Nirav Panchmatia's Blog

So who is swimming Naked???

WAIT !!! Don’t get mad…

Its still an Investment Blog…

One of the lesser-known but very important quotes of WARREN BUFFETT is (buffett is my Investment guru & her is a Video clip of my interaction with the god of Investing Warren Buffett) ( http://niravpanchmatia.in/category/warren-buffett/ ):

It’s only during Low Tide that you come to know who is swimming naked….

WARREN BUFETT…

This quote is extremely relevant today…

It means that in good times it’s difficult to differentiate between good Investments & shoddy investments, good companies & bad companies, between good businesses & bad business, between good Management & bad management …between right management decisions & blunders…

But during tough times like these, the Men are clearly separated from the Boys, the wheat from the chaff; now we very clearly know who is who & in WARREN BUFFET’s words NOW WE KNOW WHO IS SWIMMING NAKED???

So that’s the meaning of the term “Swimming naked” it means that whatever flaws, weaknesses, negatives, vulnerabilities that a Investment option, Sector, Company, Business has & were hidden during good times are now coming to the forefront especially because these are tough & hence testing times for one & all…

And that’s the good part of a tough economic condition that it clears the cobwebs & clears our VISION…in Tough times it becomes a lot easier to differentiate between Men & Boys…

So lets ask us the Billion Dollar Question….

WORLD ECONOMIES: 

Who is swimming Naked today??? Which Economy in the world is swimming Naked today???

A. Swimming Naked??? (Economies that are in trouble…)

  • China
  • Saudi Arabia & other Oil Exporting Countries
  • Russia
  • Australia
  • Brazil
  • Middle East
  • A good part of Europe

B. So who are the Men with clothes on: Which Economies are either doing relatively well today or Expected to do well in the future:

  • INDIA
  • USA
  • Germany (as of now)
  • Indonesia probably

SECTORS in Indian Economy:

A. Who is swimming Naked today??? Which Sector of the Indian Economy is in deep trouble???

  • PSU Banks
  • Debt Laden Promoters & Group Companies
  • Real Estate Companies (barring a few exceptions)
  • Commodity Businesses
  • Rural Economy

AVOID them and you will make hay when the sun shines

B. And who are the Men amongst Sectors ? Which sectors are doing well today?

  • Private Sector Banks
  • NBFCs
  • Pharma
  • IT
  • Consumer Discretionary
  • Urban Consumption economy
  • FMCG

The above Sectors are doing well & expected to do well in the future too..

 

Which ASSET CLASSES (INVESTMENT OPTIONS) are naked today? 

A. Which Investment Option has proven wrong last year & is expected to be in trouble in future too???

  • Real estate
  • Precious Metals (aka Gold & Silver)
  • All Commodities
  • Traditional Investment Avenues (Bank Fixed Deposits & Post Office Products) etc.
  • Direct Equity or Shares

AVOID them in future too as the damage in Real estate & Gold & Silver is yet to come…As for Bank FD’s they are giving sub 8% returns & the interest rate is further expected to go down from here…

B. And who are the Men amongst Investment Options ? Which Investment options are expected to do well in the future?

 Well 2015 & early part of 2016 was a unique year in the sense that all Asset Classes did poorly simultaneously…this is very rare & unique and points to the dire state of World Economy today & that this problem is here to stay at least for a foreseeable future…

But once the clouds move out & the dust settles then the Investment Avenue that is expected to rebounded the fastest & Most is Indian Equities (Shares & Mutual Funds)…but provided one weathers the storm now…So I would bet my last penny on Indian Equities (& play it via a carefully chosen Portfolio of best Quality Equity Diversified Mutual funds)…I would refrain from investing directly in Shares & invest systematically (via SIP & STP route) in professionally chosen Equity Diversified Mutual Funds with Largecap, Value bias & in Hybrid Funds…

INVESTMENT APPROACH: 

A. So which Investment Approach has backfired last year & is expected to be in trouble in future too???

  • So if you had invested in Direct Equity or Shares without professional help & that portfolio was not under “Constant Review” then I am sure you would be in Pains & under good loss on that portfolio (unless you are a seasoned Investor yourself)

That applies to Mutual Funds Portfolio too…

If one looks at last one year returns, the above average mutual funds fell in the range of 5 to 12% last year v/s 23% approx… for the Market…but the below average Mutual Funds have fallen anywhere between 20 to 30% year to date…

So had you invested in Mutual Funds on your own & without adequate research then there is a possibility that you would have suffered a loss bigger than the market…

B. And who are the Men ?

So which is the Right Investment Approach?

 Well it pays to pay for professional advice…

In fact the Cost savings of not taking professional advice might cost an Investor very dearly (especially in Volatile times like these)…

So the right Investment APPROACH is to pay for the best professional advice available to you in town & trust that person with your heard earned money rather than speculating / playing with your life’s savings…

 

So are you swimming Naked???

Do not get me wrong…please ask this question once gain to yourself…

You are swimming Naked (without adequate Safety) if:

1. You are invested in Shares Directly that you have chosen based on hearsay, tips, friendly recommendations and without adequate Research…You are naked (vulnerable) especially if no professional is Constantly Reviewing your Stocks Portfolio & giving you timely advice…

2. If you invest on an ad hoc basis without any plan & over the years you happen to accumulate unwanted investments & are now clueless on what to do…then you are swimming naked…Say for example you have too many Insurance Policies and are struggling to pay premiums & not sure which policy to hold on too & which to sell…

3. If your asset allocation (percentage of investment in each option) is tilted towards a single investment option: for example as financial planners we often come across Investors whose portfolio has either 90% Fixed Deposits (hence too safe) or 80% Real estate (hence too risky) or only Shares (again too risky) or only Insurance Plans (too conservative & very heavy costs)…

4. If Equity (Mutual Funds) is not part of your portfolio; Every Indian Investor should have some exposure (10% to 100% depending on his/her risk profile) to Equity Diversified Mutual Funds because with a maximum expense ratio of 2.2% per annum (1.75% average) this is one investment option that has over the past 2 decades delivered approx.. 13 to 15% per annum compounded returns…how can you afford to give this a miss…

So now you know Who is swimming naked or whether you are swimming naked ???

So Dress (Invest) properly & avoid being vulnerable…

Remember the only principle relevant in the world of Investing is BUYERS BEWARE…

Invest Wisely…& avoid swimming naked…

 


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