Health Insurance

 While we are young, we eat all the junk foods as it is tasty and full of high sodium by way of salt and high fat by way of oil.

While some do exercise and eat moderately, for most of us it becomes difficult to burn off the excesses and over a period of time it leads to an unhealthy body.

Most of us are covered by medical insurance by the company when young (at least partly), but once a serious issue comes it can lead to a financial disaster.

As a prudent practice, it is always wiser to have a medical insurance apart from the Company provided to a) build a history of no claims and b) to gain confidence of the insurance company that you are taking care of health and easier to cover up pre existing as well as insurance above 60 years which are difficult to come by.

So, what are the medical insurance policies key things to be kept in mind

First, is one should take a Base policy. This can be, say, (in year 2023) INR 10 lakhs

Second one should take a TOP UP or SUPER TOP UP policy of , say,  INR 90 lakhs.

The second one is to cover any unforseen exigencies and is generally much cheaper than 1st one.

Other key points to note when taking Medical Insurance

a) Buy a Comprehensive Medical policy

b) ENSURE No Room Limit (This is critical as your claim is based on that)

c) No Sub limit on various disease (The ins. cpy puts a max on certain claims like diabetes etc.

d) Unlimited No of restore (This is to ensure if you, by chance, get hospitalized again to cover it)

e) MOST CRITICAL Life long renew-ability (Some ins. companies after 70 years do not renew the policy and you could be stuck) 

f) Maximum 2 years for pre-existing disease (DISCLOSE ALL YOUR DISEASE FULLY-EVEN IF AGENT SAYS NO. One of the reason claim gets rejected)

g) Buy the policy at the earliest ( 30 years to 50 years maximum). The older you get fresh policy comes at a higher cost

h) Senior Citizen policy is after 60 years.

Cost for Husband Wife less than 65 is around 30-50K /year

Cost for Husband Wife > 65 is around 50 K plus

For family (till kid is 18 years) buy a floater policy

Contact ditto - a company that helps with insurance without commissions.

As Rajaji said to R.Venkatraman, ex president when he went for condolences of one of the son in law, that it  was not a great thing to live a great age, "One has to bear the sorrows of the next generation".

 

 

Catching a falling Knife

 Recently one of our friend gave us a Ceramic knife as a gift. It was unopened for long and I started using it. As I was cutting at the edge of the platform, it slipped and fell and as is usual if anything falls you try to catch it. As I did that it gave me a small cut and fell down.

Reason for bringing this up is in Investment parlance, one is always in a dilemma of catching a falling knife. It means a stock is falling down steeply. Do you average the price as it goes down or do you let it fall thinking it will drop dead. Examples can be given of Yes bank, Vodafone India, Punj LLoyd, SREI finance, ILFS and the list goes on. Some recover, while some end up as DUDS.

The general investment philosophy of "catching a falling knife" is if the underlying business is good, then it can be caught, but if underlying business either due to regulation (Vodafone India) or bad luck (Punj Lloyd got caught in Iraq, Libya wars and civil insurgencies) or fraud by management (as in Yes bank) is bad - DO NOT TOUCH IT. If and only if the market has "temporarily" given it a thumbs down due to some issues (eg Nestle and Maggi) and is expected to get over it, you can then average it.

One more buying is by Pyramiding (as in opposite of Rupee cost averaging) is if business is good and started moving from an All Time High of 3-4 years, it may interest people to buy the stock.

Passion and Profession

 One of the oft repeated dialogues of modern generation is "Uncle I am following my passion" when asked, what do you plan to study after 12th or whatever school leaving exams.

In olden days Passion and Profession were two different entities. You could follow passion once you achieved Profession.

Let me put in perspective the distinction. Passion is doing what you feel like doing the best in an area of your liking. Profession is doing what gets you your daily bread and keeps the money flow to make your living comfortable. In olden days, Engineering, Medicine and finance used to be the profession that gets  you a good job and money. People followed those setting aside their passion as putting food on plate was more important than following the passion. Playing music, drawing, writing,  photography or any other artistic works involving passion was subset of the Profession. Javagal Srinath, Ashwin, Sivasri Skandaprasad and many others did Engineering (Profession) before following their Passion. My classmate the famous TN musician- Ramani Bharadwaj did his CA before becoming a top ranked musician in Tamil film Industry. It was always a backup in case the passion did not earn enough money or you got tired of it or you were not in the best of the league.

Rare were the cases where passion and profession met together.

Today, thanks to the Profession taken by earlier generation and having created a certain wealth level, it has given the freedom for the next gen to follow the passion on the back of a fall back wealth. In a way that is good, but my belief is that if you follow a passion that at some point of time does not make it a Profession (i.e money flows in- like say in IPL), the focus should move to the Profession. Passion can be a time pass, but focus on creating wealth.

This is the core of investing as without money, investing cannot be done and without investing wealth cannot be created.

 

Psychology of investment

One of the least discussed, in terms of tweets and SM platform which are flooded with recommendations and analysis of various investments, is the psychology of investment. No doubt there are various popular books that discuss these, but less talked about in Social medias.

Why is this important in our investment journey. Humans generally tend to be conservative. If they bought 10 apples, they will eat 1 or 2 and then keep it for next few days. This practice arises from the fear that they may not be able to get it later and thus enjoy over a period of time. Some economists also call this Marginal Utility.

Coming back to the psychology of investment, Investors generally tend to see what is Value At Risk. This means how much am I able to bear to lose in a worst case scenario. This acts as a security chain which prevents moving freely. 

Imagine  you are on top of huge cliff and there is a river flowing below. Would you dare jump. Some do and do it without fear, while others hesitate. This principle also follows in the investment world. A person with 50,000 Rs balance may take a giant leap and invest 49,000 Rs, while a person with 10 lakhs may consider investing 10,000 Rs. When the market jumps 100%, the 49,000 makes a total of 98,000 Rs (including investment), while the other guy makes 20,000 Rs (including investment). Thus for 1st guy VAR is 49,000, while for 2nd guy VAR is 10,000.

As I mentioned in my earlier post position (no of shares) as well as VAR are two critical factors in making money in the investment world and how good you are at it is the key.

To do the above, conviction on the shares you buy (which includes a lot of research) has to be there. It is always possible that you could also lose heavily like if market had crashed, the 1st guy will lose 49,000, while 2nd one will lose only 10,000.

One of the steps to mitigate the VAR is to build a portfolio over a period of 10-15 years. It is possible some of the items in the portfolio will be duds, but overall it will give you a good return.

Thus if you jump into the investment world, a certain risk has to be taken. Otherwise do not invest. If you expect to get 15-20% return without risk when the risk free return in govt. bonds/FD's is 6-7%, then you may as well forget about investment.

Having said above, it is also critical to save in safe investments that will at least allow you to pay rent and food, but may not get you high returns. While you save from salary building your positions, bonuses or any windfalls are key to invest more or hold cash without spending for the market to fall and take advantage.

This brings another aspect of Psychology. Holding Cash. This is a critical element in investment. When the going is really great that is some of your portfolio elements have you given you 50+% gains, you may want to cash part of it. What do you do with the cash you got. This is where smart people hold the cash. There is always the urge when you have large cash on hand to spend or invest ( without fear ) invariably without doing a research. This is where lot of people lose money and when the right opportunity comes, they find themselves without cash. Thus Holding Cash for long ( put in liquid funds or FD with a low return - 2-3%) is also a psychological factor for good investment.

Imagine someone had sufficient cash just before covid and when the market crashed or the 2008 financial crises when market crashed and bought some well known companies at a low price and keeping VAR and position in mind, he/she would be a big millionaire by now.

Thus psychology plays a big role in the way you invest apart from the fundamental/technical research that one does.

Some people invest when market crashes in a long and steady dividend paying company. This ensures a good yield of 7-8% and helps in keeping a regular income to pay for rent and food, while other funds can explore VAR.

 

 

 

Implementing a system

 One of the fundamental requirement of Implementing a system ( be it a process or a ERP system) is understanding how the operation works. Many of the consultants read some books and implement systems which are not aligned in with the operations, but are considered to be best practices.

Any system implementation requires a person (preferably from the company) to be in charge and who has a the full knowledge of the operations as well as the accounting behind it. Most experts are of a single domain (operations or finance) and merging the two requires a lot of skills in implementing.

Implementing a system requires, a) Process to be clearly identified b) understanding of what reports are needed to analyse the business c) discussing with the working staff to see what issues are there that are faced in practical terms d) leaving many blank cells in the Input format which can be later utilized to add data and finally e) Critical in those inputs formats or elsewhere are an edit or comment portion that has text field where comments are added and cannot be deleted. Only further comments with dates can be added to see a trail/history of why that was done. This is a preferable option in all the input formats to understand some unique situation that come up later and a solution is found.(Gives the support reasons why the process was changed at a later date. 

Lets take one by one - Processes.

These are to be defined clearly sitting with the operatives and their managers and seeing what is the best way to achieve the processes. Experts or  best practices can be studied and drawn up.

One pitfall that is to be avoided is that many managers and operatives come from places/companies, having worked elsewhere, and require the same set up to ease their work. This is the most trickiest and expensive portion of implementation as one has to study the out of box software (costs a standard fare) and making changes to the out of box software (very expensive for modification). The implementer has to understand and see that there is minimal disruption to the out of box software and see only whether key inputs that are not available in Out of box software is to be modified. Randomly acceding to the different category of people's requirement  will make it a very expensive and non ending situation of software implementation.

Reports

 At the end of the implementation of the system if the reports required for analysis are not available, then the system is a waste. If it is noted that required inputs were not captured for reports and no such provision exists, the implementation of system is a waster. Thus the reporting requirement is to be also tackled along with processes. This will give an indication of what inputs are to be captured which can then be incorporated in the report.

 

DISCUSSING WITH WORKING STAFF/OPERATION MANAGERS

 As mentioned earlier, working staff and operation managers come from varied background and having worked in different systems are not easy to adapt to new system easily. They are used to seeing a particular SETUP in their old company or in the current company itself and would not like to see a change in process or input. If you agree to everything what they say, then the project will be a multi year long drawn process with the company providing software and the implementer both getting tired. The Project manager has to take into account the views which impacts the processes and not fancy changes to looks on inputs forms.

 The implementer has to be stern but at the same time understanding. Just because a manager or operative has been used to seeing the date on right side and this system puts it on left is not a valid reason for modifying the system. KEY IS TO LOOK IF REQUIRED INPUT  IS CAPTURED.

Leaving Blanks in input form

One of the factors I found in the implementation is that sometimes the fields in input are set and later after say 6 months, you want to add a field, it becomes difficult as the tables in the database are set and linked and it will cost a lot of time and money and possible NO from the software provider.

It is always better at the time of implementation to add some fields that can have alpha numeric inputs, fields that can take in text comments and other boolean or any other character. This will greatly ease at a latter date if you want to capture some additional data for your input. Eg, if a customer data is captured in the data field and if a driver comes later to service the equipment, if a free field exists, his name can be added to later retrieve who come to deliver and pick up the equipment.

While implementing a large system with different business units and that has trading, construction, process industry, etc is a huge task, the above basic needs that can be kept in mind will ease the implementation process.

 

Why our graduates are unemployable

 One of the debates currently going on is the unemployment that is going on and on the other hand industrialists claiming a lack of trained graduates needed for a number of jobs.

Primarily, what has happened is the number of private engineering colleges for profit opened in the last few years and a majority of them offering IT courses. Students and Parents flocked to these courses with the ultimate aim of working in US/Europe for a good pay and possibly good life.

The Private engineering colleges, in order to make profit, took students with poor aptitude for the courses or intelligence for those courses to hand out a degree at the end of the course.

With too much supply and poor quality of students, unemployment has increased. The quality students got absorbed in  good companies in India and abroad, while those with just a paper certificate are left out doing BPO jobs or as delivery boys for Zomato or Swiggy or others.

Second issue is the lack of quality education that caters to the business needs of the country. Basic teaching of how office works - the filing, conduct of the meeting, the communication skills etc are not taught. Mere technical skills alone are not important in today's world. The ability to adapt to meet customer requirements are the keys to the current business world and not parroting bookish knowledge. In today's world knowledge is key and as much information is gathered before meeting a customer helps in strengthening your view point and countering the customer if required.

Another issue is that the students ( being children of current generation with ease of living and coming from one or two children family) opt for jobs like IT/Finance/Admin which will give them an AC office and free time to do SM/games on their mobile. Very few of the students opt for Civil/Mechanical/Electrical fields which will get them to work at site. Even if the get the degree in their field, their next option is to do an MBA to get back to office and 9-5 jobs.

 Regarding Medical field, the NEET exam is supposed to filter candidates with interest in medicine and the tough effort that has to be put in. However, many oppose the NEET and this dilutes the intake. We can understand some States opposition to NEET as it stops poor candidates from taking high paying coaching classes, but a solution can be found by discussing and allowing top 10 candidates in State Board to have direct access to medicines and by pass the NEET. This will ensure Quality of Doctors coming out.

The biggest issue is not NEET per se. It is the high fees that is charged in private Medical colleges ( costs 50 lakhs to 1 cr for a 5 year course) that detracts smart, but poor candidates from going for Medicine. The recent example of NEET having a zero percentage cutoff ( I imagine go write your name on the answer paper and you are selected) for PG courses is  precisely this. It costs appx 2.5 crs to do a two year PG course. Who will opt then for Medicine except the Richie Rich. This then gets reflected in poor service and high cost for medical treatment to recover the investment.

It is time, private college fees are capped and uniform exams conducted with exception of the exams for the top 10 or 15 candidates in the Board (state or cbse) reserved for them.

 

Investment and Food

 Investment and Eating/Food are majorly related. Like if you gulp your food when you are hungry and end up with an upset stomach, so too investment  made irrationally and fast could end up with a loss.

Thus what and how you eat is a lesson for what and how you invest. If you read and eat healthy, you remain in the pink of your health and if you invest wisely after reading a lot, you also ensure that the stocks you invest in remains healthy.

Another allegory is that if you take time to cook food and you are a good cook, the dish comes out well else it is burnt or too oily, salty, spicy etc. Similarly, if you invest doing financial analysis, technical analysis and various other methods of investing, you are likely to be a winner.

For those who do not know how to cook or cannot spend sufficient time, there is the ready made mixes available in the stores and similarly those who do not how to invest, there is the ready made mix in the form of Mutual Funds. Regularly invest and you could end up having a substantial healthy corpus end of 20-30 years.

Many of the chefs you see the videos of, use the mantra of keeping cooking simple to get the best dish. So too is investment recipe- keep it simple and your investment is done.

Some of the food that comes out well requires a lot of time- eg Thertipal (or the milk sweet). Recipe is simple - Milk + Sugar. But it is kept in a slow flame for a couple of hours to get the dish made. Investment in the form of regular SIPs could get you a substantial corpus end of 20-30 years.

Further, just like cooking some dish may come out very well, while some dish may be a total failure, investment also will have this- some may turn out duds and some may turn out to be a chicken that lays the golden egg.

Like cooking, if you have money and can afford to waste a recipe by experimenting, so too in investment if you have extra money you can take a risk of investing in a tweaked or different manner. Some by studying technical analysis (not fundamental analysis) do what is called sectoral rotation. This is like when you cook, you do not want Daal Chawal every day. You keep changing the dish daily. In investment, though not daily, you study the market and see if the flavor (momentum) is in Banking sector or Pharma or IT sector, you jump into the band wagon and make your money. 

Another aspect of the flavor of the season is  certain restaurants become popular for a short period of time and then fade away to be replaced by another. Alternatively, we have Burger king, Pizza hut, Mcdonalds which are a steady standard fare and been long. Investments in large stocks are like these steady standard fare with alpha (meaning getting a return higher than standard) coming from investment that is the flavor (momentum) of the month. Eg, in Chennai, there is a restaurant called Kaidhi (Jailed -loosely translated). The ambience is like you are in a jail and eating it. You may visit a couple of times, but will not go regularly there, but since everyone is talking about it, it will be full for a couple of seasons and then just fall of the cliff. Patti veedu (grandmother house) is another one. Thus investment in Sectoral is like these- in flavor for a few months and then just fall off. Either you should be shrewd and tracking your investment or let the Mutual fund do it for you in a flexi cap or multi asset fund.

Another aspect of this comparison between food and investing is you regularly flush your system with a laxative, asset allocation or revisiting your investments once a year is the laxative. You remove the duds and stock up on the good investment.

Having said all these, one should know that investment like food and its reaction is dependent on various factors and one cannot be accurate 100% of the time. Some may suit your taste buds, some may give you allergy, some may give you upset stomach. Like that, you take risks with investment. Even big big investors take risks to generate alpha and it may end up as a flop, but since they have so much of investment, it is taken care of others.

Dr. Velumani of Thryrocare firm said in one interview that he got 4500 crores when he went for IPO of his company and he put 1500 crores in a private equity and now its value is 150 crores. And private equity is supposed to be filled with brainy financial analysts and MBAs doing a lot of research, but still they failed. The reason is it is impossible to predict the behavioral nature of human being. A company doing 20% CAGR for last 10 years may suddenly fail, because of some change in technology eg. Companies that used to hire videos to homes suddenly found themselves out of business due to cable companies. Similarly, cable companies are now getting out of business because of streaming. Who knows what is in store in future.

This brings us to the point of Diversification. Eating same oily Samosas day in and day out, just because you like it can lead to health issues. So too investing only in one type of stock can give you a loss or pain. For Simple investors investment should be a bit diversified like some in FD, some in Gold, Some in Debt and some in equity. Equity is the most risky, but will get you a better alpha.

As I had talked about sectoral investment and some do a sectoral churning investment, for an ordinary investor sectoral churning may not be the right thing but sectoral investment as a method of diversification is a good technique.Examples of various type of sectors are listed below:

a) Banks

b) Pharma

c) IT

d) Auto

e) FMCG

f) Power

g) Medical hospitals

h)Chemical

i) Real Estate

Some follow the principle of taking top 2-3 companies in each sector and investing regularly in them to catch the ups and downs of sectoral rotation and at the same time ensure Safe and steady investments. As per various studies it is found that you could get 10-15% in Safe and steady investments and with risk taking can get you 25-30%. But this is the average and should be treated carefully. You may fall at either end of a normal curve if luck is not in your favor.