Cash and Cost - 2 Critical factors in Business

 

Cash and Costs are two critical factors in a business. With costs you need to be stingy, but not petty. i.e. you buy things which are essential, but do not be ostentatious in spending on things for show and which does not add value to the business.

Demand factor is also key. Keep the  advt. offer going through social media, so that at one point of time, the consumer when searching comes across the offer. At that point, he/she is more likely to buy and not search further for more options if he finds the offer is good.

Ensure sufficient cash is always available. Always have a safety net as Banks, while easy with giving facilities when doing well, pull out the rug and demand the money when it is most needed. Most of the business is evaluated (after revenue growth) by how much of cash is generated by the business. One has to be on top of the Debtors to ensure these are collected quickly in a matter of months or account blocked for further sales to avoid bad debts.

Investing Basics

Investing Basics

Every individual feels that it is easy to make huge amount in the stock market and with the ads and success stories being numerous - ala Rakesh Jhunjunwala, the Damanis, Warren Buffet etc- it is natural for ordinary humans to fall for the trap. Nobody talks of the huge daily losses people get in F&O and other areas like Crypto - stories of a Harshad Mehta, Ketan Parekh (who tried to game the system) or people like Porinju whose some investment like lloyd went bad.

So, what brings success to these stock market individuals. There are 3 primary analysis which these successful people do - Financial or Fundamental, Technical and not much talked about is Emotional. Further, you have to look at total Portfolio investment, rather than individual shares and thus there may be losses in some, but overall the investment should give a positive return. Along with Portfolio, key is the Quantity or Positioning as they call to invest. If you invest 5 shares in a stock and it goes from 100 to 150 you make 250 Rs. But if you had invested 500 shares then the return is 25,000. Thus Quantity, in what you believe is a good investment, is also the key.

What is Financial and Fundamental Analysis. This is basically studying the past of the company and also the potential future study of the industry to see the direction the Company could take. Financial analysis involves seeing what sales growth it had for last 5 years, Profit for last 5 years, Cash flows, Ratios, operating and financial leverages and many other financial data sculled from the balance sheet and Profit and loss. This gives the confidence that the company is on a firm footing with its feet firmly  on the ground.

The other part of the analysis is the Fundamental analysis - studying the industry, potential growth, competitors, moat (or how easy or hard for competitors to do what you do), vision of what holds the future and finally the management (are they trustworthy- probably the most difficult to answer).

Technical analysis gives the direction/momentum (like RSI) of the shares and helps in accumulating or liquidating the stock. If the trend shows that it is higher, catch it at the beginning and not at the top. Also, sell close to the top and not when it is at the bottom. Use trend line, candlestick, Fibonacci to help with this type of analysis.

Emotional. This is the most crucial aspect of stock market. Each of us are wired differently. One might sell when a 5% profit is made, while other at 50%. Or one might want to cut short the losses at -5% or wait to fall to the bottom. This is where the difference between a brilliant investor and an average investor comes. A brilliant  investor knows when to move in or move out of a stock, while the average investor just follows the brilliant investor. Market perception of your stock should be much greater than your perception of stock, if money is to be made.

One of the critical investment mantra I give is not to compare what others made or copy blindly the investment gurus. Both add to issues of emotion in your decision making and not make you think rationally.

Be your own judge and avoid talking about it. Quietly invest and make money with a few losses in between.

Keep it simple: Focus say on ROCE last 5 years, Sales growth 5 years, dividend yield - consistent and average 3-4%, PE less than 20. Reasoning is if a company is doing well for past 5 years, logically it should do going forward. But you may get some losses if it does not happen. Eg. If someone had invested in Nokia on the above basis it was run over by Apple and Samsung with their smart phones. Same as Netscape - one of the earliest browser. But at least 50-60% chance is there it may not happen to all the companies.

Stocks- maximum of 10-15 stocks with couple in each sector like FMCG, Banks, Pharma, Engineering being the key.

Keep some ETFs in Gold also.

Give a time period of 15-20 years to generate wealth. In boom time you may liquidate some and in low time you can add more.

In mutual fund - Select max 2 in each. Keep small amount in small cap and mid cap. Preferably SIP.

 a) Index funds (Nifty, Nifty 50, Sensex, some international funds like S&P, Nasdaq, or China fund),

b) Large cap funds, (Steady, return in the range of max 10-12%)

c) Mid cap funds, (Slight risk, but extra return than Large cap in the range of 20-25%)

d) Flexi cap funds (Diversification)

e) Small cap funds (Risky, but more returns possible in the range of 35-40%

f) Corporate bond funds (Less risk, in the range of 6-8%)

g) Liquid funds (Minimal risk - in the range of 4-6%)

KEY FINANCIAL MANAGEMENT NEEDS

 Primary to above investment, some key things are to be taken care of.

1. Emergency Fund

2. Insurance- Both Term and Medical

3. WILL Preparation and registering

4. Excel of all financial details- House keeping

5. Start Early

The above 5 are enumerated further below.

1. Emergency Fund

The first saving should always be the Emergency fund. 12-24 months of average spend should be saved and put in Fixed deposit  to draw from it in case of job loss/med emergencies or any other emergencies. But ensure that after the event is over, it is refilled.

2. Insurance

One needs to give to medical a big importance. Like they say if Wealth is lost, nothing is lost but if Health is lost, everything is lost. If health is there, you worry about 10 things, If health is there you worry about only 1 thing.

Or as Steve job says, you can hire a driver to carry you from one place to another, you can hire a financial expert to earn your income, but you can't hire a person to carry the disease for you.

Thus before any investment, following insurance is key:

a) Pure Term insurance - a large amount to take care of family in the event something goes wrong. (not very expensive. Aim for 120 times the current salary- takes care of family for at least 8-10 years)

b)Base health policy like a floater for you and family, even if you have company policy. Current limit say 15 Lakhs which will go up every year with inflation. (a bit expensive but essential)

c) Top up or Super top up policy (not very expensive) to cover over and above the base policy in the rare event if the disease is such that requires long term medical treatment or replacements like liver etc. (See my blog on difference between Top up and Super Top up)

d) Cancer policy to cover the growing instance of cancer occurrence (separate for you and wife. Kids not required hopefully).

    Critical Notes for insurance policies:

Ensure you provide all the medical information to the company, before policy issue (to avoid claims being rejected on flimsy grounds)

Ensure you take your policy by 35 years of age as older you get life style disease may prevent you from getting medical insurance or it will be excluded or wait period may be 3-5 years.

Reach your expected insurance limit (provide for future inflation) by the time you are 60 years of age. Insurance companies may not cover for a higher increase beyond 60 years.

Diff on top up and super top up. Super top is cumulatively you are covered, while top up is one time. Eg. if you are hospitalized and expenses exceed base policy, top up helps. But in the same year you are hospitalized again top will not help, but super top up will.

Some key sayings by many famous investors

Be an optimist. Otherwise do not invest in stocks

Expect a realistic return. Don't go by the SM messages of 250% plus in a few days etc. Those are high risk and lucky bets.

Don't over analyse- stick to PE, ROI, Growth. not what macro/micro economics, future potential etc. These are undefinable and good only on excel extrapolations

Don't risk all you have. Positioning is important, but in relation to what you have. Not everything you have. Ensure enough money to get you through simple living for 10 years and then invest 

Be patient. Some stocks go through ups and downs. But if it has been performing well for many years, you can reasonably expect to perform well.

Don't thing 100% of your pickings will be a success. Maybe 50% of it. 

Buy at right price which can be gauged by many factors, but primarily PE. At 80-100 PE, it is not worth it. Check out PE of the market. Below 20 is fine, 20-25 it is a bit risky, above 25 it is dangerous.

When market is too frothy, pull out a portion of the funds.

Diversify across companies and across sectors for a safe investment. A number of big investors like say Buffet may say and I Quote him "You know, we think diversification is—as practiced generally—makes very little sense for anyone that knows what they’re doing...it is a protection against ignorance." Unfortunately, we do not have the time or the investing inclination like them to invest in Selected companies in large quantities that a risk of collapse would bankrupt us. Risk and diversification are inversely proportional. A certain element of diversification is recommended does not mean if you have 100 Rs you put 1 Re in 100 companies. Diversification means you put 20 in one sector in 1 or 2 cpy, 20 in another sector in 1 or 2 cpy and so on. This will help generate wealth if those 1 or 2 cpy do well as Positioning (quantity of investment as discussed above) gives you a better return.

3. Will Preparation-

 This is quiet essential to avoid fights in the family as well as preventing a 3rd party filing a frivolous claim on the family asset. 

Though nowadays family is not large like olden days and no longer a joint family but a capsule family of wife/husband and 1 or maximum 2 children, will may not seem essential, but to avoid any disputes it is better to have one. Preferably a simple WILL (can be got from internet), but witnessed by a young doctor and another young witness (older witness may not outlive you) and better to get it registered and kept in a safe place.

4. Housekeeping.

 

 This is the most essential part of investment. If you invest and make lots of money, but in the rare event of your demise your family is unaware then your primary goal of keeping your family off the streets is lost. 

    THUS IT IS ESSENTIAL TO PUT ALL YOUR INVESTMENT DETAILS IN             AN EXCEL AND SHARED WITH WIFE AND CHILDREN.

The excel can be simple with following columns

a. Type of investment (FD/Savings Account/MF/Stock broker etc)

b. Party with whom invst - Name of Bank/ Mutual fund (or kuvera)/geojit/reliance etc.

c. Address/contact name of above - preferably with telephone/email.

d. Folio or reference number

e. Amount ( can be a rough current amount)

f. Nominee assigned ( ensure nominee is there in all- preferably two)

You can, if you desire have further details added above, but the above are essential ones.

5. Start Early

Your investment journey has to begin early( preferably 25 years when you start earning) to have the effect of compounding and creating wealth after 20 -25 years to make you comfortable.

The early start is required as the journey is long and  there will be ups and downs in the market and in order to take advantage to stay invested.

The biggest argument for not saving is I do not make enough to save. But like in Rich Dad Poor Dad he says, that what you get, shave off some savings and believe you have that much only.

Disclaimer: Nobody in the world can predict what is going to happen,. Shares, if any, mentioned is not a recommendation to buy or sell, but an information package which each individual has to study and take a call.

Difficulty in Humour -Standup

 I still remember in my younger days, we used to have jokes on Sardarjis, Tamilians, Punjabis, Marwaris, Parsis and you name it, it was there. Everybody understood the sense of humor and unlike Khushwant singh said with Malice to one and all, nobody bothered to dissect and just enjoyed the joke at its face value and with malice to none.

Today, things have changed. While stand up comedy has grown, the act is increasingly difficult to design as in our broad progression we have achieved two words - Sensitivity and Sentiment. Any joke on any category of people can hurt the sentiment of people. Let alone people any joke on a dog or an animal could hurt the sentiment of NGO's specifically dealing in those.

Thus humor vehicle has increased through social media, but humor enjoyment has declined. Everyone looks for that word or language which they feel has hurt their community and goes to file an FIR and the cycle of court- bail - release etc. happens leaving humorists to be left without humor.

Now with government also pitching in to ban humor on ruling govt. politicians and govt. bodies, it is all the more difficult to create a joke on the day to day happenings, which RK Laxman so eloquently portrayed in his daily cartoon.

It is not just the ruling govt, but every govt. now a days are too sensitive to jokes and try to jail the cartoonist or humorist. Gone are the days, when a Nehru despite being lampooned in a cartoon had the good sense to talk to Shankar the cartoonist and appreciate the cartoon.

Seems as our minds broaden, our views gets narrower and wish the old times return to bring some semblance of humor in this overburdened world of scare, fear, pandemic and not look for hurt of sentiment in every piece of humor. 

In this regard, while the govt says it wants to bring change and remove all hundreds of years things, it does not have the guts to remove some of the archaic laws of the britishers. One of the archaic section is Sec 295 of CPC. This has been amended to make it Sec 295 a, putting anyone criticizing the govt. in jail under sedition, hurting religious sensibilities etc. Even in parliament, they have increased the number of common words that cannot be used. This way, the whole of Hindi dictionary will be banned. 

The standup comedy becomes tougher now.

 

India's Incompetence - Incredible India turning to be Incompetent India

When the first wave hit, India considered itself to be in a safe zone and hoped to be the Santa Claus of the world. But with new variant hitting, the whole story of Incredible India has collapsed and now the world sees us as Incompetent India.

While many theories exist as to the situation we are in (May 2021), most of it can be squarely blamed on the govt. True, nobody knew the extent of vaccine requirement in India, when India started distributing vaccines to the world, but the govt should have ramped up production by releasing funds to the vaccine makers SII and Bharat Biotech.

The govt. has become more in a win all mode and this hubris has to be broken. The govt. could have done the following:

a) Talked to the various political parties and postponed the election for a year. Everyone would have agreed and those that didn't could have taken the blame.

b) Work with non BJP govt (end of the day people have elected them) and seek their support in the pandemic.

c) Talk to independent experts and the need for a strategy to tackle the issue

d) Stop being cheesed off for every comment that is made and spend time defending the comment.

e) Delegate and give more credence and support to competent people than dictating the policies from center.

f) Let media and reporting be free and not jail like UP does for every small thing (be it the rape case reporting, oxygen reporting etc).

g) Sab ka saath sabka vikas should have the priority and not focus on Hindu votes only. Hindus are self thinking and would not vote en-masse like other groups.

h) Be more reasonable and project a more approachable leader who is interested in India and not just BJP gaining power.

i) Megalomaniac projects can be put on hold as more productive projects are the need of the day- Sardar patel statue, Central vista, Bullet train are megalomaniac projects which can be tackled if we become rich and not when we are in a poor state.

j) Focus on Competent, Corrupt free, Compassionate India.

 If we do not do this, the Secular and free loving people of India will be shattered and we will go back to the -|India could have done, but did not do|- repeat of yesteryears. We will be only left with potential, not progress.

CORONA

In olden times Historians basically express the views of the rulers. Even if it was bad and cruel, the historians justified as they had to survive in the kingdom.
However, with the freedom given by whatsapp, blogs and multiple media electronic outlets, the versions of history has become too many to really understand what is correct and what is fake. Thus while olden times had one narrow view of history, currently we have a kaleidoscope of history and each one looks from his perspective.

I want to write about Corona and the current times. I am no historian but looking at from the day to day lives of living currently in Kuwait, though an Indian citizenship holder.

Since March 14, when Kuwait declared and banned flights and imposed restrictions as the covid cases started increasing, life has been difficult but not too difficult. I am speaking from the generally salaried class. Salaries have been cut from 10-65% in companies, making it a survival without saving salary. Rents, except for few humane kuwaitis have not been reduced and the rent which constituted around 25-30% before salary cut , now constitutes 50-60% of salary.

I know people like drivers (cars and taxis have been banned from opening), barbers,mechanics (saloons, car repair shops have been banned from opening), waiters and small time labors( restaurants and other shops, except for grocery or cooperative like govt, or lulu or city center have been closed) are finding it far more difficult as their earning is based on daily income and do not have balances in bank to fall back upon. There are some good Samaritans who give some money or food items to a few of the known people to fall back upon these times, but all are not fortunate to receive it.

The covid-19 has also exposed the visa trafficking and brought immense problems for the expats who purchased the visa and now have no jobs as everything is closed. Kuwait govt. has, given the situation, given an amnesty and allowing free accommodation and food and travel to their home country. But many countries airports are closed and thus they are stuck here. Hopefully, in the next 15 days by May 15, things will start improving and some restrictions reduced.

Timings in office is also short as curfew time which was initially 5 pm to 4 Am has been tweaked to now 4 PM to 6AM and now 8AM. With Ramadan, this leaves little time for shopping except on weekends.

One of the biggest issue is the select medicines for expats. As the select medicines are not available for expats in hospitals, getting critical medicine is a huge issue. The same medicine that costs 30KD a month in India costs 1250KD in Kuwait, making it difficult for expats to buy here. Normally, they bring their medicine quota from India by themselves or friends coming from there. Now that option is stopped.  Even the courier does not bring it. Kuwait govt. should at least provide some medicine till such time the issue is resolved or allow courier companies to bring them from India. Not everyone can get a really generous Kuwaiti owner like Mr. Fouad Alghanim who has assisted in getting the costly medicines.

Life otherwise is very uncertain about when things will become normal and when the financial situation will improve. Oil prices have also fallen a lot and strains the financials of the kuwait govt. This will have an impact on new projects and costs reduction which will impact on the salaries of staff. Many expats, particularly Indians, are looking to go back as the savings are evaporating and any medical costs here will be exorbitant for them to bear.

It is 2nd May today and things are expected to continue with lock downs till the end of month. One is not sure if there is going to be a relaxation after that. Most distressing in the world is near and dear one dying but close friends and relatives not able to go to the funerals due to lock down. Cases of parents dying, children dying in different cities/countries and the close relative like children or parents in another country and not able to go and console.

Zoom app has become the most popular for interactions with 30 or more people at same time. Being extensively used by schools, business meets etc. Concern is that it being a Chinese app and all data being doctored by china raises serious security and data privacy issue.

This brings to the issue of is China doing this to become the next super power replacing USA. At least USA had a semblance of democracy which Trump is destroying, but at least  it exists. With China there is no democracy and all are monitored through camera, social media, GPS and thus puppets in the regime of China. You can disappear any time. If china becomes a super power, GOD help as they will grab economically (like loans to Malaysia, Burma, lanka, Pakistan, and so many african countries) or physically like the south china sea.

Only time will tell by 2021 who is the next super power. Many theories are floating like China new about this and ramped up production of ventilators and masks and other disinfectants which the world is buying in huge lots at a good price from them. People talk of moving business out of China to places like India or other south east asian countries. But innovation, disciplined and dedicated staff and with poor labor laws and making it cheaply  are some of the factors business (which is already down)leaders will think when shifting from China.

Pun style

With whatsapp becoming popular and people are keen on typing on the words instead of speaking, the art of pun or the quick joke has become the order of the day. Take for example. Somebody sent a picture of pope in the stadium in Dubai

My comment was that it shows he was Popeular (popular).

If you know multiple languages then all the more you can adjust the words to make it a Fun pun.

Eg. Someone went to Canada and said it was Kashtam (difficult in Tamil ) adjusting there. My take was it may be Kashtam initially, but you will get Accustomed (akashtomed) soon. You get it.

Then we had a famous singer Neyveli Santhanam and he gave me a few of the gems. At one place a lady told him she will make upma with Kaaya (vegetables in Tamil). As it will take time, he said but ensure that "En vaitha kaaya podadengo" (Don;t starve me in tamil). The word Kaaya has two meanings. It is vegetables as well as it also means leaving it to dry i.e the stomach should not be left out to dry. The nuances are more enjoyed in tamil.

Same is the word Kathi (in tamil it means knife as well as loud sound). Thus if some one brings a knife (kathi) with fruits and says I have kept a kathi with fruits, the response will be Kathi (loud) sola vendam, I can see it.

I will add more to this as and when I get some.There is one on twitter on naan being veg or non(naan veg) and others including Sashi tharoor pitching in.

How strong are your Pundamentals

Lightning shocks people - as it does not know how to conduct itself

Accidentally swallowed food coloring, but Dr. said Ok, but I fee, I have dyed a little inside

Two peanuts were walking in a tough neighborhood and one of them was a-salted.

Shekhar Gupta new video on 5 achievements of Modi

A recent video of Shekhar Gupta circulating around in Whatsapp talks of 5 things Modi has done good in the current regime. To recap he said what is required is political economy. Good economy does not necessarily translate into votes. These are a) IBC - Bankruptcy code bringing in responsibility on corporates that they will not scoot if they do not pay loan b) Infrastructure investment c) low inflation bringing it because 8.33% to 3.2% d) keeping the deficit in control around 3.5% e) tax collection to GDP improvement and f) GST introduction and holding its nerve through difficult times and not going back on it.

What he missed out also, that there was no major scam. Though Congress is trying to make Rafael as a big thing as bofors, there is no way a remote comparison can exist. If Anil was favored, why is he not supported now that his R.Com has gone the NCLT way. The Rafael deal was started by UPA and as IAF was falling short of aircraft and this was an emergency issue thrust on NDA by UPA and the NDA govt. had to  quickly order readymade 36 instead of 126. As every accountant knows, except those in the Congress that additional costs of doing the India needed changes has to be now absorbed by 36 and not 126 and thus the higher cost due to Fixed cost distribution, while the base price was reduced by 9%.  Congress including mamta should go to the Cost Accountant office situated in Calcultta to understand accounting. If the base price is fine, and the additional cost is distribution of Fixed cost, then there is no hanky panky. Also, it is a direct govt. to govt. deal.

Then comes the PMO intervention. The french requested, being a govt. to govt. deal to issue a guarantee from their PM office to our PM office. No price was negotiated higher, it was matter of sovereign guarantee, which given the emergency of our requirement had to be given.

Finally, comes the Anil Ambani allocation of offset. This was by Dassault who looking at the location and ability of Anil to do business has given on a private basis.If instead of Anil, anyone else had been given, the same issue would be raised. The offset that is being done is not of highly technical work and that too not for Rafael. These are some other products for their other division.

In all these cases, nothing is proven that cash was paid or commission was paid as in the case of Bofors/Augusta Westland and Submarine and so on to specific persons in BJP or their relatives.

Why not HAL awarded offset. HAL has a poor track record of performance. The tank/aircraft etc takes so much of time and given the support and existence for long, unlike China they have not come out with great world beating products. And on top of it, it does not behove of supposedly techincal giant to taken up work of low sophisticated product which is what the offset is all about.

Thus it is election time and as usual congress is trying desperately to pin some corruption on Modi as in the last 5 years other than issue of tolerance, high handedness, nothing has been proven be it vyapam, vasundra raje cases etc.