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A lot of you might have a good understanding of what an emergency fund is. This kind of fund has sufficient money to see you through for some months, in case you are going through a financially tough time. You may have lost your job or there may be the rise of unexpected, large and urgent expenses.

At the Morningstar Investment Conference 2014, Parag Parikh, Founder of PPFAS AMC Pvt. Ltd, shared his views in a panel discussion on value investing. Being an expert on the subject of behavioural finance, a stock market veteran and an author, his insights were brilliant. He nailed it down to one single take-away. There are no stock market geniuses. Just those savvy in controlling their emotions. You can never get wealthy if you let emotion get the better of you. But if you rein in your impulses, you have a very good shot at accumulating wealth. Below are his views on the context and how to work around the buy and sell urges that come so naturally to us. When the market is bullish, everyone is on a shopping spree. Along comes the inevitable correction, and those very stocks are kicked to the curb. What has changed? Just sentiment. If the market falls on a certain day, fear dominates and investors are reluctant to invest. Once the market bounces back, greed takes over. What’s completely ironical is that investors perceive a stock to be more risky when nobody is buying and the price is low, and less risky when everyone is buying and the price is high. It would be hilarious if it was not so lamentable. How does one counter the impulse to act? Give thought to your purchase. Value investing is about buying a stock quoting less than its intrinsic value. If you make a purchase higher than its intrinsic value, you are looking at the greater fool theory to come into play -- that someone would buy it again from you enabling you to make a profit. T There is a difference between value in use and value in exchange. Water is an essential commodity which has got a fantastic value in use, but not many people will give you any money for it. And value in exchange is something like a diamond; it may not be useful to you. If someone is dying, it would be more useful to offer them water than a diamond. But the diamond has got a tremendous amount of exchange value. So, for example, a power stock may not have pricing power, but will have fantastic value in use. If you think those companies will be able to make phenomenal profits over time, you could be wrong. Simply because there are certain constraints on how much power can be priced at. Ensure that you.... Understand the business you are investing in. Check for credible management that treats its minority shareholders well. Look for a strong moat and pricing power. Give thought to your sale. A value investor’s basic investing philosophy is based on the “law of the farm”. The laws made by men can change and are manipulative in nature. For example, you short and you make money, you buy futures and options and you make money. You give an upfront commission and you get more clients. These are all short-term manipulative practices. On the other hand, the laws of God are universal principals. One of them is the ‘law of the farm’. You cannot sow something today and reap tomorrow. A seed has to go through different seasons, before it turns into a tree and starts bearing fruit. Ditto with value investing. Waiting is part and parcel of the game. Incidentally, it is the most difficult part. You can do your research well and buy a great stock, but it will be an exercise in futility unless you have a long-term view. Imagine growing grass. You water the ground every single day. You won’t see shoots instantly, but over time you will have a garden. Ask yourself why you are in a hurry to sell Do I urgently need the money right now? Is my rationale for buying the company still sound? Will the current developments have any negative bearing on the company's future earnings? Let’s say we are faced with a scenario where crude oil prices touched $100/barrel. Analyse how this would impact the company’s bottom line. Do you foresee this rise as a blip due to geopolitical turmoil and see it stabilizing soon? Is the market overreacting to one quarter's dismal performance? What is my research telling me? Is it compatible with what the management is stating? If you are convinced that holding on to the stock is the right thing to do, you could even look at the possibility of purchasing more in the event of a considerable fall in price. If you picked it due to some “tip” or purely as a speculative play, you might as well sell. If not for a profit, at least for peace of mind. Nothing lasts forever. A bull phase is followed by a bear phase. Maintain your equanimity in the market. Source: https://www.morningstar.in/posts/53055/no-market-geniuses-just-control-emotions.aspx

Investing is not just about choosing the best investment plan among the hundreds. It is about how you handle your own investment plans and reach your financial

My wife and I welcomed a daughter into the world yesterday. Her only job now is eating and sleeping. But, one day, when she needs financial advice, here’s what I’ll tell her. It is easy to assume that wealth and poverty are caused by the choices we make, but it’s even easier to underestimate the role of chance in life. Everyone’s life is a reflection of the experiences they’ve had and the people they’ve met, a lot of which are out of your control and driven by chance. Being born to different families, with different values, in different countries, in different generations, and the luck of who you happen to meet along the way plays a bigger role in outcomes than most people want to admit. I want you to believe in the values and rewards of hard work. But realize that not all success is due to hard work, and not all poverty is due to laziness. Keep this in mind when judging people, including yourself. The highest dividend money pays is providing the ability to control your time. Being able to do what you want, when you want, where you want, with who you want, for as long as you want, provides a lasting level of happiness greater than any amount of fancy stuff can ever offer. The thrill of having fancy stuff wears off quickly. But a career with flexible hours and a short commute will never get old. Having enough savings to give you time and options during an emergency will never get old. Being able to retire when you’re ready will never get old. The ultimate goal is independence, but independence is not black or white, all or nothing. Every dollar you save is like owning a slice of your future that might otherwise be managed by someone else, and whatever their priorities are. Your parents will work hard to support you and open the doors of opportunity. But we’re not going to spoil you. We’re not trying to be mean. But no one can learn the value of a dollar without experiencing its scarcity. Learning that you can’t have everything you want is the only way to understand the difference between a need and a desire. It will teach you how to budget, how to save, and how to value what you already have. Learning to be frugal without it hurting is an essential life skill that will come in handy during life’s inevitable ups and downs. Napoleon’s definition of a military genius is the person “who can do the average thing when everyone else around him is losing his mind.” Managing money is the same. You don’t need to do amazing things to end up OK over time. You just have to consistently not screw up for long periods of time. Avoiding catastrophic mistakes – the biggest of which is burying yourself in debt – is more powerful than any fancy finance tip. Learning how to live with less is one of the most powerful financial levers, because you have more control over it than things like your income or investment returns. The person who makes $50,000 but only needs $40,000 to be happy is richer than the person who makes $150,000 but needs $151,000 to be happy. And the investor who earns a 5% return with low expenses may be better off than the investor who earns 7% a year and needs every penny of it. How much you make doesn’t determine how much you have. And how much you have doesn’t determine how much you need. It’s OK to change your mind. Almost no one has their life figured out by age 18, so it’s fine if you pick a major you end up not enjoying, or even get a degree in a field that isn’t your passion. It’s fine if you work in a career and then decide you want to do something else, and it’s fine to admit that your values and goals have evolved. Forgiving yourself for changing your mind is a superpower, especially when you’re young. Everything has a price, and I’m not just talking about price tags. The price of a busy career is time away from friends and family. The price of long-term market returns is uncertainty and volatility. The price of spoiling kids is their sheltered life. Everything worthwhile has a price, and most of those prices are hidden. They’re often worth paying, but never ignore that they are true costs. When you accept this you’ll view things like time, relationships, autonomy, and creativity as currencies that are as valuable as cash. True success is when the people who you want to love you do love you. And that love comes overwhelmingly from how you treat people, rather than a level of net worth. The most important financial advice I can give is that money won’t provide the thing that you and almost everyone want most. No amount of money can compensate for a lack of character, honesty, and genuine empathy towards others. Your world will be different than mine, just as mine is different from my parents’. So it’s OK to reject any of this advice. Everyone’s different, and no one has all the right answers. Never take anyone’s advice without contextualizing it with your own values, goals, and circumstances. Your parents love you. Welcome to the world. Please let us sleep. Source Blog was first published from - https://www.collaborativefund.com/blog/financial-advice-for-my-new-daughter/ Written By - Morgan Housel

Are you a “new” investor? Umm. Let us be more specific. Are you a “new” mutual fund investor? In that case, you might be facing a tough...

Every individual who manages the finance of his family requires a financial advisor to guide them and make the right investments. Are you...

Thinking and acting on short-term trends rarely results in a positive impact on your overall long-term investment performance. Morgan Housel wrote a post along these lines titled Making History by Doing Nothing where he starts off by referring to a dialogue in Netflix’s The Crown. His aim is to point to investors the timeless wisdom of investing: 99% of long-term investing is doing nothing. It has been reproduced below. "To do nothing is often the best course of action. But history was not made by those who did nothing. So I suppose it’s only natural that ambitious and driven men want to go down in history." - Queen Elizabeth to Anthony Eden on his resignation as prime minister of the United Kingdom. The queen takes pity on Eden for his experience with risk. The first sentence is great. The second gets it a little wrong, even if it’s intuitively right. Most of history is made by those who mastered the art of doing nothing when nothing needed to be done. This is especially true for business leaders and investors. Their do-nothingness can be more important than their inclination to do something. We just pay more attention to the somethings because they’re more obvious and exciting. My basic idea is 99% of investing is doing nothing, 1% will change your life, and that 1% is the only visible part so it’s all we talk about. Doing something contrarian is required to overcome mediocrity, or even to get off the ground in some fields. But bold action alone rarely makes business history, especially big enough for people to remember. Capitalism’s job is to allocate competition towards success, which means big and correct ideas plant the seeds of their own decline. Surviving that decline long enough to let compounding do something meaningful requires enough buffer – in both money and reputation – to endure trouble, regroup, and find new opportunities. And those buffers tend to come from strategically doing nothing in a way that builds up cash, prevents rash decisions, and avoid reputational damage. This is the difference between getting rich and staying rich. Good strategies are rarely black and white. Swinging for the fences and being conservative are not mutually exclusive, and the most enduring businesses and investors have elements of both, usually at the same time, often feeding off each other. Take Microsoft’s early days. Bill Gates chased a bolder vision than almost anyone else in the 20th century. Yet he swung for the fences and focused relentlessly on downside risk at the same time. Gates once talked about how he handled cash management: I came up with this incredibly conservative approach that I wanted to have enough money in the bank to pay a year’s worth of payroll even if we didn’t get any payments coming in. I’ve been almost true to that the whole time. It’s a barbell: Huge investments in the future of computing on one hand while piling up treasury bonds on the other. And the doing-nothing was as important as the doing something, because it buffered against the risk of recession and competition that, if not defended again, would have stop the doing something dead in its tracks. There is a graveyard of promising companies whose demise was caused by not accepting this cognitive dissonance. Charlie Munger explained something similar in investing. His dealmaking philosophy is “Look at lots of deals and don’t do almost all of them.” Combine these two quotes: “In my personal portfolio I’ve sat for years at a time with $10 million to $12 million in treasuries. Just waiting, waiting. A lot of people can’t stand to wait. It takes character to sit there with all that cash and do nothing.” “The wise ones bet heavily when the world offers them opportunity. They bet big when they have the odds. And the rest of the time, they don’t.” Doing nothing most of the time is what makes doing something big some of the time possible. This might make sense on paper but it is maddeningly hard in practice because of the queen’s observation: People want to make history and do something. It’s mental torture to match hands-off patience with decisive action. They are opposite skills, even if they rely on one another. It’s why the Mungers of the world are rare. His not-investing has been as important as his investing. There’s a passive version of this. Dollar cost averaging means actively doing something (buying every month) while strategically doing nothing (selling in an attempt to get a better price). Neither works without the other, but because of how compounding works the latter (waiting, hands off, doing nothing) becomes more important over time than the act of buying. When you hear rare stories about mom-and-pop investors letting their investments compound for decades, you are witnessing people making history by doing nothing. A couple things stick out here. Strategically doing nothing diversifies against a dangerous ego. As Jason Zweig says, “Being right is the enemy of staying right, partly because it makes you overconfident, even more importantly because it leads you to forget the way the world works.” Constant actions increase the odds of occasional luck, which increases the odds of being fooled by randomness in a way that saying no in the name of humility or waiting for bigger payoffs helps prevent. This is why day trading is so difficult. The pull toward constant action implicitly assumes the best opportunities are constantly presenting themselves to you at every moment. It’s hard to think of living in bigger bubble. Doing nothing gives you options to do something different in the future. And options can be one of the most valuable assets in world that’s constantly changing and breaking down old rules. Content Published on: Morning Star