Sunday, September 13, 2009

Investment Advise To A Friend

Sometime ago in October 2008, a close friend of mine had sold an investment property. He had got Rs. 1 crore for it. I remember him speaking to me and asking me in which area should he rush and buy new property. He told me how he wanted to save taxes by investing in a property within six months. It is perfectly logical to save taxes, but we need to understand that investments are not made to save taxes but to create and multiply our wealth. If you can make 100% more by investing, why would you bother saving 10-20% in taxes and blocking your capital?

The stock markets that time were depressed and I shared the philosophy of benefitting from crashes to him. In spite of getting my point, he told me how he didn’t get any time to research companies and was very busy with his medical practice. I have seen how doctors work round the clock and I respect them immensely for that. Most of them don’t do it for the money, but because they are passionate about what they do. My friend, doesn’t really need to answer calls in the middle of the night and attend patients, but he does it because he loves it.

I suggested he keeps 50% i.e. Rs. 50 lakhs of his money in a safe instrument like an FD and he could look at investing the remaining amount in extremely undervalued stocks. I recommended a financial services company that would be able to help him out. Today in less than a year his Rs. 50 lakhs has grown by 200% to Rs. 1.5 cr and his other Rs. 50 lakhs is completely safe in a bank FD. Personally I strongly believe that even if you are taking the services of a professional, you need to have basic understanding of what is going to happen with your money. If your financial service provider is unable to convince you in a simple way what happens to your money and explain the risks involved, I would advise you keep some distance from them. I hate financial salesmen who try to confuse clients by using unnecessary jargon and complicated terms.

Had he used the money to buy real estate, I don’t think his Rs. 1 cr. would have grown by that much. He would have also found it very difficult to sell the real estate in small parts today. He has booked Rs. 50 lakhs of his profits now and made his investment capital free. That means his entire investment has been recovered and what is invested now are just his profits. This once again proves, that making the right decisions based on knowledge do have immense power to change our financial future. All of us work hard for our money; we need to make sure we make our money work much harder than us.

Long term investing doesn’t mean never booking profits. Whenever the prospects of profit are nice and juicy, over 100% in a year according to me, it makes sense to book partial profits.

Those who feel left out and feel they have missed an opportunity, don’t worry. The world of investing is like a vast ocean, there will always be new opportunities irrespective of where the markets are heading. Even now when I look at the balance sheets of companies, there are several companies that bring a big smile on my face.

Gold has started its upward journey as shared earlier by me and as The Chameleon had predicted. There might be minor blips on the way, but it still has a long way to go.

Recently I finished writing a book for children to help them understand money and finance like a Happionaire, it should be available soon. I enjoyed it a lot and became a child myself, while writing it. I hope our young Happionaire friends out there enjoy it too.

Keep smiling and as always may Saraswati bless you with Laxmi!

Yogesh Chabria

Share your views on the above post in our comments section here.


udhay manjrekar said...

You are right Chabria Sir. I have also noticed how your prediction at the start of the Crash has come out so true, while property is still in the dumps.

In the long run, real estate can never reward the way stock markets can provided of course someone has spent time to learn more on stocks. For those like your doctor friend, the best is to go to a professional.

rashmi said...

Congratulations for your new Children's book also. Am waiting to buy it for my son. It is hard to find a proper financial advisor or company that focus on value, which one did you advise to him? Most of them just want brokerage commission and are salesmen.

Now that MF entry loads don't go to them, they are trying to push insurance linked investments.

Sunil said...


Good to know that you are coming out with books for kids ... I was thinking that you must have started working on your 3rd book which might be at an advance level, anyways, I am really looking forward to learn few Investment tricks from Mr Chameleons experience.

Ps: I have just completed reading Autobiography on Mr Richard Branson "Losing my Virginity" ... it is really great read.

reena said...

Congratulations Chabria Sir, and am sure children will love to read something in your style. And Sunil thanks for sharing the book you read. Will check it out for sure.

Gold has moved up and am so glad to have followed your soothing words of wisdom when entire media and so called analysts were talking about ultimate doom. You Cash The Crash strategy helped me make not as much as your friend, but a good 85%. Am wanting to learn more.

Amar said...

Must Must Must read article........ article is not fitting in one go so i am making 3-4 parts of article and publish it.....

Part - 1

Gold Bullion's New Friend-China
We have waited for nearly 18 months for Gold to make a convince move beyond $ 1000 an ounce, and today it seems to be closing at the NYMEX at $ 1009 an ounce. While this is sweet, the bigger event is the news emanating from China.

The government of PRC is telling its people to buy gold. What's more, every bank will sell gold and silver bullion bars in four different sizes to individuals, and China's largest bank, the ICBC, is setting up a precious metals department to handle growing investor demand.

Hong Kong is taking delivery of its gold

The tremors in the gold market began last week when Hong Kong announced it was pulling all its physical gold holdings from depositories in the UK and moving them home to newly-built vaults near the city's airport. We've said it before: wealth is moving east. Yes, Hong Kong has ambitions to be the bullion trading hub of the Orient, but there could be more to it than that.

It's estimated that they own some $63m worth of gold. In the international scheme of things, that isn't much. There might even be a banker somewhere who takes that home this year as his bonus. What is noteworthy is that Hong Kong is taking delivery of its metal.

Many gold followers have argued that if everyone who owned futures, exchange traded funds (ETFs), warrants, options, CFDs and any other gold derivative you care to mention decided to take delivery of the gold against which their contract is written, there wouldn't be enough physical metal to go around, and the price would rocket.

Indeed it was the French government's insistence in the late '60s and early '70s on taking delivery of the metal in lieu of US dollars that eventually forced the US off the gold standard in 1971. The US didn't have the physical metal to back the quantity of dollars it had put out. Gold quickly went up tenfold. Perhaps Hong Kong is taking delivery while it still can.

Just a few days later, Barrick, the world's largest gold producer, announced plans to eliminate its gold hedges. (Hedging is when a miner sells its metal before it has actually been mined in order to lock in a price.

Amar said...

Part - 2

This can work well in a falling market, as you have sold your metal for a higher price than it is when you actually mine it; but it can be a disaster in a rising market because you miss out on the higher prices).

Barrick's hedging strategy has rightly attracted a great deal of criticism. The company failed to recognise a bull market and sold its gold too cheap. The chart below shows what a costly error this has been.

The black line shows how the gold price has performed over the past ten years. The blue line shows the rise in the HUI, the index of unhedged gold miners. The comparatively feeble-looking yellow line shows Barrick's woeful share price performance over the same period. If only it hadn't hedged, it'd be up some 500% …

So costly has been Barrick's hedging strategy, a contrarian might argue that their now eliminating their hedges could mark the top of the market.

But what's interesting is that rather than deliver the gold it has sold forward, Barrick has chosen to raise cash by issuing shares and using the money – some $3.5bn – to pay off its obligations. In other words, the largest gold miner in the world thinks that it's worth buying its way out of the hedges with cash now, because it'll get a better price for its gold in the future.

Amar said...

Part - 3

Why the Chinese government is telling its people to buy gold

Meanwhile we hear that China has doubled its reserves to 1,054 tonnes. They are buying gold, 'carefully so as not to stimulate the market' says Chinese economic ambassador Cheng Siwei, reports Ambrose Evans-Pritchard in The Telegraph. Siwei continues: "Credit in China is too loose. We have a bubble in the housing market and in stocks so we have to be very careful, because this could fall down."

Is the risk that 'this could fall down' the reason that the Chinese authorities are pushing their citizens so hard to buy gold – so that they have some protection from any credit bubble collapse? Analyst Paul Mylchreest notes in his Thunder Road Report that the main, state-owned television company is promoting gold and silver as an investment.

The government is telling its people to buy gold. What's more, every bank will sell gold and silver bullion bars in four different sizes to individuals, and China's largestbank, the ICBC, is setting up a precious metals department to handle growing investor demand.

Where is all this gold going to come from? Well, if 1.3 billion people start buying one-ounce coins, heaven only knows. China is already the biggest gold producer, last year superseding South Africa. Pretty soon it will replace India as the largest consumer.

And if the Chinese authorities are pushing gold as an investment to their citizens, it obliges them to 'protect' the gold price, as Lawrence Williams of Mineweb notes. It would be tantamount to a betrayal if it fell, never mind the loss of all-important face that would result. Just as the US and the UK stepped in to bail out their banks, so China will be duty bound to prop up gold.

But the surprising strength we have seen in gold over the summer – we never really got the summer low I was looking for – suggests that somebody is already 'buying the dips' anyway. Indeed the gold price has this week repeatedly gone through $1,000 during overnight trading, only to fall back when the US markets open. That indicates that the buyers are out east somewhere. I have written about this before: Gold is shifting from West to East – along with the balance of power.

Amar said...

Part - 4

$1,000 an ounce is just the start

There are some who argue convincingly that the $1,000 will mark a double top in gold and then we'll go down from here. There are other technical indicators that suggest a top.

But there is too much impetus to force the price higher. We may hover around here for a while - in spring 2008 oil spent almost six weeks bouncing between $95 and $100 before bursting through – and $100 oil is like $1,000 gold.

Indeed there is a little bit too much bullishness about the place at the moment, so a pullback would be healthy. But once we have a break above $1,000 and a weekly close above the old high at $1,032, the news on gold will be splashed everywhere. It all points to much higher prices in time.

Safe Harbor Statement:



Unknown said...

Hello to all ,

fianlly a book that enable parents to make their kids financially literate at an early stage thanks to Mr. Chabria

My name is Neha and I am really looking forward to being connected with all of you like minded peope,
blogging here is like "satsang" {the company of good people}


The Happionaire™ Blog said...

Udhay - Thanks. The philosophy of Cash The Crash is always going to remain relevant and has been proven over centuries.

Rashmi - Thanks. You are right, never make the mistake of buying insurance linked to investments. After twenty years you will be more at a loss.

Sunilji - I have noticed a lot of children these days are not getting the same time of values we got as children. I felt it was important for me to share something that will help them in the future. Richard Branson's story is very inspiring and thanks for sharing it with others here and he always has a smile on his face too! The Chameleon shall continue sharing more tricks and secrets. Hope you picked up gold when it was low.

Amar ji - Very nice analysis, always good to have Happionaires who share such knowledge. More surprises await for long term investors in Gold.

Neha - Very rightly said. I have always loved the idea of satsang and the way we all can share our ideas and put smiles on each others face. Our future needs to be empowered to face everything that is going around in our world today.

Keep smiling and keep sharing your ideas here!

Yogesh Chabria