Monthly Archives: October 2023

Seven rules of money management

In a world where the relentless pursuit of money often feels like a never-ending marathon, it’s easy to forget that finances should be a means to an end, not an end in themselves. Money, the universal lubricant of life’s machinery, can both power our dreams and ignite our nightmares. It can take us to the heights of joy or plunge us into despair. But navigating this vast, complex terrain need not be a heart-pounding rollercoaster ride.

Enter the world of financial rules – simple, elegant guidelines that can transform your financial journey.

But before we dive in, let’s clarify: these rules aren’t rigid commandments. Generally, we hesitate to offer one-size-fits-all solutions. In fact, we often discourage them. The future, with its tantalising uncertainty, refuses to be tamed. Financial rules are more like stars in the night sky, guiding you through the darkness but allowing you to chart your own course.

6x rule

The first rule is the “6x rule,” a beacon that illuminates the path to financial security. It’s like building a sturdy shelter before you explore the wilderness. Imagine this: before you start investing your hard-earned cash in the stock market’s turbulent waters, you should have a lifeboat ready. This lifeboat is your emergency fund, and the 6x rule is your guide.

Picture this: you’re a regular Jatin, and your monthly expenses clock in at a cool Rs 50,000. The 6x rule tells you to put aside at least six months’ worth of those expenses. So, you multiply your monthly expenses by six – Rs 50,000 x 6 – and you get Rs 3 lakh. That’s the sum you need to stash in your emergency fund. It’s your financial safety net, there to catch you if life throws a curveball.

20x term insurance rule

Now, let’s talk about the “20x term insurance rule.” Life insurance isn’t something we like to dwell on, but it’s a crucial part of a solid financial strategy. Imagine you’re the breadwinner in your family, earning Rs 5 lakh a year. According to the 20x rule, you should consider a life insurance policy that pays out Rs 1 crore if the unthinkable happens. Why Rs 1 crore? It’s simple math: Rs 5 lakh x 20.

Rule of 70

Now, onto the “rule of 70,” a secret weapon against the silent assassin of your wealth – inflation. Inflation is like a sneaky thief that slowly steals the value of your money.

So, how can you estimate when your cash will lose half its purchasing power? The rule of 70 is your answer. If inflation is running at 6 per cent, you divide 70 by six to find out that it will take roughly 11.6 years for your money’s buying power to halve. Armed with this knowledge, you can make smart investment choices to beat inflation at its own game.

Rule of 72

Speaking of investment, let’s meet the “rule of 72.” This rule is your crystal ball for foreseeing when your investments will double in value.

Imagine you’ve parked Rs 10,000 in an investment that earns you 12 per cent annually. Just divide 72 by that 12, and you’ll see that your money will double in about six years. That initial Rs 10,000 will become a magical Rs 20,000.

100-age rule

Now, let’s shift gears and meet the “100-age rule.” It’s a bit like picking the right ingredients for a recipe. In this case, your assets are the ingredients, and the recipe is your financial future.

The rule is straightforward – subtract your age from 100, and that’s the percentage of your savings you should invest in riskier assets like equities. So, if you’re an energetic 32-year-old, the rule says you should invest about 68 per cent of your savings in the stock market, and the remaining 32 per cent in safer assets, like debt mutual funds or FDs.

25x rule

Retirement can be a complex maze, but this rule is your trusty compass. It whispers that you might be ready to kick back and enjoy the fruits of your labour when your savings hit 25 times your annual expenses. If you spend Rs 10 lakh a year, you’ll want to aim for a retirement nest egg of Rs 2.5 crore. That’s Rs 10 lakh x 25. This isn’t a strict deadline but more like a milestone to guide your journey.

4 per cent withdrawal rule

After years of diligent saving, you’ll reach the golden shores of retirement. But how do you make sure your savings last a lifetime? Here’s where this rule steps in.

Imagine you need Rs 10 lakh annually to live your dream retirement. If you’ve saved up Rs 2.5 crore, you can safely withdraw 4 per cent of that every year, which is Rs 10 lakh. The rest of your money keeps growing, like a fine wine getting better with age.

The final word

Now, you might be thinking, “What if my situation is unique? Can these rules apply to me?” Well, the beauty of these rules is that they’re adaptable. They’re like a Swiss Army knife in your financial toolkit – versatile and handy. Your financial journey is unique, and these rules are your trusty companions, offering direction but allowing you to carve your path.

So, the next time you’re faced with a financial crossroads, remember these rules. They’re your North Star, your guiding light in the maze of money. With them, you can turn the chaos of finances into an exciting adventure, a journey to financial well-being, and ultimately, the freedom to chase your dreams.

Source- Valueresearchonline

Howard Marks’ art of risk management

Howard Marks is a name that needs no introduction. His brilliance and insights are the fundamental drivers behind the success of his investment firm Oaktree Capital, reflected in his memos. In his latest memo, ‘Fewer Losers, or More Winners?’, Marks highlights the importance of steering clear of the losers to reduce downside risks.

The Oaktree Capital philosophy

“If we avoid the losers, the winners will take care of themselves” is a line that perfectly captures Marks’ thought process, which later became the motto of Oaktree Capital. Along with risk reduction by avoiding losers, Marks stresses the importance of finding winners.

“If we invest in a diversified portfolio of bonds and can avoid the ones that default, some of the non-defaulters we buy will benefit from positive events, such as upgrades and takeovers. The winners will materialise without our having explicitly sought them out…”

Marks consistently emphasises risk control and evaluating risk rather than just focusing on returns. He continues, “We want the concept of risk control to always be at the top of the mind for our investment professionals. When they review security, we want them to ask not only, “How much money can I make if things go well? but also “What will happen if events don’t go as planned? How much could I lose if things got bad? And how bad would things have to get?” “

Risk control vs risk avoidance

Marks insists that risk control should not be confused with risk avoidance. All investments carry a certain degree of risk. Investing is a forward-looking activity consisting of uncertainty while pursuing attractive returns. Putting money into riskless assets will only lead to risk and return avoidance.

“You can avoid risk by buying Treasury bills or putting your money into government-insured deposits, but there’s a reason why the returns on these are generally the lowest available in the investment world. Why should you be well paid for parting with your money for a while if you’re sure to get it back?”

According to him, risk control is declining to take risks that a) exceed the magnitude of risk you want and b) the reward for bearing the risk is low.

Not all investments are good investments

Marks states that while investing, making a few wrong decisions is unavoidable. Investors can only claim to make the right decisions sometimes. Hence, the selection of a few losers is inevitable. The question isn’t whether you will have losers, but rather how many and how poor relative to your winners.

He says, “Warren Buffett – arguably the investor with the best long-term record (and certainly the longest long-term record) – is widely described as having had only twelve great winners in his career. His partner Charlie Munger told me the vast majority of his wealth came not from twelve winners but only four. I believe the ingredients of Warren’s and Charlie’s great performance are simple: (a) a lot of investments in which they did decently, (b) a relatively small number of big winners that they invested in heavily and held for decades, and (c) relatively few big losers. No one should expect to have – or expect their money managers to have – all big winners and no losers.”

Is it possible to beat the market?

Marks firmly believes there are times when the markets are either overpriced or underpriced. The efficient market hypothesis does not always prevail because of shifting market sentiments. He argues that the potential skills to generate alpha over the market exist in some markets and with a few investors.

He expresses that investors can produce alpha by reducing the risk while giving up less or increasing potential return by taking moderate additional risk. According to Marks, “The choice between these approaches depends on the type of alpha an investor possesses: Is it the ability to produce stunning returns with tolerable risk, or the ability to produce good returns with minimal risk? Almost no investors possess both forms of alpha, and most possess neither.”

Summing up

Risk is unavoidable when it comes to investing. However, Marks, with his years of experience and wisdom, shares how an investor can navigate risks by avoiding losses and, as a result, construct a winning portfolio.

Source- Valueresearchonline

ICC World Cup 2023: How will home advantage impact businesses amid festive season?

India is set to host the 13th edition of the ICC Cricket World Cup after 12 years on home soil starting from October 5. The mega sporting event will see 48 matches spread over the next 45 days. As cricket is the most popular sport in India with a significant viewer base, consumption and media activity will be at its peak, which is already evident in flight/hotel rates, advisory firm Jefferies said in a note.

While the country is rooting for a win in the home venue, investors and brands are also expecting a strong December quarter riding on the sporting fever that is coinciding with the festive season.

This year marks the 13th edition of cricket World Cup and will see 10 teams playing 48 matches over 45 days. The last edition (2019) saw 750 million unique viewers and 14 billion hours of total viewing time. Nearly 12 lakh visitors attended the World Cup matches in person in the stadium in 2011 when India last hosted the event with an average attendance of 25,000 viewers per match.

Jefferies said that while overall consumption should see an upside, there will be winners and losers. Of the 16 weekend days in the next two months, nearly half will see an India match or semi-final/finals. On India match days, there should be a negative impact on footfalls for movie theatres, theme parks, and offline brick-and-mortar retailers. On the other hand, the event should provide a boost to food delivery, quick commerce, alcobev, soft drinks, media, online gaming etc. We expect companies to run world-cup-specific promotions on match days to tap this consumption boost, it said in the note.

World Cup has been a key marketing platform for brands across categories. The first World Cup hosted by India in 1987 was co-branded as ‘Reliance Cup’, while the 1996 version was called ‘Wills World Cup’ due to sponsorships by Reliance and ITC, respectively. Several brands have announced World Cup tie-ups this time too and we expect a surge in media activity in coming weeks, Jefferies said.

India is Cricket and Cricket is India

Cricket’s popularity is evident from the fact that four out of the top 10 most-followed sportspersons globally on Instagram are Indian cricketers, with Virat Kohli leading the pack. The sports industry in India attracts sizeable sponsorship and media spending, totalling $1.8 billion per year, which has grown at 14 percent CAGR in the past decade, the Jefferies release said. Cricket alone accounts for 85 percent of these spends, while all other sports combined account for only 15 percent. Cricketing events attract $900 million annually in media spending, which is 8 percent of the overall advertising spend in the country. It also sees $550 million spending per year in team/on-the-ground sponsorships, according to the release.

Cricket’s growth in India has accelerated rapidly in the last decade, led by the IPL. In fact, the controlling body for cricket in India, BCCI, has seen its revenue grow 10x in the last 16 years, reaching $800 million in FY23. India’s dominance in the sport is also reflected in BCCI’s revenue, which is almost equal to the combined revenue of all other full member countries and 2x of ICC itself. BCCI has also seen the fastest growth over the past decade, the advisory firm added.

Gain for some, loss for others

The World Cup is likely to impact consumption trends over the next two months, which also marks the important festive season in India. Overall consumption may see an upside due to the World Cup, albeit there will be categories that benefit while some others may be adversely impacted, according to Jefferies.

Interestingly, India will play 9 group stage matches over the coming 45 days, of which 6 are being held on weekends, which see high consumption. Further, of the 16 weekend days in the next two months, nearly half will see an India match or the World Cup semi-final/finals.

On India match days, there could be a negative impact on movie theatres, theme parks, and offline brick-and-mortar retailers. On the other hand, it would be a tailwind for bars & restaurants, beverages (alcoholic & non-alcoholic), food delivery, quick commerce and e-commerce platforms, who would also organise their festival events, it said.

Flight and hotel rates surge

Jefferies India hotels and airlines analyst, Prateek Kumar, notes that on India match days, fares have shot up on average by 150 c/80 percent for selective hotels/flights compared to the week prior to match day, with some rates up to the extent of 13x/5x.

While major cities are seeing significant increases in hotel rates, hotels in smaller venues like Dharamsala are completely sold out for multiple days. The rooms are booked for players, support staff, cricket board officials, media etc. apart from booking from spectators. Checks with reservation desks of many hotels in bigger cities also indicate that occupancies for match days are already running high which has resulted in rates rising sharply and rates are likely to mostly increase further closer to match dates.

The World Cup event also coincides with the seasonally strong Q3 for the hospitality industry and the same is likely to benefit both hotels/airlines industry in Q3. Further, airlines are reportedly eyeing cap adds to target the traffic rush.

World Cup impact on consumption across categories

The advisory firm has categorised the impact of the mega sporting event of firms across sectors According to the recommendations: In the food delivery segment: Zomato (positive); in the QSR/restaurants segment: Jubilant Food, Westlife, Devyani, Sapphire, Restaurant Brands Asia, Barbeque Nation (Slightly Positive); alcoholic beverages segment: United Spirits, United Breweries, Radico Khaitan, Sula Vineyards (Positive), in the movie/theatres segment: PVR-Inox (Negative); in theme parks: Wonderla, Imagicaaworld (Negative); in the hotels segment: Indian Hotels, Lemon Tree (Positive); in the airlines segment: Interglobe Aviation (Positive); in the apparel retail/brands segment: Shoppers Stop, Trent, Aditya Birla Fashion, Page Industries, Reliance Retail (Slight Negative); in jewellery segment: Titan, Kalyan Jewellers, Senco Gold (Slight Negative); in e-commerce segment: Nykaa (Slightly Positive); in media arena: Zee Entertainment, HT Media, DB Corp (Positive) and in gaming segment: Nazara (Positive).

Source- Moneycontrol

Navratri 2023: 9 financial lessons that you can learn this festive season

Source- Livemint