Dhirendra Kumar, founder and CEO of Value Research shared his investing strategy and why investors should not resist ‘temptations’. Kumar also talked about the various benefits of taking risks and how they help an investor in the long-run. Kumar also shared some tips to mitigate risk.
“I don’t think I have the courage to give you advice. But I would suggest few things. Don’t resist your temptation, try out things,” Kumar said.
Read more: https://www.outlookmoney.com/retirement/forty-after-forty
#OutlookMoney40after40
“I don’t think I have the courage to give you advice. But I would suggest few things. Don’t resist your temptation, try out things,” Kumar said.
Read more: https://www.outlookmoney.com/retirement/forty-after-forty
#OutlookMoney40after40
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LearningTranscript
00:00Sir, the first thing that I wanted to ask you is, do you think that reaching a milestone
00:10like that of rupees 10 crores, is it possible and what can one do to achieve that?
00:15Oh, it is eminently possible.
00:18And it is eminently possible, not only possible, it might be a necessity for the very reason
00:26that, you know, the longevity is rising, we are unlikely to be, you know, I can think
00:35of all the people, most of the people in the previous generation, my parents' generation,
00:41they were government employees or semi-government employees or quasi-government employees.
00:47And they are being supported by the taxpayer, that's being taken care of.
00:55And they are beginning to live longer, we just might end up living longer.
01:02The other is that, you know, the possibility of outliving your savings, that grim, that
01:09situation is so bad, so grim, more so in the absence of the joint family that we have,
01:16you know, we have heard of or we have not lived with, but we have seen it happening,
01:21the nuclear families.
01:23So that is one, you know, it looks unreal, it looks unrealistic, but let me just give
01:28you a context to this, you know, about 50-60 years ago, no, about 100 years ago, there
01:36was this mathematician in UK, called Alan Turing, he is a guy who actually decoded those
01:43German codes which led to the winning of the war.
01:46He decoded the Enigma, didn't he?
01:48And the first thing was, you know, he was actually declared a crazy guy, simply because
01:54he could imagine, he could visualize a kind of machine which can behave like humans.
02:03And today we see that as a reality.
02:06If you look at what AI is doing, we will have, you know, we are answering and the principles
02:12were actually, you know, the seeds of that were sown then.
02:17It's considered to be, you know, that Turing Award is considered to be a Nobel Prize in
02:21computing.
02:23But if you look at the principle that he decided, you know, he framed, that breaking the question
02:29into smallest element, putting it together, and that is very much true for personal finance.
02:35If you look at, if you break this 10 crore thing into smaller pieces, entry milestones,
02:43and also let me just bring in some degree of realism in this.
02:49Everybody came and talked about the numbers and this and asset allocation, whatever, equity
02:54returns, even the Sensex return, which I think, you know, which Sameer Arora said that half
03:00of the stocks in Sensex are unable to beat it.
03:03That is the design of the average.
03:06And if you go by that, even the dumb Sensex, you know, without the dividends, without reinvesting
03:14those dividends, has given a return of about 18% since its invention in 1978, 18% annualized.
03:24And if somebody would have invested 50,000 rupees a month, of course, 50,000 rupees a
03:29month 25 years ago would have been very significant.
03:32But assuming that ignoring all any, no step up, nothing, 50,000 rupees a month, done consistently
03:39for 25 years, earning 12%, which is two third of the return that Sensex has given without
03:46the dividend, will translate into 10 crore.
03:50So unfortunately, we don't come across too many 10 crore pati who were investing in Sensex
03:55for variety of reason, there wasn't a Sensex fund available, mutual funds were not sold
04:00the way they are being sold.
04:02Mutual funds are not designed, you know, when I started value research, mutual fund was
04:07a seasonal phenomenon.
04:09Once in a while, there will be a fund which will be launched and people will invest.
04:12Today, you know, you give a standing instruction to your bank to enable, you know, 10,000 rupees
04:19SIP and it happens and it happens seamlessly.
04:22Most of the people who end up wealthy are the ones who don't who are not monitoring
04:26it every day.
04:27The reward of forgetting it, putting it, an ability to automate it, so I think it is eminently
04:32possible and not only possible, I think it is necessary to be embarking on such an ambitious
04:39thing, if at all it is ambitious.
04:42But sir, that's now it comes into the realm of possibility, but the problem with my peers
04:49and the generation, me included myself, that what the problem is that we are a generation
04:54that of course lacks patience and so how can we, how can someone like me convince my
05:02peers or even myself to start a journey like that?
05:07What advice would you give to us to start that journey of discipline and patience and
05:14everything?
05:15You guys are too smart, I don't think I have the courage to give you advice, but I would
05:19suggest a few things.
05:21Don't resist your temptation, try out things.
05:25Temptations of what?
05:26I'll tell you the temptations.
05:28The temptation is, you know, crypto can be very exciting, eating out tomorrow could be
05:35very exciting with your friends, so that is consumption.
05:37Third is that, you know, looking at the, because you know, today mutual funds are sold as a
05:42story, a thematic fund, a defense fund or consumer fund or this thing, you know, which
05:47will look exciting and it's not all that bad.
05:50You know, I would not like it, but it's not all that bad simply because, you know, if
05:55you invest in a mutual fund, if you achieve two, three goals, which is you are investing
05:59regularly, you are diversifying and you are able to stick around for a couple of years.
06:06Even a lousy fund manager can't really hurt you because by virtue of that diversification,
06:12by virtue of your long-term orientation, you end up being a winner anyway.
06:18But my worry will be, you know, in the initial stages, in somebody who is, you know, anybody
06:24who is in your phase of life, my suggestion to them will be do everything but start the
06:30habit of, you know, doing 500 rupees, 5000 rupees, 1000 rupees, whatever it be.
06:36Because the initial stage is actually habit formation.
06:40Most people expect magic to happen.
06:42Magic is not going to happen anyway.
06:45And in fact, if you get very excited about the market, that is what I have learned in
06:50the last 30 years that every time investors get excited about the market, it is an inopportune
06:56time to get excited.
06:58It turns out to be wrong in hindsight.
07:01But it gets extremely difficult to resist that, whether it was 1992, 2001 and things
07:06like that.
07:07We would think that we might have learned by now.
07:09No, you, and there is another thing about money issues and investment that you don't
07:15learn from other people's mistakes.
07:17You have to lose your own money.
07:19So it is important that you lose early because you lose less.
07:23Because if you don't resist, if you resist that temptation, you will not learn it.
07:28And then you will lose big time when you will have something more significant to lose.
07:32I think that kind of risk is something that my generation would really relate to, because
07:37that like the idea of that adrenaline rush that you have to lose.
07:40So it's better to lose early because that would resonate with a lot of people.
07:44Absolutely.
07:45And, you know, it is not, it is very difficult.
07:47How can you actually tell somebody who is in the middle of, you know, who is in the
07:52middle of a boom and, you know, seamlessly you are able to open an account at Grow or
07:57Zeroda and anything, and you are able to throw your dart and make money by the evening.
08:02And sometimes the money that you make by the evening is more than what you will actually
08:06make by working for 30 days at a stretch and, you know, bearing your boss and whatever,
08:12you know.
08:13So if that is the temptation, how can you resist it?
08:17You have to lose money.
08:19And it is important that you lose money at one go.
08:22You read that SEBI report that 92% of the people lose money when getting into F, who
08:29participate in F&O.
08:30At the same time, all the winning stockbrokers, they make 90% of the money from those people
08:36only.
08:37And I don't see, I'm part of many of these regulatory discussions and bodies and committees.
08:42I can tell you with confidence that none of that report is going to have an impact because
08:47this is so deep rooted in our psychology.
08:50It is so deep rooted in our, you know, need for excitement and, you know, rewarding excitement.
08:56Not only that, in India, it is all the more difficult because all other forms of speculation
09:00is illegal.
09:03And this becomes an interesting one, which actually gets a legitimate framework that,
09:08you know, you are doing something intellectually stimulating.
09:11But like, jumping off from that point, this is the age of influencers.
09:16This is the age of startups.
09:18And there's still people who stick to more traditional methods and they embrace their
09:22salaries.
09:23In this digital age, which is very contrarian to the traditional beliefs, do you think that
09:30sticking to salaries is advisable or one should look for shortcuts?
09:34No, it's meant for different things for different people.
09:40You know, shortcuts generally don't work, but for some people it works.
09:45And if they are able to convert, you know, a reward of a shortcut taken into a meaningful
09:50capital, that's fine, good for them.
09:54But the nature of shortcut, reward from shortcut is of a kind that you believe in the wrong
09:59principle.
10:01You think that shortcut is possible and you can be continually, and it could just be luck.
10:06So I think, you know, the wisdom says that a sustainable one is the one which is rooted
10:12in principle and a method.
10:13Okay, that's a good advice, I think.
10:17But what risks one should be aware of while on the road to building a large corpus for
10:21their retirement?
10:22Because there are always risks.
10:24And some of them I think one should avoid.
10:25Some of them, as you said, we can't avoid and we will lose money.
10:28But some of the risks one should mitigate.
10:31Yeah, you know, you have to mitigate four or five risks, and you should be prepared
10:36for it.
10:37It is more important that, you know, coming with the wrong expectation.
10:40And the biggest thing is that, you know, if you can actually, you don't have to become
10:44an automobile engineer when you learn driving.
10:48But it is good to know that when you press the accelerator, what happens?
10:51You know, more fuel is going and what's the driving that speed.
10:55If you are at a certain speed, if you suddenly apply your brake, what happens?
10:59You don't need to really understand how it really works, but what could be the downside?
11:03With that in mind, I would say that understanding how things work.
11:10I think, you know, most of the people who come get attracted to the market.
11:14They think of equity as a game.
11:16They think of equity as a ticker.
11:19They don't think that, you know, when you are buying the stock of a company, there's
11:22an underlying company where 100,000 people get up in the morning at nine o'clock to get
11:27to work.
11:28And they're fulfilling the need of a customer or, you know, making a product or a service.
11:34And there is much more to it.
11:36What happens?
11:37You know, when you are guided by the ups and downs and the madness of the market, you think
11:41that this is a game and sometimes you win.
11:44And when you lose, you run away forever.
11:47So I think it's very important that, as I was saying, that form your habit in your habit
11:53formulation phase.
11:55Get going in a steady manner for a certain part of it, play all your games, spend most
12:00of the money.
12:01Because initial two, three years, it is not the scale of money that you do.
12:06It is to understand that what is this beast?
12:09Because the way people get started is exactly the way they will be driven out of the market
12:14forever and they will be deprived of it forever.
12:18So if you do that, there are two, three things to keep in mind.
12:22One is to diversification.
12:23It is the holy grail.
12:24You can't avoid that.
12:26Second is the asset allocation.
12:29And but don't worry about asset allocation for the first five years.
12:32But why is that?
12:33The reason is that asset allocation is like building a shock absorber.
12:39It is building a safety net.
12:40And you have nothing to lose in the initial five years while you're accumulating.
12:44The acceleration is not as much as...
12:45You haven't accumulated well enough.
12:47And then you have to figure out that at what stage, as Nilesh was saying, that, you know,
12:53that doctor was losing his sleep.
12:55And at what stage do you lose your sleep?
12:58And it is very difficult to visualize it till you experience it.
13:03As I was telling that you have to lose your own money.
13:06You will not be everybody, you know, because I have seen investors thinking is very malleable.
13:10But is that a good thing?
13:13To be malleable?
13:16It's a very dangerous thing.
13:17Oh, is it?
13:18The reason is that, you know, we change with time.
13:22When you are making money on a day to day basis, you have this urgency to borrow money
13:26to invest in the market, simply because you feel more confident about it.
13:31The moment you lose dramatically in a brief period of time, you suddenly realize that
13:38your risk tolerance is very low.
13:41And you have to really prepare yourself with your groundwork in terms that when investing
13:48in equity, it should definitely be, you know, invested in gradually.
13:53Because markets behave, you know, markets turn around when you least expect it.
13:57And you tend to act very aggressively when the market is very inopportune, you know,
14:03configured in a manner where you are, you know, returns are coming very easily.
14:07It is very difficult to invest money when the market is falling.
14:10You know, we are all doing it in self-interest.
14:12We are doing it in self-interest because we don't want to lose money.
14:16We don't want to really lose money, you know, lose money while the market is going up.
14:20So when we do it in self-interest, it is very counterintuitive.
14:24And the way it works is that unless you are there for 10, 15 years, at least five years
14:30at the least.
14:31So it's a long game.
14:32It's a long term game.
14:34And initially, if you are able to worry about asset allocation after five years, make sure
14:39you are diversified.
14:40And when you invest on your own, when you take an inordinate risk, you better be aware
14:46that you know, you are implementing these principles yourself.
14:51And first and foremost, you know, the basic principle, which is always true.
14:55And it always keeps reminding, you are always reminded of that, that if something is too
14:59good to be true, it won't be.
15:04And the idea that something is too good to be true, it isn't.
15:08That brings me to this, this trend that a lot of younger generation is, they are diverting
15:17their mind toward mutual funds because they have become aware of the economy.
15:21And it's a good thing.
15:22But crypto investing still holds the fancy of many, many people, especially the younger
15:27ones.
15:28What would you say to them?
15:29I've been a very, very strong disbeliever of crypto.
15:33And I've been wrong.
15:34Oh, and I've been wrong.
15:36And I still feel that, you know, I, I don't, I'm not embarrassed being wrong.
15:41No, but like, did you change your stance?
15:43No, unlikely.
15:44You know, I'm old fashioned.
15:46So I will, but I'll tell you why I am, I am wrong and why I would like you to take
15:52a chance with crypto and why you won't take the chance while I will never take chance.
15:58Because as I was telling you that I'm a great believer of, you know, something which is
16:01underlying.
16:02Yeah.
16:03When you invest in a company, there's a company, when you invest in a bond, when you buy the
16:07government bond, or when you, when you lend me the money, it is written there that I owe
16:14it to the lender, you know, this much, this much rupee.
16:18Crypto is something which has been invented by somebody.
16:21And it is, it is like gold, that it is, you know, somebody else is willing to pay more
16:27money for this.
16:28But there isn't an underlying and you can say that that is true for gold as well.
16:33But gold has 100, you know, 1500 year history.
16:36And crypto is a new thing.
16:38This hasn't.
16:39And then I have two big worries about crypto, which I think, you know, at some point, hopefully
16:46will come to haunt us.
16:48That crypto has turned out to be, you know, if I have to really buy 50,000 rupees worth
16:54of mutual fund, the government mandates that I do a KYC.
16:59If I have to send you $1 billion worth of crypto, nothing is needed.
17:05That sounds fishy.
17:07That sounds, and that is why the drug cartels, that is their primary mode of transaction.
17:11That's one.
17:12Second is that I find it very funny that all the crime that has happened around crypto,
17:18where people have disappeared, has something to do with crypto.
17:25You know, including the biggest entrepreneur, you know, you remember that guy who was getting
17:29into jail and he was the fanciest person.
17:33I will be worried, you know, when somebody actually runs a business, fails with the business,
17:38he gets into bankruptcy, he gets into insolvency, and then we are able to auction his assets.
17:44Here somebody just disappears with, you know, $500 million, $1,000 billion, $1 billion.
17:49And then we say that, all right, somebody, you know, formatted his computer.
17:55That was even funnier.
17:56How convenient that was.
17:58You heard that Luna thing, you know, which had something worth 10 billion worth of outstanding
18:03and he formatted his computer.
18:06So it doesn't smell good, but good till it lasts.
18:10And we only, you know, will, I don't know, the jury is still out.
18:17There is always, you know, the last, you know, there's a musical chair.
18:23And it looks too good to be true.
18:27As you said that we are going to lose money.
18:29So obviously they are going to be, there's going, there's a good risk mitigation there.
18:35So how does one balance what they want in the present and the needs in the future?
18:39Because that it's a big part of it.
18:41One is that, you know, just be a little thoughtful about it.
18:46Many a thing, many a times, you know, I find that I have a lot of colleagues who are of
18:51your age.
18:52And I find that, you know, initial five, six months of your, when you start your career,
18:57don't bother, don't listen to people like us.
19:00That's very validating, sir.
19:01Thank you so much.
19:02Live your, you know, live, live your life in terms of gaining new independence and spending
19:06it and whatever.
19:08But after that, if you get little, little thoughtful, because when you go to a shop,
19:15being little thoughtful actually works brilliantly, because you, you guys really won't listen
19:20to many people and you have so much resources available.
19:23When you go to a shop and when you see an iPhone, and it doesn't tell you that it is
19:27worth 1.44 lakh, when it tells you that it is 4,999 rupees per month, it becomes very
19:34tempting.
19:35I feel called out, I feel a little called out.
19:39No, I'm not calling out.
19:40I'm just saying that, you know, if you really figure out that this 1.44 lakh rupees worth,
19:46but you are getting tempted by 49,000, 4,900 rupees every month, you must find out that
19:51whether you have to pay it for next five years or 15 years or eight years or whatever, you
19:55will get a sense of it.
19:59And you know, this magic of compounding, till you experience it, I don't think, you know,
20:05the joy of consumption is way too tempting.
20:09So that is why I'm saying that, you know, do it with, the joy of turning a small contribution,
20:15small saving into a meaningful capital has to be experienced by somebody to really become
20:21thoughtful.
20:22It's like a slow burn.
20:23No, it can be done in 18 months.
20:26You will really realize it.
20:28Thank you so much, sir, for your time.
20:29This was a very, I would say, a very insightful and at the same time, very comforting session.