Our thoughts on Asset Allocation / Diversification

 

4^th November 2020

Our thoughts on Asset Allocation / Diversification

Dear Fellow Travelers,

Namaste! Thanks a ton for making our last post the most forwarded and read. Today I am going to talk about asset allocation and diversification. Pick up any book on finance or talk to your consultant and they will talk about asset allocation and diversification. In fact, Don’t Put all eggs in one basket is the most common advice a normal investor is given FREE of COST. The correct advice is – “Put all eggs in one basket and keep a close watch on the same”.

How small investors are taken for a ride with Wrong Advice?

Indian per capita income is Rs.1.35 Lakh. 70% of the people have this income or below this. Our saving to GDP ratio was 30% in the past years but now it is 18%. It means an average person is able to save Rs.24000 per year on the average income of Rs.1.35 lakh. It means Rs.2000 per annum.

Now, the whole world is after this Rs.2000. They have reduced the minimum contribution to Rs.100 in MF compared to Rs.500 in the past.

In the name of diversification or asset allocation Rs.2000 is distributed among various areas and the end results are that the person remains in the lower middle class or middle class till he dies.

I know my MBA friends would die in favour of asset allocation and diversification. They all are miseducated and brainwashed to suit the requirements of big corporations. Let me share with you a small story from PANCHTRANRA. I am sure you would have read or listened to it as a KID.

The Farmer and his Four Sons

Once an old farmer lived in a village. He had four sons. They were always quarreling with each other. The farmer tried hard to bring unity among them but they would never listen to his advice. He was very worried about their future.

One day, the old farmer fell sick and decided he should bring unity among his sons. He called his sons and asked them to bring a few sticks. They brought the sticks. The farmer asked the eldest son to tie them in a bundle. He then asked them to try their strength to break it.

Each of the sons tried to break the bundle but failed. Then the farmer untied the bundle and gave one stick to each and asked them to break it. Each of them was able to do it easily.

The farmer said, “Now you understand. If you are united nobody can get better of you. But you keep quarreling, you will be broken by anyone.”

Moral of the story: - If your Rs.2000 is invested in a proper asset class and if you keep in investing in that – when that asset class moves – you will make a super profit. This is common sense and not a Rocket Science. Ideally, I would accumulate this 24000/- in my savings account first before making a meaningful investment at the right time. Investing Rs.24000 for a person who has an income of Rs.1.35 Lakh is a meaningful investment compared to investing Rs.2000 per month.

What about Billionaires?

Say you are a Billionaire or a Millionaire. What about your asset allocation?  Have you heard of RAKESH investing in some other asset class than equity? Have you heard Buffett investing in GOLD or BITCOIN? I have not heard yet. You may invest in Gold / Property / Equity / Antiques / Paintings or almost anything. But it should be meaningful as per your standard.  

Big money will always come with the FOCUS of mind and FOCUS of resources.

Why there is an attraction of DIVERSIFICATION?

Normal investors do not want to spend time studying any particular asset class in detail. He does not have the patience for deep study and patience after investing. He hates failure and he wants to keep his image of a successful person intact. By doing focus investments if not done with a deep study – he may face failures. He does not want to spoil his image in front of his family members and friends.

So, the best thing is to invest in various asset classes and see the average return as a success.

Why investment is done in the first place?

Investments are done so that you can make a decent return over and above your inflation rate or to create wealth at a faster pace compared to normal savings like FDs.

Now, when you unnecessarily diversify your funds – you go for a toss in the long run. In the short run, you may save yourself from a PAIN of fall in a particular asset class but in the long run, you will get PAIN without fail.

Diversification without reason also indicate a lack of conviction in your investments. This is a very bad situation. I have seen 50-80 Scrips in a portfolio of Rs. 5 lakhs!! 

Moreover, when the REAL MANDI comes – all asset class will go down!! Whether you have diversified or not diversified. But if you have focused investments in a particular class of assets – you will make tons of money during TEJI. Your money will multiply fast.

So, those who are diversifying just to save them from MANDI, will not be spared when real mandi comes, irrespective of their diversification of asset classes.

How major money has been made in the World so far by anybody?

I have yet to come across a billionaire who has done SIP or invested in MUTUAL FUNDs or have invested different asset classes without any reason.

Major money has always come due to SENSE OF TIMINGS and FOCUS on PARTICULAR ASSET CLASS. You have to wait patiently for years to find an opportunity and then take a shot. Buffett is holding a ton of cash before CORONA and he picked up some stocks in the CORONA fall. He was holding USD 130- 140 Billion for the right opportunity. One needs to have a lot of CONVICTION in one’s study/faith in the cyclicity of the market and lots and lots of patience.

What We said when RAHU changed?

We told you Rahu will bring a tsunami of liquidity way back on 29^th August 2020. This is the power of our system.

Tomorrow, 20 of the world’s largest pension & sovereign wealth funds with a total AUM of nearly $6 trillion to meet with @PMOIndia @narendramodi on 5th Nov.

CEOs and CIOs of these funds to be present. Some of these investors would be engaging for the first time with the Indian government.

Read our post.

Rahu is bringing a Tsunami of liquidity in the wor... https://bestofhiteshparikh.blogspot.com/2020/08/rahu-is-bringing-tsunami-of-liquidity.html?spref=tw…

1:44 PM · Aug 29, 2020

ACCURATE Prediction in Market or personal areas is my GURU’s blessings on me. You can use our skillsets for all major decisions of your life and investments.

What NEXT?

If you want to take your life to the next levels – you need to come out of the so-called wrong concepts and will have to work really hard to spot your investment opportunities.

If you want to master the fine art of investments – be with us for 3 years and see the magic in your life and finance.

Wish you all a great investing time ahead.

Follow me on Twitter @hiteshmparikh Or on Whatsapp - +91-9869425399.

 

Live With Passion…Invest With Passion.

 

 

Hitesh Parikh