About Long Term

How long is long term?

Dhirendra Kumar answers:

Once upon a time investor's had ignored their investments for years and decades. It also turned out that many of these investors had actually died at some point. The best Strategy was to invest and forget. Do nothing like a dead person.

The GOI considers one year for listed stocks and equity MF, for other assets the limit is three years. 

Now the question is when it comes to equity what is the actual long term. 

Equity markets move in cycles...it takes 5 to 7 years to go through a full cycle of sharp rise, decline and stagnation and back. To get the right levels we need to invest through the whole cycle.

If you invest in SIP over 4 years then your risk of a loss is negligible.

The shorter the period, the higher the potential gain but the worse the possible risk. Long Term is not a vague rhetorical term. 

Therefore 5 years or more is long term.

Source: ET Wealth, 10-16 September, 2018

Financial Literacy

Financial wisdom from Rajendra Kumar Sinha:

Financial literacy is the possession of a set of skills and knowledge that allows individuals to make informed and effective decisions with regard to their financial resources. It helps them to become self sufficient and achieve financial stability; else they become victims of predatory lending and fraud.

Financial literacy is not yet a priority for an average Indian; 76 % of India's adult population does not understand the basic concepts.

The goal of National Strategy for Financial Education and initiatives of other market participants like banks, stock exchanges, broking houses, MF and insurers is to change Indian perspective of financial management.

Financial education helps to make well-informed decisions, encourages responsible financially behaviour.

Financial education can help initiate a plethora of positive changes in the economy of a country.

One of the primary objective is to provide the masses access to financial services at an affordable cost.

It is essential that all stakeholders- including government agencies, banks, financial institution and consumers must work in synergy for achieving financial literacy.

Source: Indian Management, August 2018.

On Leadership and Decision making:

Wisdom from T V Mohandas Pai:

On Leadership and Decision making:

·         Every little decision has big consequences and many more end in failures than those that hit the mark.

·         The fear of erring or being accused of wrong decision makes most leaders and organizations base their decisions on precedent. Doing the right thing requires complete awareness and honesty.

·         Self awareness allows a leader to make the best decisions for the organization and not just for oneself. It also makes the leader more open to contrarian inputs and gives the decisions the flavor of consensus. Subordinates lend to tell the leader what one wants to hear and that leads to poor decisions that hurt the organization.

·         An open culture which encourages different views is essential to make the right decisions

·         Leaders like to establish homogeneity in the organization through conformity.

·         In uncertain conditions with too many variables the decision makers would do better by erring on the side of experimentation instead of experience. 

·         Committees and long meetings are the biggest enemies of fast and effective decisions-making. While consultations and consensus are vital for the quality of decisions too often meetings tend to degenerate into durbars for the bosses.

·         To bring speed and quality to decision making, it is necessary to flatten the hierarchy and even push the decision making authority to those who perform the task and roles.

·         Technology allows instant consultation and collaboration and allows automation of routine and repetitive decision. Data can be analyzed by algorithms and trained to adapt to any changes in business events and adjust decisions accordingly.

·         Machines validate and predict business events but humans must make the strategic judgments and bear the final responsibility. 

·         The central role of decisions is to upgrade the present to a better future.

·         Decisions involve a paradox of preventing risks and taking risk at the same time.

·         Decisions separate the leader from the herd.

Source: Indian Management, August 2018