Our thoughts on Asset Allocation / Diversification
4th
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
29th 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…
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
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