How to destroy wealth slowly, without even realizing it
- Dr. M. Viswanathan (Interventional Cardiologist)
I am a fairly successful medical practitioner with a long standing in the profession and a reputation for ethical medical practice. I came from a middle-class background, studied in government run medical college, with classmates who were also from the same economic background.
I started my journey of saving from mid eighties- mark the word savings- not investment- a word alien to our world at that point of time. Except for Tata group of companies, middle class considered government entities were the safest bet for saving and growing your investment. Hence PPF, NSC, KVP, ruled the roost for investment. They were paying between 12 & 14% interest.
Many of us and our parents had no guts to enter the share market – which was in reality a closed club of brokers and manipulators at that point of time. Then came Unit Trust of India with its “Units 64” plan with not so glamorous rate of return. Then came Mastershares and Mastergain. We invested in these scrips with a great halo around us that we were great Share Market Wizards, whereas in reality, investing in these Units was a no brainer. We were receiving dividends at regular intervals and bonuses and rights too. What a wizard of investment I was!
Still the bulk of our investments were in Bank FDs and PPF. Then came the jolt, Government restricted the amount that could be invested in PPFs.
Come 1992, a share market manipulator named Harshad Mehta created the biggest scam in the share market, and the whole market collapsed to a value which was 1/4th of the pre -crash values. Overnight we savvy investors were turned into bumbling share market idiots.
After the destruction of wealth by the “Harshad Mehta Scam”, I retreated into the den of financial recluse, licking the wounds inflicted by the scamsters and the Banksters on the gullible middle and upper middle class investors. Slowly recovery took place and we fell into the arms of the ever-alluring Goddess of wealth in India- Real Estate.
It is a mistaken belief by the investing class in India that Real Estate can never fail as an instrument of wealth creation. Investments made after 1994 in real estate have grown in notional value to decent amounts but try to encash the wealth and you will be faced with Real Estate agents and so called buyers who look and behave more like thugs than agents of the financial sector. Real Estate is an instrument of creating unaccounted wealth which does not grow and which you cannot use unless you are a compulsive gambler, Drinker or pub hopper, which most of the members of the medical profession are not- generally- exceptions are always there. The value quoted for a flat purchased by you in 1980 might look astronomical but if you do your math properly, it works out to be 16% compounded annually for 35 years- same as equity mutual funds, minus the real estate thugs and cash in gunny bags. (Where do you store the cash in Gunny bags? -so you lose sleep)
After a sufficiently long period for the healing of the wounds received in 1992, I recovered enough to buy a decent sized flat in an up-market location- this was not entirely my decision but that of my wife who has a weakness for big apartments. I must say that this was the only investment which investment Gurus would approve of- bought it when Real Estate market was in the dumps- 1998- it did not recover till 2006- all have forgotten this fact and continue to say that Real Estate in India never declines in value.
By 1999 the bad memories of the financial smack on the face had disappeared and I ventured again into the financial markets and ventured beyond the comfort zone of FDs, into equity mutual funds.
The next whack came in 2001 – bursting of the Dot Com Bubble- there was all round gloom and doom and the equity markets collapsed in value. My MF investments were also down to 50% of the original value.
By 2004 there were shoots of recovery and my investments started looking up. At this point Bank, appointed Relationship Managers started approaching me with ‘no fees offer’ to manage my investments. I thought that they were better placed to manage my funds and make my wealth grow- how mistaken was my belief- they charged me no fees but extracted their pound of flesh by charging 1.8% for each investment made in equities. Wealth grew not because of their expertise but due to continuously rising equity market- they claimed all the credit for the growth in my wealth – not a bit was talked about the rising market- all boats rise when the tide goes up as the adage goes.
Soon the reality hit the Indian stock market- Sensex was soon down to 9000 from dizzying heights of 21000 and our investments were eroded by more than 50%. The so-called Money Managers from Banks all disappeared from the scene.
I was enticed into buying ULIPS Insurance from one of the Relationship manager of a private bank before the meltdown. Since it was locked in and I had no way of recovering from the loss of value, I had no choice but to hunker down and wait for the markets to recover. This same gentleman had chest pain while vacationing in Goa. He sought my urgent appointment for his chest pain. His opening statement was that he apologized for forcing me to buy ULIPS when I was not the candidate for the product.
Being thoroughly disgusted with the so-called Relationship managers, I was looking for a financial adviser who will truly be my conscience keeper in managing money. This guy took the whole year’s fees, including the fees due on SIPs (9%) upfront i.e. before he had done any work for addressing and correcting my financial status by way of better investments. Once in 3 months I received by E mail a statement of my investments- this is what he called review of investment- no meeting, no explanations, I was supposed to study the statement, understand the intricacies of the investment plan and e mail him queries which he would answer by e-mail. If I was such an astute investor to understand and respond to his e mail statements, why would I need him in the first instant? Since he had taken his fees in advance for one year, I had no choice but to suffer his services. This gentleman still authors pontifical financial columns in major dailies- a clear case of an expert in theory and very very poor in practice.
I have now enrolled the services of ‘My Financial Advisor’ who have a good team and infrastructure and expect them to talk me out of any financial misdemeanors or to prevent me from doing any financial Harakiri in future. I truly hope and pray I am right.
People are loath to pay for financial advice- think for a moment- if you are ill, will you go to a free charitable dispensary or to a medical professional who has his routine charges? Let us understand that like any profession, managing personal wealth of people is a profession where good and bad exist and you have to carefully choose the professional who can cure your financial ills.
A FEW POINTS TO PONDER- ALL MY OWN WORKING -aka Busybee Behram Contractor
1. Keep Emotions aside while investing- do not be swayed by tidings of fear or excessive greed
2. Keep your expectations reasonable- though it need not be rock bottom, be reasonable in expectations.
3. Do not trust the relationship managers of Banks- private or public sector- they are out to increase their wealth not yours.
4. Do not take decisions when your mind is in turmoil because of external conditions.
5. Do not exit investments when markets go down – you will convert notional loss into confirmed loss if you exit.
6. Select your wealth manager the way you select your son in law- due diligence is a must – otherwise the cost is very high.
7. Do not combine Insurance and investments- ULIPs is a financial disaster for you but a mother-lode of wealth for the person who sells it to you.
8. Term Insurance is the only insurance you should take to protect yourselves against liabilities. Do not expect to get anything in return at the end of term while buying insurance- being alive at the end of the term is return enough. All insurance except term have returns in the range of 2-3%. Mr. A N Shanbaug in his book ” In the wonderland of Investments” , explains how an insurance agent makes more returns than you over the term of the insurance.
9. In investments, there is never a loss- If you lose money, you gain experience- exactly the same experience with which I am writing this letter. If at all you are keen on making mistakes, learn from others their mistakes and avoid them but commit only new mistakes which are patently your own.
10. Despite losses or Gains, keep your composure- your response to the situation is more important than the disaster in the financial market. The probability of Financial disasters are less if you have an ethical Financial Advisor by your side.