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.

 

Dictatorship or Democracy

One of the biggest arguments going around in India is - Should we have a democratic freedom or a bit of dictatorship. In terms of discipline many will argue we should have a little bit of dictatorship. During Emergency time, there was

1) no ragging - a Jadhavpur university type incident that happened a few days back would not have happened. 

2) Autos, particularly in chennai, will come by meter and not ask extras on top of meter

3) Near the chole bhature/pani puri stall, everyone will put the dhonna (leaf cup) in the bin and not outside.

4) Trains/Buses will ply on time

and list goes on.

The only problem faced was by the political opponents and as SM was not there at that time, there was not much of hue and cry as we face today with a little bit of dictatorial style (through media and SM curbs) and with no emergency rule.

With a bit of autocratic style we have been able to accomplish a lot of stuff in terms of infrastructure (world class airports and highways), economy brought to 5th largest, stock market booming with foreign funds coming in, inflation to an extent controlled unlike in other countries, certain decisions be it art 370 or 277 taken which democratically elected govt with true democracy would have never taken in our or future life time. The biggest gain is technology through UPI and implementation of Aadhar and PAN linkages. Yes, no doubt criminals do attempt to bypass these and sometimes succeed, but lower than earlier times of rations getting diverted elsewhere in bulk.

The criminal activities can also be reduced, but unfortunately our courts and justice system takes so long that a criminal continues to be scot free, while a law abiding citizen is threatened by these criminals and has to run from pillar to post for justice. One sometimes wonders if our motto of - Let 1000 criminals be free, but 1 innocent not be punished to Let 1000 innocent be punished, but not 1 criminal be set free.

Modi has set a steep target for anyone to follow. If opposition comes and our economy goes down to 8 or 10, it will be too big a price to pay for democracy. In the name of democracy, certain sections are allowed space while not allowing for others will cause a further divisions in this country. This is a risk one has to consider. This election is going to be a watershed one and not an easy one. It is going to be a messy election

 

Terminonolgies in Finance

 It is important to keep up to date with financial Terminologies to avoid being caught off guard in any conversation. A few here and will be added

 

EBT - Earnings before Tax (same as PBT)

EBITDA - Earning before Interest, Tax, Depreciation and Amortization

BAAP - Relating to investment - Buy At Any Price

GARP - Relating to investment - Growth At Reasonable Price

PAT- Profit after Tax

COGS- Cost of Goods Sold

Operating Margin (as a %age) - (Revenue- COGS)/Revenue

EPS - Earnings per Share

P/E Ratio - Price to Earning ratio (Market Price per share/Earnings per share)

PEG Ratio- Price to Earning Growth Ratio - (P/E)/Growth in EPS. Thus if P/E is 15 and Growth in EPS is expected to be 10% then PEG Ratio is 15/10 =1.5

FCF- Free Cash Flow

 NOPAT- Net Operating Profit After Tax- Same as Profit after Tax, excluding other incomes and expenses not relating to operations.

PPE- Property Plant and Equipment

Other financial terms:

ROU- Rental payments converted to assets and liabilities

Lease liabilities- Part of above

XBRL-eXtensible Business Reporting Language. global, machine readable, std reporting. Mostly for listed companies reporting

IFRS- International Financial Reporting System - way financials are audited and presented.

REIT- Real Estate investment Trust- pooling of assets and paying you dividends out of rental asset or gain on sale of RE.

Paridigm of I don't earn enough to save

The most oft repeated words by a person who has just started on his/her career and you ask him/her to invest an amount of his/her earnings is this -" I don't earn enough money to do the savings". This is an issue as the more the money comes later, it will occupy the wants and there will not be a time when he/she can do the savings.

It is always when I earn enough I will save. But this comes back to bite when you are reaching your retirement age and you find suddenly that you haven't saved enough to lead a desired, peaceful retired life.

Thus all your planning for a peaceful retired life is shattered if you are not financially comfortable at the time of retiring. 

Financially comfortable is not only a physical term but also a psychological term.For eg, while a 1 crore Rupees in an FD may be enough to manage in physical terms (if you have a house/flat to live and not paying rent), psychologically you have the fear of running out of money and thus the psychological value will be say 5 crores. The psychological value goal is the goal that retirement people should aim at and not enough to get by.

Like someone said, it is %age of income that is saved that matters when you are young and not the %age of return.

How then should youngsters go about savings. From the 3rd Salary (assuming they want to indulge on their likes 1st two salaries), the should say a % age of salary goes to savings. They should say that this is what is my salary to spend (after deducting the savings). If this reduced salary meets the bare minimum of food,transportation and shelter then fine they should live with it and every salary they get, they should transfer the saving to a savings instrument (I have a separate blog on how to go about investing). If it does not meet the basic needs, then they can tweak the %age and reduce the savings. This will ensure a discipline which will be carried forward even when they get their bonuses and increments.

Even after getting married and with children too, this saving discipline will help in growing the wealth value and by the age of 50, you should be in the comfort zone as you have given 20-25 years in the development of this wealth. 

The above process will give a peace of mind as you approach your retirement age and not panic due to lack of savings.

 

 

One of the key questions that needs to be asked is "When do i start to plan for retirement"

My take has been, from a very young age or when you first draw your salary.

Please note it is often said, Death and taxes are permanent. I will add Retirement is also permanent.- at least for most of the people. 

 If you start your retirement planning at the age of 20-25, you have a long way to go and go through ups and downs of market as well as compounding effect. I have seen people panic at the age of 40-50 that they have goals to meet and retirement being one of them and if they live long how are they going to manage when they retire.

Either you have a son, who is a big businessman and takes care of you in your old age (not necessarily true- Vijaypat Singhania is a prime example) or you plan your retirement early to build a corpus which is sufficient and does not scare you of being without money. 

Put off events or purchases just to show who you are in the society and stick to basics. A spend of a crore in a wedding can be put to good use investing in markets which could give a return. Skeptics say if market crashes you lose everything. My argument is if market crashes, the whole world crashes and value of money is zero in those cases.Assume you have crores in cash and market crashes with no end in sight, the value of your crores is also reduced to nil as govt. crashes and nothing works. On the other hand even if market crashes, there will be others taking those places and after some years it becomes normal. It is these crashes that you take advantage of and not think this is end of world. If it is end of the world, the money everything is useless. you have 100 crores or 1 paisa it is the same as end of the world is destined according to some. 

 

To conclude on early investing, when a famous investor was asked what was his life regret. He said, I came to know about investing at the age of 11 years. Wish I had come to know when I was 2 years old. This is called time in the market. 

 

 

 

 

 

 

 

 

 

 

 

 

Retirement thoughts

Till such time, as a few years before retirement, one imagines  a carefree life post retirement imagining a  life of - relaxing, lazying around, reading, listening to news/music, watching movies or learning some hobbies that was planned but never achieved during working life.

The reason for seeking a carefree life is due to the running around making a career soon after passing out of college and the trials and tribulations of daily life - marriage, children, work pressures, peer pressures, medical issues and the list is endless.

One generally imagines that retired life is a panacea for all the above listed issues and leading a cool after life is the dream many have.

Many financial advisers ask you to see what is the current expenditure you have and  multiply with an inflation factor to give you a bit scary expenditure you are likely to have. But I have an opinion on that. Rather than taking the current expenditure, one needs to look at the breakup of the likely expenditure post retirement.

For eg, when young you go out to movies and eat outs a lot. This will not happen when you are retired as health consciousness also kicks in. Thus if your expenditure on going out is X, it may reduce to 1/2 of it. So, that should be the basis for computing the current expenditure. Intake of food also reduces and this should be taken into computation of current expenditure.

As one gets past 50 years, the body starts to get stiff giving joint pains, back pains etc. Very critical that when you are young you start Yoga to make the body flexible. 

Financial comfort zone is an area which every retirement starts to fret a couple of years before retirement. Thus right from the first salary one should start saving to avoid this palpitation at the close of your retired life. There is a detailed blog of mine on how to go about it that you may find it useful.

Wives generally fear husband's retirement - apart from losing the income and rely on savings, the husbands become stingy (partly by fear of running out of money) and every purchase becomes a heated argument regarding its usefulness. Additionally, Wives fear interference from husbands (now that they have more time) on the nitty grittiness of daily life chores.

While the food intake in terms of lunch or dinner (some skip it) reduces, the tidbits intake increases more to compensate for the boredom than anything else.

Retirement planning should not just be restricted to financial comfort, but planned by the couple in their 40's to getting together for a common interest - music, books, etc. This common hobbies nurtured over a period of 20 years will stand in good stead when one retires as they have things in common to share post retirement.

Please note that most of those who go to Middle east in their 30-40s imagine themselves to construct and live in a huge house with facilities to live peacefully after retirement. But soon after 60 when reality strikes and retires, one notices the Duplex house is a pain to climb and maximum you need is a room and an attached toilet. Children, most often stay separately, if independent or in other cities and countries making you and wife/husband the sole occupants and vulnerable in old age.

This is one of the reason, a place like Nana-nani and other retirement homes are becoming popular.

Some westerners even setlle in places like phillipines, vietnam or thailand as the pension from US, UK etc go a long way in these places (you can buy a large house, have 2 or 3 drivers, maids, gardners etc)

 

 

Investing thoughts

INVESTING THOUGHTS 

 

How many of you want to get rich quickly? Suppose I say, invest today in this stock an amount of 1 lakh and get a return of 5 lakh next year.

I can see many hands raised. Let me tell you a fact. It is not possible to do so, unless you win a lottery or you end up losing your money to a fraud scheme.

If investment was that easy, half the male population would be in the Bahamas or such other place with couple of trophy females on either side and a drink on the hand. I don't know about female liking so I did not mention it, as I do not want to be accused of gender bias. 

Wealth creation is a long term process. Not an overnight one. Reaching from 1 lakh to 1 crore will take 10 -15 years or so, but will accelerate after that from 1 crore to 5 crores and so on, because of what is called as Compounding.

Another aspect of investing is Psychology. If X and Y feel the same about a company and the valuation, the share price will not rise as X feels that at 50 Rs it is rightly valued and Y also feels that at 50 Rs it is rightly valued. But we are all not wired that way. Each one feels different, One feels 50 Rs is a good buy, while another feels that 50 Rs is a good sell. This differential Psychology is what make the market.

Another aspect of investing Psychology is  looking at others and making the investment. If X has made 50% return, let us follow him as he knows and holds the key to investment, not realizing that X may be fooling people, or X has invested at a time when others were sleeping, or X may be selling when you are buying. Thus to be a good investor one should follow one's own philosophy.

A good investor follow -RIL - no not Reliance Industries Limited, but Research, Invest and Luck. Yes, luck plays an important part in the investors success - Take Warren Buffet and his single largest investment in Coke. It was possible that Pepsi could have demolished Coke, but didn't. Take Rakesh Jhunjuwala and his investment in Titan. It was highly possible that Tanishq the brand jewellery on which Titan was riding high could have failed as a cheap jewellery compared to the real gold jewellery. Or take the case of Ms Mehra and HDFC and her recommendation as an investment. It could have failed like a Yes bank (was run by a top Stan chart guy -Rana who was supposed to know all about banking). But they were lucky as the consumers did not think so.

As a layman investor, with not much of research access or management concall access, we just look at public domain information, which we get after some of the big investors have had the information and taken the call on the share. Thus as a lay investors we are mere followers.

Given the above, how do we go about investing. First and foremost is we spread our investment. This is called diversification. But we should not over diversify. For eg investment in an X company of 100 Rs and it went up 50% to 150 Rs will fetch you a profit of 50 Rs. But if you had invested 50,000 Rs in it, you would have got 25, 000 Rs. Thus Diversification is key but Positioning (or how much you invest) is also key. 

My thoughts on investment ( not a recommendation or advice) is you invest as a beginner in Stable companies (Growth last 5 years at15%, PE <15, ROCE at 15%, ROI at 15%-some parameters), Mature Companies (Companies making profits and giving dividends for the 10-15 years), Cyclical Companies like pharma, metals, Infra etc, and Risk Companies where you take a call for a reason and it may or may not work out. For eg currently, Yes bank, Vodafone etc.

The %age I believe you should be invested in above categories are 30%, 30%, 20% and 10%. ( You may or could have your own preference in other categories but generally the last one recommended -Risk Companies should not exceed 10%).

In each of the categories, pick up a max of 3 companies each (not more) to ensure you can take positioning advantage and at the same time risk mitigation through diversification.

Another question that arises is when should one start investing - Ideally as soon as possible (at the time of birth, if parents can invest). But on your own -when you start earning.

Another question that again arises is how much. At least 30% of your salary and 50% of your bonus. If not, because salary is low at least 10%. Most of the young people repeat this oft repeated answer- But Uncle, I can't save because my salary meets the minimum requirements and I am barely able to survive. To this my answer is simple. If you are earning 50,000 Rs /month, you know how to live. The same way if you are earning 30,000 Rs/ month, you will still continue to live. So, start with taking off 30% of your salary for saving and think that you are getting that much only. In extreme cases of low salary, you may go down to 20% or even 10% savings. But you must do that if you want to become reasonably rich 20-30 years from now. Spending, enjoying your current life is not going to keep you financially relaxed when you reach the end of your career. Don't regret in old age, what you can with a bit of sacrifice in your young age. 

One of the common arguments that one hears these days is - "Kal kisko patah", lets enjoy life today. Let me tell you this. No one knows when your expiry date will come, but with medical and general lifestyle changes, people are averaging 80 years and some 90 years unlike in olden times 65- 70 was the norm for death with a few exceptions. Thus, at 60 plus you do not want to be fighting with your wife that we overspent and should have saved when we were young. Eating and going out less may help you save money as well as your health.

Talking of health, one of the important investment is taking care of your health. Live frugally or king size, but ensure that your exercise (even weights is recommended) is one of your prime habit. As they correctly say, if Money is lost nothing is lost, but if health is lost everything is lost. No one can predict what will happen with health, & investment, but if you invest in your financial health and body health, your chances of a comfortable retired life is more of a probability. Think about it NOW and not LATER.

Coming back to investment, investment in stocks depend on What price you buy at and what quantity you buy at. These determine the extent of profit you make. Higher purchase price may give you lower profit/share, Lower quantity may give you lower overall profit.  There is no magic formula to determine these two, but these two have some fundamental requirements - On the Stock price - what is the reasonable PE, Past Growth, Potential future etc. On the Quantity, it is your self belief or conviction that this Company will grow based on the data set you have collected.

Today life is fast paced and with WFH, WA, Emails, employees are on the job 24 hours and don't have time for reading, research, watching some good investors speak etc. This is where Mutual Funds come in or if you want a more boutique investment style, a SEBI registered Fee only advisors are there to design it for you.

Mutual fund is a good place to start for beginners in investing. The advantage is somebody is doing your job of research and picking reasonably good stocks with risk factor as per the category. When I say risk category, what I mean is, Mutual Funds have a range of categories - Large, Mid, Small, Flexi, cyclical, thematic etc. So where you invest, a certain element of risk is there and that depends on you where you want to invest. Say, Small cap has one of the highest risk factors and also has one of the highly rewarding returns if it clicks. Like stocks, with categories of stable, mature, cyclical, risky, MFs also works in that same category. But the advantage of MF is that you do not choose a specific stock or stocks, but the MFs with their huge analysts choose the stocks and they choose a basket to ensure the returns are reasonable for them to get more funds into their schemes. This is called AUM or Asset Under Management.

Some people ask what is PMS. It is not what Women go through, but in investment jargon it means Portfolio Management Scheme. Currently, the minimum that is required for joining the PMS is 50 lakhs- a few years back it was 25 lakhs. You primarily give your money to these schemes run by supposedly experts who invest in different companies and also take risks by investing in Pre IPO schemes, start up companies etc. which a normal investor cannot because of the funds and access to such instrument. You can have even 200% return on it or it can collapse too. But these are for people who have financially secured themselves and can take the risk of losing 50 lakhs and not feel the pain. Given a choice, I would not recommend young investors to go for it.

One more investment philosophy I believe in is Investment should be done in a relaxing mood and not taken up with a lot on stress on returns and few downsides, some stocks/MFs not doing well. If overall your asset is increasing it is fine. Over a period of time, the law of averages will give you a good return if you consistently invest- be it upside time or downside time. Keep your investment private and do not discuss, else you will be stressed if you see someone having a better return than you and that will cause you, under stress, to irrationally invest to try to beat the other persons return. Get ideas and do your own research on basic fundamentals and leave everything to luck too. Hopefully, of the 10 business you invest, 2 or 3 may fail, but if economy grows then your other 7 or 8 business should have done well.

If end of this lecture, you come to me and say, Should I invest in this stock or MF or will this give a better return, then I think I have wasted my time. The purpose of this lecture is not to focus on specific stocks or MF, but to give a broad investment philosophy to follow. I may not be an expert on stocks/MF to ask such a question. As someone said, when some one asks to buy or sell he first asks how much money do you want to invest. If a guy says, 1 lakh, he advises, 50% you buy and 50% you hold in cash or the other way around in case of sell - 50% you sell and 50% you hold. If market moves on the right side, you can always say - I told you so. If market moves on the wrong side, you can always say - See, I saved 50% of your investment.

Please note do not give me an eg of Warren Buffet, Peter Lynch, Rakesh Jhunjhunwala, or a Vijay kedia.  How many of the success stories are there in the billions of investor community. They may be less than .1% and most of it by luck - a Titan or a coke or Amex etc. They have invested heavily and also lost heavily which an ordinary investor can't afford to. Earlier data availability of companies used to be rare, but today an Equitymaster, Moneycontrol, Screener, Trading view etc have made data availability and analysis easier. Now we have even AI to do the heavy lifting. Thus all investors have same data. End of the day nobody and I mean no body in the world can predict the future and that is why no one give a GUARANTEED RETURN.