it looks the best product for us.

Competitive environment and Sales Targets : There is lot of pressure on agents and manager to show performance and sell products to meet there targets because of which mis-selling happens.

Last minute “Tax Rush” : People in India do not plan there Investments in Advance and hence at last moment they buy product just to save tax and which does not fit there requirement, and sellers take advantage of this.

Examples of Mis-sellings

ULIPS :

ULIPS are the classic example for mis-selling in this country, ULIPS are often projected as high growth, less risky products with “Insurance” in build. Ofter agents promise that ULIPS are risk free and it wont drop more than x% and return at least 10-15-20% in long run, which is nothing but marketing gimmick.

I have seen at least 100 people who have bought ULIPS and they don’t need it after 3rd year. They do not know why they bought it other than tax saving and when talked about how much Insurance cover they have, no one had more than 5 lacs.

One of my friend has ULIP for 50 yrs !!! not sure what he will do !! One of my friend has insurance of 1.25 lacs !! Insurance of 1.25 lacs !! Really, what does that mean … His/her life cover is just 1.25 lacs, he earns 5 lacs yearly !!

Read : who needs ULIPS ?

Mutual Funds

Even mutual funds are mis-sold, that happens when a agent recommends you a mutual fund which does not fit your requirement. Often agents recommend mutual funds which are too risky for customers without understanding there risk-appetite.

Read how to choose mutual fund ?

Insurance

One of the worst thing which has happened in India is that Agents never tell customers about Term-insurance, which is ultimate requirement for Indians, This happens because of penny like commission agents get on Term policies, that’s the reason they often lure customers with products like ULIPS and Endowment or Money back policies, which do not insure people to the extent they need it.

Agents don’t explain the importance of Insurance and only make them feel that they loose money in Term Insurance and we get lured by it, because we love “not loosing money” more than “little chances of dying and our families suffering”, this happens because people do not have enough foresight to look into future and question themselves about what will happen if they die without giving enough cover to there families.

Watch this video to know a horrific story of an insurance mis-selling:

Read why Life Insurance is so important

So like this Mis-selling happens in many products.

What can we do and should do?

“Prevention is better than cure”, this saying also applies in Investing, I know of people who took wrong products and then have to live with it for 10-20- years like Endowment plans. (Read why Endowment plans are not good)

So the only thing we can do is to educate our self to the level where no one can take advantage of our ignorance. Once you come to a level, where you understand importance of things in investing and managing you money, then no one can mis-sell you the products.

One of the recent product which i will categorise in Misold category is “Jeevan astha”, The reason I will say it was mis-sold is because it tried to put its picture in a very fuzzy way and tried to put things which were confusing to general public.

Conclusion

Don’t Take any product just because it look good or is recommended by someone (not even me). Do your research and do some study, it does not take more than 1 hr to search the net and read about it, or ask some knowledgeable person whom you trust about the product.

1 or 2 hrs to study can save you pain of years, So don’t be lazy, when it comes to money no one is yours, its only you who can save you from mis-selling.

So wake up .. Jago Investor 🙂 Jago !!

The basics of Trading with example of Reliance – For beginners

Posted on February 5, 2009July 21, 2019 by Jagoinvestor

What is Trading?

I see many people who want to try there hands in trading .

Trading means buying and selling something with a short tenure in mind. Short tenure can be day, week or months. You can trade Stocks, Derivatives like Futures or Options or you can try out Commodities or currencies too.

The sad part is that many people just enter this trading business without much preparation and knowledge and burn there hands like anything. they continue loosing money every day, week, month and cant figure out why they are loosing.

Understand some things :

Trading is a profession, and its highly rewarding in every ways. BUT !! Trading is one of the hardest thing one can ever attempt, trading is simple but not easy. It takes years for one to master it and become successful as a trader.

If you are trying to learn trading and want to do this in your life. I can suggest somethings:

Start Learning about markets and do it for at least 1 year (not 1 month)
Learn Technical Analysis and try to do some analysis on your own.
Read good books and make sure you have read it really well.

Once you have done this. Then you should paper trade for some time, may be 2 months. After you have paper traded and can see that you can trade well on paper, then start with small money (you must be ready to loose this money) … Do some real trading with this money and see how you perform.

Trading is a highly rewarding and satisfying profession. You can earn good money and you are your own boss. Trading can be fun and challenging. But Trading is the most challenging and highly risky profession one can attempt as I already said.

I have put up a simple Technical Analysis Example for Reliance, It discusses buying or selling Signal for Reliance in coming days. You can see it here

Why Technical Analysis?

Technical analysis helps in taking much better decisions for buying and selling. Its a must for short term traders, however it also helps people who have longer time horizon, With Technical Analysis you can make better entries, exits and manage your decisions well.

Some reading Material for people who want to learn technical Analysis is here

1. https://www.investorsintelligence.com/x/why_technical_analysis.html

2. https://www.cmsfx.com/en/forex-education/online-forex-course/chapter-3-technical-tools/technical-analysis/

Your investment must be the way you want your life to be – Simple and Easy.

Posted on February 3, 2009July 21, 2019 by Jagoinvestor

Keep it Simple Please

Lot of people thinks that if they choose complex investment products then they can generate a good return. But then key to successful investment is make it as simple and easy as you want your life to be.

There are many products available in markets , Some are extremely easy to understand and strongest. While others are complex and on an average not very easy to understand by common public.

Simple and Easy Investment

In Life, simple things works best. We all want our lives to be simple and easy, We don’t want lots of complications. In the same way we should use simple products while choosing our investments. Simple things works in the best manner.

There is a tendency of creating complex products because general public feels, that because they are complex and not easy to understand, they must be working very differently and in a smart way. This is far from truth.

Easy to understand products like Term Plans, PPF and Mutual funds works brilliantly. You don’t need ULIPS or product like Jeevan Astha and Endowment plans with lots of stupid clauses.

What happens when u choose simple products?

Your life is easy, you can understand them better, track them better and change it in a much better way.

Imagine a person A with ULIP or Endowment policy for Insurance needs and B with Term Insurance.

What are the benefits B enjoys?

– He understands every things about his products the reason being there is very less to understand. (If you die, your family gets money, if you don’t, you get nothing).

– He can choose to stop his stop his policy any time he wants (if he does not feel the requirement)

– He can change it to some other policy later in life if he wants.

There are many things like this, where as in ULIPS and Endowment policies , people are stuck with no mercy if they cant pay premiums some 2-3 yrs in a row. There are too many clauses and different types of sum assured, and things like those.

What is the Learning?

Take easy to understand and simple products which look Plain Vanilla, Complex products have nothing extra than complexity. Just make sure you understand easy products well and how to use them well. Your investing life would look much like your investments. Keep them Simple.

What can Repiblic Day teach us about Financial Planning

Posted on January 26, 2009July 21, 2019 by Jagoinvestor

India gained its Independence in 1947 . At that time India was free , and ready to grow on its own , with its own decisions . But it was not possible without a set of guidelines to guide the decision making process .

Success comes when you are disciplined and have a decision making process. On Jan 26 , 1950 our Constitution came into effect and now we had laws for different things .

Financial Planning

We knew exactly what we have to do when thing happens . We had a road map to follow. From there on we progressed and have came a long way . We can now say that we are much better than we were at that time and we continue to grow and make better decisions.

We need amendments from time to time and that helps us to change the bad laws and adapt to new situations.

How do we relate it to Investing?

We can learn from anything … really anything . Let us try to map each event discussed above and relate it to our Investing world .

1. Gaining Independence

When we get a job and start earning on our own, we are full of confidence. we are independent, We don’t need to ask for money from our parents. Rather we have to support them. We have responsibilities. There are many goals for us like buying house, car, saving for our retirement, Marriage etc etc.

2. Republic day

This is the day when we understand that we need to do our financial planning and have a set of guidelines to guide our decision making regarding our investments .When we know how exactly we are going to invest to achieve our goals, we have a clear road map and time duration .

We just need to follow it with discipline.

Example : If a young 25 yrs old want to retire at 55 with 2 crores at the end . He can take two approaches .

a) He can try to save money here and there, some month he can invest 10k, and some month he can skip it and down the line, he has a vague idea where is he going and how is he making progress. This kind of approach often leads to failure, because there is no road map and sometime will come when you will have no idea whats happening.

b) Second approach can be very easy . You have to make sure that you understand some thing very well and be clear about somethings. Those are

– Equity outperforms every other asset class in long term .
– Equity in long term has given 15%+ returns and its possible in future too .
– You should have understanding about the power of compound interest.

Now when you are clear crisp about this idea , then you can use a simple compound interest formula to see , how much you need to invest every month for rest 30 years (55 – 25) , which can generate 2 crores at 15% annual return .

The formula is

Final_amount = monthly_contribution * (1+rate) * ((1+rate)^months – 1)/rate

where
rate = monthly rate = 15% / 12 = .15/12 = .0125
months = total number of months you will invest = 30 * 12 = 360

Now you can calculate what monthly_contribution fits the values .

The amount comes to little below 3,000 per month .

Which means if you invest 3,000 per month for next 30 years , you can achieve your retirement target easily without fail. (Invest in Equity Diversified Mutual funds to target 15% returns for long tenure).

When you do this, you go with a plan (constitution) and dont have to doubt your self and you will not get lost. Just follow it with discipline without fail.

3. Amendments

Just like amendments are made in Law , because of change in environment and situations . You also may have to change you plans with market change and new products coming in (this happens rarely , because fundamental things remain same) .

Summary and Learning

What I want to point out here is that just earning money and being independent in not enough and cant make you successful with money , Discipline and proper understanding with good planning will help .

So if you are Independent but have not put your constitution in place , do it soon to really succeed . Make this day as your teacher and learn from it . Don’t be afraid of mistakes .

“Success is a ladder where every step is made up of Failure . If you cant fail !! , Winning will not be easy ” .
Manish

Secure Your Family , Risk Management Part 2

Posted on January 13, 2009July 21, 2019 by Jagoinvestor

Why do we invest ?

Answer : For ourself, for our Family, for there better future , for our kids , for there better life , for financial independence, at last the answer comes down to Our Family.

But, before investing, do we make sure that , do we secure our family at first place against any risk and problems which may arise. You can invest in great things, whatever it is like Mutual funds, ULIPS, direct shares, gold, blah blah blah …

Why Do We Invest

But what if some bad things happens to you and your family is left behind with no money at present, what is your wife, kids or your parents meet some accident and go to hospital. Is that more important or creating your wealth for future.

What is more important is to first concentrate on “Now” and if everything is taken care of, only then think about the future. How do you secure your family.

There are two things :

1. Life Insurance for yourself (assuming you are the bread winner)
2. Health Insurance for your entire family, especially if your have old parents, or going to become old in some years 🙂 .

1. Life Insurance : Read https://finance-and-investing.blogspot.com/2008/06/life-insurance-revisited-one-of-my-good.html for understanding it better .

2. Health Insurance : Read https://finance-and-investing.blogspot.com/2008/07/health-insurance-what-is-health-or.html

Let me talk about a case study .

– Robert is in his 30’s earning 5,00,000/Annam. He is married and has 2 kids .

Robert needs life insurance of around 50 lacs to secure him Family . also he should take a health cover of 4-5 lacs each .

He can take a term cover of 50 lacs for 6367 . He can also take Health Insurance of Rs 4 lacs each for him , his wife and his 2 kids (family floater plan) @Rs 5000 (Check click2insure.in for these quotes) .

Means , he can take both of these things at 21,000 / year . It comes out to be 4.2% of his yearly Income.

Now think , can you spend 5% of your yearly salary for safety and coverage of your Family ? I thing YES !!

Once you do this , you are free of any tension , and now you can use your 95% money to generate long term wealth for your family and there security . You can effectively use your 95% , only if you use your 5% for your risk management .

There can be many cases when you dont cover your family and things can go wrong, like

1. You invest heavily in Mutual funds or ULIP’s or what ever and in 2 years you die in an accident, what will happen then …

2. You invest your money in ELSS (tax saving mutual funds) for last 2 yrs and have life insurance also , but suddenly you wife meets an accident and you require 5 lacs for an operation , but you never took Health Insurance .

Investing your money is important, Covering your risks are Vital !!

Live in the moment, “now” is the truth … Keep you family happy with covering then and yourself now .

Some tips :

– Take a life cover ASAP if you have not taken it yet.

– Buy a family floater plan if your family has spouse and kids, for Parents you need to take a separate individual policy, as parents are not covered in Family floater plans.

– You can also claim tax benefit for this under section 80D.

– Don’t feel that life insurance from other companies (other than LIC) are very risky and anything like that . Insurance sector is now getting mature enough and govt is taking all measures to confirm that the companies which enter Insurance Industry are from great Business families and conform with the guidelines . But its true that LIC will always be the safest (100%) .. but 99.999% is also safe …

Summary

Its more important to cover your Life risk and family Health risks first before any investments for future , when you put your money in Insurance and Health Insurance you are already taking steps for strong invesments for future which is safety of your family , which is of supreme importance . Dont ignore it … Take appropriate cover .

Game of Trading , Risk Management Part 1

Posted on January 9, 2009July 21, 2019 by Jagoinvestor

Lets play a game, the name of the game is “Game of Trading”. I am stock market and you are investor. You have got 2 chances of investing you money, One time I will give you 200% return and other time I will give you -80%, or in reverse order, so it can either be

200%, -80%

-80%, 200%

You have to decide in advance that how much percentage of your total capital you will invest each time (invest capital) and how much you will keep safe money (safe capital), you have to decide for both the times in the start only.

Lets analyse different cases.

Case A : You choose invest capital as 100% first time and 20% for next chance

Case A.1 : Return was -80% first time and 200% next time.

Case A.2 : Return was 200% first time and -80% next time .

Case B : You choose invest capital as 20% first time and 100% for next chance

Case B.1 : Return was -80% first time and 200% next time.

Case B.2 : Return was 200% first time and -80% next time.

You can see that at last A.1 = B.2 and A.2 = B.1 , so it means that order of your invest capital ratio does not affect your result , it both the cases it can either become 28 or 252 (depending on the return order) …

What should you do?

100% and 20% choice will always loose in long run, if you play this game over and over again for long run, Understand that in this game, you can make it “high risk high return” Game or “Extremely no risk, low return game”, And your choice of your invest percentage will decide which game is it.

Characteristic of “High return High risk game” : Its possible to make great money in short term, but in long run you will loose.

Characteristic of “Low risk, low return game” : You will Not make great return in short term, but with compounding effect, you are bound to be a winner in long run.

Let see if we can choose a ratio (invest percentage) can give us some profit irrespective of the return order.

Lets choose 25% invest capital :

Case A.1 : Return was -80% first time and 200% next time.

Case A.2 : Return was 200% first time and -80% next time.

You can see that in any case your 100 becomes 120, which is 20% return.

What if you choose 80% invest capital : In that case at last you will have 93.6 (calculate yourself). So what should be the best percentage capital to deploy each time in this game.

I tried to make an Equation, with all variables

p = profit times (2 or 200/100)
l = loss times ( -.8 or -80%/100 )
C = Capital at the start
T = Trade factor (.25 means, 25% of the capital will be invested at any time)

We want to find optimum T, given any p and l (assuming that the trade will be done 2 times)

So, If you calculate the total capital after the 2 trades (do the math), you will get

Total capital = C (1 + pT) * (1 + lT)

So our original capital is getting multiplied by (1+pT)*(1+lT), and we have to maximize this number.

lets say I = (1+pT) * (1+lT)
I = 1 + plT^2 + pT + lT

If we do some differentiation here with respect to T (people who don’t know differentiation, just leave it), and put dI/dT = 0

2plT + p + l = 0
T = – (p + l) / 2pl

So the best valeuof T is -(p+l)/2pl ..

For our earlier example , p = 2 , l = -.8

we get – (2 – .8)/ (2 * 2 * -.8) = .375

Which means, 37.5% of capital will be invested everytime, and with that our capital will become 122.5 and that is the max you can make without risk.

What if return = 200% and -90% , in that case p = 2 , l = -.9 , so T = 2 – .9 / 2 * 2 * .9 = 1.1/3.6 = 11/36, means investing capital will be 30.555% always and that will give us max return.

What is the point i am trying to make?

In any given situation of making money, there may be a big risk of loosing it, we should always use these kind of tools and always be safe. Don’t try to be very bold in stock markets.

People who make killing in the start often get killed somewhere on the way and people who make respectable and sufficient money with satisfaction become winner over long term.

Summary

When you do Investment or do trading, you should never put all your capital into it, one bad trade or investment and you will be ruined forever, better to risk only that much capital which can not take out of of the game, but just hurts a bit.

Take small and risk-less profits if possible, Investing and trading is all game of probabilities. Use math’s and logic to take smart decisions like discussed in this article.

“There are old investors and there are bold investors, but not both”.

Check out this blog for Risk Management Part 2.

The Straw That Broke the Camel’s Back

Posted on January 7, 2009July 21, 2019 by Jagoinvestor

One of my friend is fond of shares and options trading , from a capital of Rs.50,000 , he grew it to Rs 2,00,000 , whereas I am almost at the same place from where I had started because I do some thing called “Risk Management” … Every time I take a trade or invest in anything . This is how I go about it .

– Either I don’t take the trade
– Or I take the trade, but work on risk management, I hedge it using PUTS or invest less in that.

Because of these two things I either miss big profits or make very small profits. managing risk involves cost and that’s the cost you have to pay for trying to be “safe”.

Last week we both purchased some thing which gave him 50% return, but gave me just 7-8% return over my investment. The reason was that I also hedged my position and tried to be “smart”, which my friend didn’t Acknowledge.

There are many incidents like this, because of which I always lag behind him when it comes to performance, and I am always ahead of him in being safe which never helped until now.

Jan 7 2008 :

10:30 AM :

Markets were a bit up and things looked good , He bought Satyam’s Calls with almost all of his capital, He has good intuition of which options may work and which may not, but I tried to convince him that buying a PUT on a lower strike price will save him in case he is wrong.

But to my expectation, he was “sure” that it would work, He put SL at 175 just to show me because of the fact that he knew it wont be touched at least today.

11:30-12:00 PM :

Satyam Fiasco news came in and within no time Share was down 30-40%, No surprise that even SL was not entertained … because prices never stopped .. everyone was just in a rush … With in some time Share plunged to 60-70, My friends calls were worthless and It doesn’t look that it will now move up from this point.

In short He is dead … He is out of this game now … He has 20,000 cash and all 1,70,000 or 1,80,000 he had put in calls are not even worth 4,000 – 5,000.

Price of Satyam 120 PA Jan 29

11:00 AM : Rs.1
2:30 PM : Rs.90

Return : 9,000% in 3 hrs.

What is the point I’m trying to make?

Everybody likes to make big profits and we should but not at the cost of risk of blowing up all our capital. Its not just related to Share markets or options. It also applies to Debt market, Mutual funds.

Do everything you can do to minimize or avoid the risk. Its very true that returns comes with risk. I am not saying “not to take risks”, i am talking about “managing risk”.

“Managing Risk” is the biggest measure you should take if you are in this field.

In some of the next posts we will try to see what are the different kind of “risk management” techniques and its importance.