Chirag Joshi


Millennial Generation is a group of people born anywhere from the year 1980 till the year 2000. So why is it important to understand the investing trends of this generation? Millennial Generation forms a large part of the total population which is moving into its prime spending years, and therefore, it is essential to understand their financial psychology. Their perception and expectation from various experiences pave the way for the demand for such products. For financial firms as service providers, they need to understand the investing trends of this generation to maximize the profit potential and cater to their demand. E.g., Millennial Generation is known to opt for rented premises over an owned house because of the advantage of geographical mobility. This may dictate the demand for residential real estate in the years to come. Analyzing such trends is essential to forecast the future demand outlook of the economy for various sectors and products. 

Another important reason to focus on this generation is timing. The Millennials are born in the times of rapid change in the technology, business environment, and therefore, their priorities and set of expectations are very different from the previous generations.

Here are a few Millennial investing trends that will define the way of doing business in the future.

  1. Technology at their disposal

Millennial Generation has grown up in the age of digitization and has exploited the use of the internet to the best potential. Technology has allowed access to education and knowledge about investing at a young age to them, making the platform equal for everyone. Millennial Generation is a tech-savvy group that prefer to invest through their mobile phones directly. It has provided access to loads of information, and therefore, the millennials have become independent in their research, financial analysis followed by buying and selling of securities.

2. Risk-takers

The current age bracket for the millennial population falls under 40, making them a young growing community with abundant opportunities. The advancement of technology, access to resources and age on their side has allowed the people from this generation to go high-risk investments like equities. Millennials are risk-takers. With the penetration of the mutual fund industry in India, most of their equity investments are through SIPs in mutual funds. Mutual funds have a more significant benefit with limited capital too. The high risk would mean high return which will enable them to achieve their target goals. They also have an entrepreneurial mindset, and therefore, they are not afraid to experiment. They might accept failures provided if they come with learning. They experimentation include investing in mutual funds for long term goals and simultaneously trading in stocks for quick money. They have a diverse thought process for their action.  

3. Goal-based investment

Millennials are one generation which beliefs in financial planning, retirement planning with the help of long-term wealth creation. They are persuasive in determining their long term goals, quantifying them to an extent and creating a financial roadmap to achieve them. This is known as Goals-Based Investing. Goals like a world tour, watching the Indian Pakistan match in the World cup in London etc. comes at a cost, but they have the plans ready. 

4. Access, not ownership

As discussed, they don’t prefer ownership of residential house because of their dream to move around the country and the globe in different cultures and environment. Similarly, they have been reluctant to purchase capital intensive goods like cars, luxury goods etc. Instead, they get a broader sense of utility and satisfaction if they can use it whenever they want. Such a particular approach towards consumption patterns implies the need to use instead of the need to own an asset. A simple analogy can be drawn from the above facts – use of cabs which give a similar sense of comfort would be preferred over a chauffeur-driven owned car.

5. Informed investment decisions 

With the advent and access to technology, it has become easy to compare between products, services, companies etc. The fundamental business models have changed drastically in the benefit of the end consumer. In the earlier 2010s, we used to have companies selling their products and services online using digital marketing techniques as it was just the beginning of the application of technology. Today, we have companies in the business of comparing similar products and services as a primary business. The limited point that we are trying to share here is that technology has allowed more information to disseminate to the users faster and reliably. This enables the millennials to directly compare the products and make an informed decision to maximize the benefit. Millennials do not mind talking about the help of financial advisors when investing. But millennials are famously known as do-it-yourself generation, and they will conduct their analysis before investing. Technology has brought the world closer and provided access to interact with any professional from all the fields in no time, further helping the people to make more informed choices.

6. Better thinkers

Millionaire generation is known to be better thinkers. Smart thinking is also a result of better access to resources. The ability to postpone an expenditure for something else is something that has been notably seen in this generation, i.e. their ability to prioritize their needs and expenses. They respect the service quality before choosing it. They don’t mind paying a higher cost for the same product if the perceived value of services is more elevated. If the service quality is not up to the mark and is irreplaceable, then the potential of an alternative business idea is enormous. That’s where you could see new fintech businesses coming up in the discount broking space too and capturing a good share of the market. Samco has been instrumental in giving better service qualities to the customers at a lower cost. 

Long term investor believes in buying and holding a particular stock for the long-term as his way of creating wealth and generate passive income. They do not track the price of the stock but analyze the value of the business. This is commonly known as ‘Value Investing Principle of Investment.’ They believe in the fundamentals of the company, and they analyze by comparing ratios, profitability, growth, customer base, geographical presence, quality of management and sustainability of the company with other peers in the same industry. Here are a few things to keep in mind before starting your career as an investor. There are some Costly Investment Mistakes that a naïve investor should avoid in his preliminary phase of the career. 

  1. Timing the markets 

Investors generally wait for the right time to enter. Well, it is important to enter at the right price, but no investor has been successful in predicting the next move of the market. Incorrect entry and exit are one of the most common but costly mistakes that investors tend to make. Their decision to invest in stocks depends on acquaintances. One should not invest in stocks just because other people around are doing so. Such practices often yield subordinate returns in the long term. Instead of timing the markets, it is essential to invest consistently and regularly by spreading out the investment corpus at various time intervals. This will allow the investor to take advantage of rupee cost averaging and watch the investments grow and compound over time.

2. Use of Margin to create leverage for investment

Let us understand the meaning of leverage using Margin money. Margin is simply a loan extended by the broker that allows the investor to enter larger trades on borrowed funds. Leverage in any business means the use of debt to finance the assets. Essentially, leverage will enable you to pay less than the full price for a trade, giving you the ability to enter more significant positions even with a small amount of capital. Historically, debt has proved to be a way for exponential business growth. However, the ability to repay within time is a crucial factor. With long term investing, the leverage can affect the overall returns of the portfolio drastically and wipe out the capital as well.

3. Investment in penny stocks / small caps stocks

One of the most consistent mistakes that the majority of inexperienced investors tend to make is being attracted towards small caps stocks. The reason for this (ultimately dangerous) attraction always comes down to the potential returns and an opportunity to earn higher returns very quickly. In a single week, the price might jump from INR 2 to INR 20. 

Well, it’s an illusion, make no mistake about it. Not all small-cap stocks give such returns. One of the critical investing principles given out by Peter Lynch – ‘Invest in what you understand.’ This has been emphasized and reiterated by many fundamentally profound investors to date. Warren Buffet said that ‘Risk comes from not knowing what you are doing.’

Well, this has been the case for many penny stocks too. With limited information, restricted market participation and lack of liquidity prove to a costly mistake for the investor.

If you pick the right stock, the returns can be exceedingly vast. As against this, choose the wrong stock can erode your entire capital.

4. Lack of Patience

Investors saved money back in the stock market is arguably the single most effective plan to become wealthy. But investing will not make you rich overnight. Unfortunately, many people have high expectations, and when those are not met, such hope can lead to disappointment and cause them to leave investing altogether. Investing is a slow and consistent process that will help an investor to build sustainable wealth. Mr Warren Buffet became the richest person in the early 50s, i.e. after more than 30 years of investing career and continued to remain in the top 10 billionaires list even today. It is essential to be right in your stock selection but more important to be consistent with your decision making.

5. Over Diversification

It is important to have a strategic asset allocation and focus on the benefits offered by Diversification. Mr Warren Buffet had once said that Diversification is a protection against your ignorance. Diversification has proved to be an important risk management technique to mitigate the idiosyncratic risks from specific investments. However, Diversification comes at a cost as it limits the upside returns of the portfolio as well. If an investor is not careful, Diversification could easily lead to over-diversification, impacting the overall profitability of the portfolio over the long term. Over Diversification would lead to loss-making assets evening out the profit-making investments – resulting in lower returns from the portfolio.

To prevent over-diversification, investors must study the business dynamics, industry insights and business models to understand the specific exposure of each investment. 

6. Psychological barriers / Emotional investment

Greed and Fear are the two emotions that drive the market movement daily. The perception of an investor towards risk changes as per the market volatility. The veteran investor Mr, Warren Buffet has said that “Be Greedy when others are fearful and be fearful when others are greedy.” However, it is better said than done as most of the investors are somewhat cautious in a bear market and over-optimistic when the markets have already outperformed. This defies the Value Investing principle leading to improper entries and exit in the market, increasing the potential losses on the portfolio. For a successful investing career, it is imperative to refrain from the emotional biases for any investment. Psychological barriers create a rather inconsistent and indiscipline investing approach affecting the returns from the portfolio.

Investing is not easy, but if the investor steers clear from any one of these pitfalls, it can make a material difference in the portfolio. Making mistakes is not a problem until one learns from the same. 

If at any time your savings don’t grow at the same rate as inflation, you are effectively losing the real value of money. Therefore, it is imperative to start investing in appreciating assets yielding higher returns than the rate of inflation in the country.

Investment is a decision that abridges the probability to achieve future financial goals. Investing at a young age would benefit the portfolio and reap the magical benefits of compounding. A fundamental outcome of compounding is that return on the principle and the return on the accumulated earnings of the previous years’ cumulatively compound every year i.e. interest on interest.

Albert Einstein had claimed Compound interest to be the eighth wonder of the world. One who understands it – earns it; he who doesn’t – pays it. 

Now that we have established that investing is an important activity and a crucial decision of your financial career, the next addressable question is when we should start investing? Well, Investing is a routine, and there is no specific timeline to invest. The early investing around the 20s when graduation is about to get over will be the best suitable timeline. 

Earlier, the better! Longer, the merrier!

However, if someone has not started investing, no one is missing the bus. One can start investing at any age. The only impact would be on the risk appetite and long-term financial goals, which in turn will decide the strategic asset allocation of the portfolio. As you age, the asset allocation might change in favour of less risky assets because of increasing responsibility in their 30s and beyond and a higher need for stability, eventually decreasing the risk appetite of the investor.

Best Investing Strategies in your 20s 

Here are the top reasons to start investing in your 20s.

  1. Higher risk-taking ability
  2. Higher savings over time
  3. More Recovery time
  4. Higher impact of compounding 
  5. Increased probability towards secured future
  6. Secured Retirement

The legendary investor Mr. Warren Buffet made his first investment at the age of 11 years 

Since the risk appetite is the maximum, a higher allocation may be towards equities, small cap investments etc. – which constitute to be risky investments.

Best Investing Strategies in your 30s

When the age reaches around 30s one may have been left with just less than 30 odd years until retirement. At this age generally, the affordability to take aggressive risks reduces but you are still far away from your retirement. This setting may allow the investor to create a hybrid portfolio with equal exposure to equity and bonds. A greater sense of responsibility demands enough liquidity as well to survive in times of uncertainties and crisis, i.e. emergency fund. Another alternative to reduce the overall portfolio risk is through mutual funds. Mutual funds are an inexpensive way to diversify the portfolio.

Best Investing Strategies in your 40s

The individual may be at the peak of their career with the highest possible salary in this age bracket. Therefore, allowing the investor to make proper adjustments to their social security accounts (post-retirement benefits). Since there are just less than two decades to retirement, one may not accept unwarranted risks to the portfolio. An ideal portfolio would increase the exposure to large-cap stocks (considered stable) and bonds. Also, this is the same age bracket where the investor may want to pay off his debt obligations in entirety to a sound retirement. Higher-income from primary occupation also allows for such repayment and becoming debt-free.

Best Investing Strategies in your 50s

This is the age bracket where retirement is just around the corner. The main focus would be to safeguard the corpus necessary to fund the post-retirement age. In India, where the government does not social security benefits, a higher percentage of the income maybe even invested in highly liquid securities to fund some unexpectantly high medical bills. Most of them might have insurance policies to cover their medical bills too as unfortunate ailment may be expected in this age bracket and beyond. It would reasonably make sense to dramatically reduce the overall risk of the portfolio and create income-generating assets to fund the monthly expenses post-retirement. An ideal strategy would be to identify monthly spending needs, decide the risk appetite and identify assets providing such returns to satisfy the budgeted monthly needs. Interest on corporate bonds, high dividend-yielding stocks, risk-free government bonds, rent from real estate etc. are few of the many passive asset classes for the retirement portfolio.

Thumb rule of Investing based on age

If none of the above strategies works best for you, one of the most straight forward strategies of investing based on your age is the 110 Rule of InvestingThe plan gives out the asset allocation towards equities (high risk) based on age. The age of the individual is subtracted from the number 110, and the answer shall be the percentage allocation towards equities. Let’s calculate the asset allocation for a person in its 40s. (110-40). That will be 70% in equity and 30% in bonds. The fundamental presumption of this rule is that the overall risk appetite for any investor reduces as they age. Therefore, they should minimise exposure towards equities as they grow older and mature towards retirement. There are variations to this rule as coefficient maybe 100 or 120 depending on the risk aggressiveness. 

Eventually, How much you invest depends on every decade of promotion you make for your financial freedom. Warren buffet rightly said, “Do not save what is left after spending; instead spend what is left after saving.”

Raamdeo Agrawal, born in a middle-class family in Chhattisgarh, is a successful investor and the Chairman of Motilal Oswal Financial Services. A Chartered Accountant, by qualification, he always had a keen interest in studying balance sheets and understanding businesses. Along with his friend Mr Motilal Oswal, He started a broking firm in 1987 and commenced with equity advisory vertical and portfolio management services soon in the mid-1990s. He gradually rose to prominence as one of the most sought-after investors in India, known as India’s Warren Buffet. With a net worth of over INR 13,000 crores, majorly from his fruitful investments, his investment philosophy has accrued a large following among all investors.

Here are the 5 top investment lessons you can learn from the master investor himself:


It is crucial to know the kind of business you are investing in. When you understand the specifics of a particular industry, you can gauge its growth trajectory and potential, thus reducing the risk involved in investing in the business. Mr Warren Buffet had once quoted that risk comes from not knowing what you are doing. A good strategy for this is to identify promising sectors, understand businesses and then make an investing decision.


It is a well-defined principle which says, “Price is what you pay, Value is what you perceive!” is a golden rule of investment. Prices are an effect of psychological reactions of market participants to information and news that vary every day in the market. However, the fundamental underlying of any stock is the business that it operates. It is the value of that business that matters to your portfolio in the long run. As Stock Market is a fight between Greed and Fear, the market generally tends to over-react in a bearish market, i.e. the market corrects more than expected, attributed to psychological factors by market participants during a recession. The principles of Value Investing are most likely to be used at such times. It is wise always to analyze a company’s fundamentals and recent history to gauge whether it is worth investing in. These companies have given exponential returns in years after a recession leaving investors with exponential gains in the long term. These are also known as bargain purchases.


Mr Ramdeo Agarwal’s investment style is to invest in the long term appreciating assets. He believes that one should invest the surplus and sell when he is in dire need of funds. Market volatility is one of the biggest problems for any investor. Buying quality business stocks at the right and reasonable price is essential. Further, long term investments have the benefit of compounding of returns as well. The long-term investment thought process allows the investor to withstand the short-term volatility and psychological reactions to stock prices. 


Mr Raamdeo Agarwal believes that success in equity investment can be achieved through the three D’s of investing: Discipline, Diversification and Differentiating between value and prices. 

Mr Agrawal believes that discipline, irrespective of whether the market is good or bad, is an essential trait of any successful investor. He has been very disciplined in his investing approach throughout his investment career of over 30 years now. Discipline brings consistency and creates a habit of winning. When you do the same thing over and over again, you become very good at it. 

It is important not to put all eggs in a single basket. Diversification is a technique used to reduce risks by allocating investment in different industries, financial instruments, etc. It is a risk management technique to minimize the risks by investing in varying sectors with disproportionate correlation to each other. i.e. safeguarding the downside risk from a specific company. In his words, “Diversification within a portfolio can take care of all the challenges of the marketplace”. While it does not guarantee against loss, diversification is an essential component of achieving long-term financial goals while minimizing risk. Diversification is vital to eliminate company-specific risk, also known as idiosyncratic risks.

Differentiating between value and price also becomes essential to building a valuable and stable portfolio. As explained earlier in the article, it is important to stay unaffected by price variations. The long-term value is what needs to be followed. 

Thus, a combination of these three methods becomes crucial for any successful investor.


Mr Raamdeo Agarwal has stressed enough on this formula. QGLP (Quality, Growth, Longevity and Price) strategy for investment looks after the four primary fundamentals of long term wealth creation. This strategy expertly examines the following:

  • Quality (Q) of business and management: The Quality of a business or company is reflected in its ability to extract significant returns on capital invested while prioritizing the interest of stakeholders. This ability should be deep-rooted and hence sustainable in business.
  • Growth (G) of earnings and RoE: Growth is key characteristic investors search for while selecting companies for investing. However, Growth by itself doesn’t mean much. It adds value only when the company’s return on capital exceeds the cost of capital. Thus, Growth is simply an amplifier: good when return exceeds the cost of capital, bad when performance is below the cost of capital, and neutral when profit equals the cost of capital. Higher Growth adds value for high return businesses and discredits value for low return businesses.
  • Longevity (L): A useful practice for an investor is to determine how long a company whose returns on capital exceed costs can continue to find fruitful investment opportunities. Longevity can also be seen in understanding the growth potential for 10-15 years. It analyses the relevance of a business in the long term. Longevity, in simple terms, would mean the sustainability of the company to maintain or increase the level of current profits and its ability to withstand the changing market dynamics.
  • Price (P): Price of a stock has to be seen in concurrence with the value it offers. Price is what we pay; value is what we get. Therefore, stocks are more attractive when the price is less than the intrinsic value of the stock.

These investment lessons are just a few chapters of the investing world that Mr Raamdeo Agrawal has experienced in his 30 years of investing experience. They provide a clear guide to the investment habits and traits one should hone to find success in the marketplace.

Investment strategy shapes the decision that an investor takes for his portfolio based on the expected returns, defined risk appetite, long term goals and the capital. Investment strategies are classified based on their overall objective like regular income, rapid growth, environmental factors, low risk etc, medium-term outlook etc. Here are few strategies that we would like to discuss;

Types of investment strategy 

  1. Value Investing

This investment strategy gain recognition after Mr. Warren Buffet claimed to have used it.  The Fundamental idea of this strategy is to identify an undervalued stock in times of recession, which have corrected more because of overreaction of the emotions of the market participants. These companies have given promising returns in years after a recession leaving investors with exponential returns in the long term. These are also known as bargain purchases. 

2. Dividend Growth Investing 

This investment strategy has the overall objective of making a regular income. The investor scans out companies that pay a dividend consistently. These are generally defensive companies which show consistent growth in the financial, more stable earnings and less volatile returns for the investors. Reinvesting the regular dividend has the benefit of compounded returns in the long term. 

3. ESG Investing / Sustainable Investing

ESG (Environmental, Social and Governance) Investing is a broader terminology used for investments that seek positive returns and growth as well as consider the long-term impact on society and the environment.

4. Index Investing 

Index investing is a passive investment strategy that aims to reproduce the same returns as that of a benchmark index. It is a less risky, less costly investing strategy because of greater diversification as well as lower expenses and fees than a few of the above actively managed strategies. Such investments can be directly done through Exchange traded funds (ETFs) and Index mutual funds.

5. Seasonal Investing

Seasonal investing strategy guides an investor to bet on stocks and sectors based on its historical performance during the same period. These strategies are back-tested for 10-20 years in order to confirm a view on the performance and identify a similar recurring trend. This is followed by selective trading which involves picking out stocks that will do better than the market over a period of a year or less, especially outperforming in that season.

What is Seasonal Investing?

In changing business environment and the market dynamics, holding on to stocks – the ones that remain high quality – is elementary yet not as simple as it sounds. A profitable business today may or may not continue to stay profitable due to the business dynamism. Therefore, one can anticipate a foreseeable future and bet on a particular sector which could potentially outperform in the medium term. This is known as Seasonal Investing. The markets are volatile, businesses are dynamic, technology is upgrading, and uncertainty prevails over the long term. This hints to moving towards a more profound investment strategy i.e. seasonal investing, in order to outperform the broader markets by participating in short to medium term trends

Why Seasonal Investing?

Seasonality happens because of a series of annually recurring events. The performance can be historically analysed and forecasted for the current year. One of the series of historical performance has been seen in the US markets where the broader markets show a seasonal strength from October to April – popularly known as ‘buy when it snows, sell when it goes.’

  • Data is easily available

Historical Trends and performance of stocks are easily available as these are data points from the past. As the seasonal cycles are well known, tracked, and reported upon, the past trends have enough data to support the future prediction.

  • More opportunities 

Most of the seasonal trends are short term trends with a time frame of less than a year allowing the investor to take multiple advantage of multiple opportunities within a year. Therefore, the investor may outperform the benchmark substantially by such short-term profitable trend analysis. For eg: Agriculture commodity stocks depends mainly on monsoon giving opportunities to multiple sectors related to agriculture (tractor automobile companies, tractor finance, chemical and fertilizer, etc.)

  • Short holding period

Seasonal investing strategy lasts until the trend ends. These trends are mostly for a period less than a year. Therefore, it is beneficial for the investor as it provides higher liquidity and the investor can be ready to identify the next big trend. 

  • Buy low and sell high

The fundamental principle of seasonal investing is to buy at the beginning of the trend and sell once the trend is over. This allows the investor to make maximum profits as the investor would be deploying funds before the trend commences – at low prices and rich valuations and sell the stocks once the trend is over – at higher prices.

Limitations of seasonal investing

  • Historical data

The analysis is based on historical data and the performance of the past. The past performance may or may not a true resemblance of the future performance. The investor may need to have other indicators and studies in place to confirm his view on the upcoming trend. 

  • Seasonal investing strategy alone is not recommended

Seasonality is a useful analytical tool for the historical data, but only when used in conjunction with fundamental and technical analysis, it gives a higher success rate. 

  • Timing the trend

Timing the market has never been a good friend for most of the investors. With seasonal investment strategy, timing is the key to maximum profits. A wrong entry or exit may result in losses. 

  • Time-consuming research

As it requires selective positional trading, the investor must be on his toes all the time to be updated with the latest trend.  

With increasing uncertainty and volatility in the global markets, the investor may turn to seasonal investing strategy. However, to increase to the probability of success, he should use other complementary indicators as well as deploy risk management tool.

Profitable investments are fickle friends. When we invest in securities, we should keep in mind that businesses have ups and downs, just like everything else. A company which is profitable today may or may not continue to be profitable in the future. Therefore, it is very vital for the investor to regularly review the investments, closely watch the business performance, understand the market dynamics of the industry, and rebalance the assets at regular intervals.

Portfolio Rebalancing is done to ensure that the asset allocations are aligned to your desired risk appetite and financial goals as per the original investment policy statement (‘IPS’)

Why Portfolio Rebalancing? 

The portfolio manager is aware of your risk appetite and long-term goals and mentions that in the IPS. The choice of assets and proportion of each asset classes is primarily depended on the overall objective defined in the IPS.

For example: Let’s say, the primary asset allocation happens to be 60 per cent in favour of equities. This will be called your original strategic asset allocation. Over the next year, there could be a change in the market value of different asset classes within the portfolio, thereby, hampering the overall asset allocation. Such modification may expose the investor to the unwarranted risk and may prolong the time taken to achieve the long term goals as per the IPS. It is crucial to re-allocate these excess funds to reduce such unwarranted exposure. 

Rebalancing will enable buying or selling assets in a portfolio periodically to maintain a fundamental level of strategic asset allocation. Hence, rebalancing shall keep the portfolio align with long term goals, desired risk appetite as well as expected return from the portfolio as defined in the IPS.

Frequency of Portfolio Rebalancing (Strategies)

There is no fixed schedule for rebalancing. However, there are a few portfolio rebalancing strategies to decide the frequency of rebalancing.

  1. Constant Mix strategy (Corridor based)

Since rebalancing allows the investors to sell high and buy low, by booking profits from outperforming assets and reinvesting them in underperforming assets, this strategy demands a rebalancing on a variation from the original asset allocation with bands. E.g., When your original asset allocation shifts from its equilibrium beyond 10 per cent. i.e. If the allocation shifts from the original 70-30 to 80-20, then the investor shall sell 10% equity and invest 10% in debt and change the allocation back to original 70-30. 

2. Calendar Rebalancing (Time based)

This is one of the more straightforward rebalancing techniques where a fixed date of a periodic interval, either annually or twice a year, is decided in advance as the date of rebalancing. The portfolio is rebalanced irrespective of the performance of the markets. This is the least costly method of rebalancing; however, it does not react to the market conditions.

3. Constant proportion portfolio insurance: 

This is the most complicated strategy in this list as it involves a floor value for the risky investment and a multiplier coefficient. The rebalancing decisions are taken if the cushioning amount, which is a function of the portfolio value, floor value and the coefficient multiplier, is triggered.

Importance of Portfolio Rebalancing

  • Risk and reward: Asset allocation is all about risk and reward. As we discussed that some asset classes might outperform the other asset classes in the same portfolio over a period of time. Portfolio rebalancing helps to avoid skewness towards a particular asset class, thereby, stabilizing the overall portfolio risk as per the IPS
  • Higher discipline: A psychological trait of the investors does not allow them to put in more money in underperforming assets and securities. Portfolio Rebalancing enforces a certain level of discipline to sell the outperformers and put the same money in the stocks that have underperformed. 
  • Regular Review: Rebalancing is a follow-up activity after a full review of the portfolio. Therefore, every time that a portfolio manager wishes to rebalance the portfolio, all the securities and the asset classes shall be analyzed, scrutinized and reviewed, thereby, able to make an opinion on individual stock holdings too.
  • Stick with the overall plan: The original strategic asset allocation and the investment strategy is tied to the long-term aspirational goals, timeframe for the money and the desired risk tolerance. Periodic Portfolio Rebalancing enables to maintain the strategic asset allocation in line with the IPS.

Rebalancing is an integral part of strategic investment management and financial plan. Therefore, It is crucial to reap the desired rewards from your allocated funds. It should, however, be done keeping in mind the costs that come along, e.g., exit load, brokerage costs, transaction costs and taxation. Therefore, too much frequent rebalancing may be very costly and may outweigh the benefits of Portfolio rebalancing.

Therefore, one should weigh the costs and benefits of the overall portfolio rebalancing activity and then decide the strategy that works best, identify the asset classes and act on it. 

‘All you need is a plan, the road map and the courage to press on to your destination.’ No one knows the future, but proper planning can get you closest to what one would have thought.

Similarly, planning is necessary for all aspects of life. For money-related decisions, ‘Financial Planning’ comes into the picture. Financial planning is a compilation of all the long term goals and related strategies to achieve the same. It mostly keeps a good check on every penny earnt, spent and saved. 

Financial planning is often misunderstood to be just for the ‘rich’. Well, this is a myth since everybody would have financial goals to achieve in the future. Financial planning includes identifying the short term, medium-term and long term goals, creating budgets, cutting down on expenses, planning Investments, mitigating risks by Insurance, Retirement Planning and much more. A financial plan is telling your money where to go, instead of wondering where it went.

Why is Financial Planning Important?

  1. Disciplined Savings

The first step after creating a financial plan is to create a monthly budget. This will give you essential insights into regular expenses and income. Further, to achieve the long term goals, it is vital to convert a deficit budget to a surplus budget by cutting down on unnecessary expenses. 

“The cost of living is not expensive, but the cost of the lifestyle is.”

  1. Creates an emergency fund

As part of an ideal financial plan, it is crucial to prepare for emergencies. There is no harm to believe that there is something that is always coming in the next few months. It is better to be ready for any uncertainty or misfortune. Usually, your emergency fund should amount up to 6 months of your salary

  1. Improves the standard of living

With a sound financial plan, one does not need to compromise on their lifestyle to pay hefty bills. Disciplined savings regularly shall support the improved standard of living as well as help achieve the long term goals.

  1. Financial independence

A proper financial plan will involve regular budgeting exercise, investment planning, retirement planning etc. These are stepping stone to reach financial independence. In this entire journey, individuals can create assets which will be sufficient to generate income post their employment. This could also lead to early retirement plans.

Many people confuse financial planning with wealth creation. However, are they different? What is more important?

Well, it would be safe to assume that proper financial planning can lead to significant wealth creation. Therefore, Wealth creation is, in fact, an outcome of financial planning. ’

Wealth is the ability to experience life fully. — Henry David Thore

What is Wealth Creation?

Wealth Creation is the process of creating a pool of assets (stocks, bonds, real estate, gold and cash), which could be self-sufficient to generate a stable source of income to aid the livelihood. Robert Kiyosaki once said, “Don’t Work For Money; let money work for you.” A part of financial planning includes investment management with the end of goal of Creating Wealth. The simple guide to wealth creation is to start early, Invest in appreciating assets and invest for the long term.

The benefit of investing early in the career and staying invested for a long term is visible exponentially in the latter years of your investment cycle. This is the power of compounding.

Importance of Wealth Creation:-

  1. Regular source of income: Good investments in appreciation assets can provide a source of income (in the form of rent, dividend, interest) even after retirement. It helps to sustain the standard of living in times of emergencies, a sabbatical from work or also a health crisis. 
  2. Healthy Retirement: Building wealth is imperative for a healthy retirement. Wealth creation matters as it will enable you to fund the post-retirement years. 
  3. Goal-based investing: A goal-setting system helps to achieve targeted Wealth. It is always useful to have a goal in front of you to push harder to achieve the same. This works well with finances too. Goal-based investing is a matrix to measure the progress of wealth creation towards specific life goals like a world tour, marriage, children’s education etc. 

What is an Ideal Wealth Creation plan?

Since Wealth creation is a subset of the overall financial plan, the steps for the same are similar too, listed as under;

  1. Creating a budget
  2. Invest rather than just saving. 
  3. Understand the impact of inflation on saving.
  4. Investing in appreciating assets
  5. Becoming Debt-free.
  6. Cutting on unnecessary expenses
  7. Don’t mix insurance with investments

It would be safe to conclude that Financial Planning and Wealth Creation complement each other; it would be impractical to start wealth creation without proper financial planning. A financial plan allows you to identify the essential steps needed to take to be successful and profitable in a sustainable fashion. 

The famous investor Warren Buffet’s quote, “Failing to plan is planning to fail” itself draws out the crucial need to plan and reduce risks in your financial endeavours!

Peter Lynch, chairman of lynch federation, is an investor, mutual fund manager, and philanthropist. He is by far, one of the greatest investors. For 13 years that he had managed the Magellan fund at Fidelity investments, he stretched up to an annual average return of 29.2%, which as of 2003 had the best 20-year performance of any mutual fund ever, invariably more than doubling the S&P 500 stock market index. Asset under management (AUM), with his philosophical management, surged from $18 million to 14 billion. He has coined several investing mantras of modern individual investing strategies, such as to invest in what you know and ten-baggers.

1. Investing Theories

  • Invest in what you know

I have found that when the market’s going down, and you buy funds wisely, at some point in future, you will be happy. You won’t get there by reading “now is the time to buy

Lynch’s investment philosophy is summed up “buy what you know”, and there’s some truth to that and also it’s often way oversimplified.

Lynch uses this principle as the starting point for investors. He always emphasizes on ‘Individual Investor Approach’, rather than ‘Fund Manager Approach’, because individual investors can spot suitable investments in their day to day lives.

He invested in shares of  Dunkin Donuts not after reading about the company but after being impressed by their coffee as a customer. That’s a clear example of a ground reality performance check.

  • Ten-Bagger Approach

Being a baseball geek. Insisted him to coin a term ‘Ten Bagger‘ which represents two home runs and a double, In financial terms, it is an investment that appreciated to 10 times of its initial purchase price. It is used to describe stocks with bombarding growth prospects and has the potential to increase tenfold. A mixture of market research and quality experience is a prerequisite for finding ten baggers. A growing industry shall have more potential ten baggers than a mature industry with already established players.

Behind every stock is a company. Find out what it’s doing” says the writer of three books. In a way to create a domino effect, ‘learn to earn’ was written for beginner investors of all ages, mainly teenagers. In “One Up”, Lynch outlines his strategy of buying all kinds of stocks, like growth, cyclical and potential turnaround situations by giving particular emphasis on discipline by rechecking your stocks every few months and not panicking when everyone is selling. An average investor can beat the money managers at their own game if they invest the necessary time and effort in researching stocks exercising common sense and discipline.

According to his practical experience, one should always count on specific characteristics of a company.

2. Investing Learnings for beginners 

  • Value investing strategies:

He states the company’s ‘duckling nature’ tends to be reflected in the share price, so good bargains often turn up. If there are some negative rumours around the company or disagreeable statement against the company– a higher level of attention should be given to such companies. 

  • Companies under M&A deals:

Investors should focus on companies participating in a proposed M&A transaction. A further check should be done on the insider buying and take advantage of such volume. In most cases, M&A deals have huge potential to generate returns because of the synergies of the combined entity.

  • Focus on Market leaders

Company in a niche business segment having a controlling market share has larger visibility of future profits and sustainable growth because of the barriers to entry in the niche segment.

  • Defensive Industries

The company that produces all season usable products – like drugs, eatables or soft drinks provide stable earnings and regular dividend payouts. They would be a good hedge to the portfolio in times of recession.

  • Track Insider buying activity

He believed that insiders/promoters buy a stock only when they are confident of the company’s long term prospects.

  • No analyst coverage

A multi-bagger stock is identified in its initial phase before it catches the eye of the analysts of the streets. Such companies are often neglected by the market participants and therefore, offering value buying in such companies.

3. Peter Lynch learnings on what a company ‘should not’ have;

  • Companies with big plans that have not yet been proven.
  • Few buyers account for 25% to 50% of the company’s sales (Concentration of customers)
  • A company over diversifying its operations and acquisitions into non-synergistic businesses (financial investments and not strategic investments are not preferable).
  • Hot stocks in hot industries rather than hot stocks in dull  industries

4. Post investment lessons

  • Diversification of portfolio

Do not diversify just for the sake of diversification. Complete research of the market and stocks is essential. Diversification comes at a cost, over diversification will affect the overall profitability of the portfolio. 

  • Price drop scenario

Buy on dips has been well-tested outperforming strategy. However, one needs to understand the price drop. As per Peter Lynch, price drops in a bearish market is a buying opportunity, whereas a price drop in a bullish market is a selling opportunity.

  • Stay in the game

A long-term commitment towards stocks will deliver exponential returns. Using the above principles, the investor must hold the stock for years fulfilling the ten-bagger approach.

  • Regular review of the portfolio

One should recheck one’s portfolio regularly depending upon the investment appetite like weekly, monthly or quarterly. Sell if the stocks have played to your expectations or it fails as per your fundamental analysis.

Lynch doesn’t see smartness in getting into a company that’s going up then take their profits rather hang in with the very high stocks when you sell the great companies and add to the losers, it’s like water in the weeds and cutting the flowers. You have to know what you own and why you own it “This baby is a cinch to go up” doesn’t count.

Increasing Healthcare and wellness expenses have impacted our retirement corpus heavily. But have you ever considered that you could pay hefty medical bills to the hospitals by making profits from their shares? Well, that’s an oxymoron, but yes, that’s very much possible!

The Healthcare and Pharmaceutical sector has consistently outperformed nifty over the years. Below is a chart showing the performance of nifty 50 and NSE pharma.

The pharma sector in India had been underperforming since 2014 with the arrival of US FDA approval. The stocks had not participated in the bull run from 2014 to 2019. However, most of the population across the globe have become more cautious about the outbreak of the current virus. The importance of Healthcare is now at its peak. 

Why Pharma and Healthcare business?

With pandemic hitting other sectors of the economy like a domino game starting from Travel and tourism to Banking, Coronavirus has shown a negative impact in all the sectors except Healthcare. And India being one of the prominent and rapidly growing presence in global pharmaceuticals could be the sector for a boom in the coming years. India has been a significant exporter of medicines and other pharma products to many countries across the globe. The cautious approach of the people shall create a further sustainable demand for these products in the coming future. 

  1. Strong Global standings (Major Exporter) 

It is the largest provider of generic medicines globally, occupying a 20% share in global supply by volume and 62% of global demand for vaccines. India now stands third worldwide for the production by size and 10th by value. India holds 12% of all global manufacturing sites catering to the US Market.

2. Manufacturing Hub and lower costs.

Expertise in low-cost patented drugs and a movement towards end-to-end manufacturing has improved manufacturing demand in India. Further, the shift of business from China to India shall boost the production in India to cater to the global market. Also, most of the Indian Pharma companies have shown decent growth and have taken steps to reduce their costs which makes the manufacturing even more attractive in India. The combined impact on increased volumes and lower costs shall be to improve earnings growth.

3. Innovation and R&D

Indian pharma companies have been investing a large percentage of their income for research and development. This is primarily to improve its wallet share in the export business. With more than 30 vaccines being in different stages of development in India, India holds a strong global position in the Drugs market.

4. Value picks

The Pharma and healthcare sector index had underperformed the nifty drastically over the last three years until 2019. The earnings stabilized in the second quarter of 2019, which then saw a turnaround story for most of the Indian Pharma companies. Some of the pharma companies are available at a dead cheap price, making them long term value picks. The basic idea of value investing strategy is to identify an undervalued stock in times of recession, which have corrected more because of the overreaction of the emotions of the market participants. Pharma companies had been in such a phase and therefore, could generate exponential returns for the investors in the long term.

5. Health insurance sector

With the increasing health risk and the medical costs associated with it, it has become essential to transfer (Risk sharing) to avoid financial discomfort in times of uncertainties. Life and Health Insurance is one such business with limited penetration in the Indian households, i.e. lower customer outreach as compared to the overall population of India. Most of the people fail to have an insurance policy or refrain from having adequate and sufficient insurance, i.e. underinsured. With an increase in financial literacy programs in India, the demand for insurance products is bound to increase. 

Healthcare and Pharma StockBasket

Considering the decisions about Investing, Healthcare and Pharma sectors is one of the industries which every investor should be bullish on. A more vigilant approach from the consumer will bring fundamental change to the spending habits towards precautionary products. 

The first step to fundamental investing is to identify the next trend – the next promising sector. In this case, we have done our bit. Secondly, choosing Stocks can be a more significant burden for any investor. But don’t worry, we have got you covered. Our research team at StockBasket has created a wellness basket and cherry-picked fundamentally sound companies with consistent growth and earnings as well as optimistic future expansion plans.

The basket is diversified across the major sectors in the healthcare space, including Indian Market leaders as well as Multinational companies.

  • Indian Healthcare companies – Dr Lal Path Labs is an international service provider of diagnostic and related healthcare tests. It is the market leader in order diagnostic space and one of the fastest-growing companies.
  • MNC Pharmaceuticals – To have a geographic diversification and global expertise, we have chosen the 6th largest pharma company across the globe dealing in medicines, vaccines and consumer health, i.e. GlaxoSmithKline. It develops and distributes medical products, including respiratory, oncology, vaccines, HIV, and consumer health medicines globally.
  • Insurance – Considering the fact of being in Health crisis, the Insurance sector is given a maximum of weightage at 30% of the portfolio with HDFC Life and ICICI Lombard as holdings. These two firms stand on top of this sector. The former is a debt-free company, and the latter has increasing Earnings per Share.

These are strong runners that have evolved to become high-quality companies operating efficiently on the back of world-class practices and steady growth. This Stockbasket encompassed the entire healthcare value chain right from diagnostics to health insurance to diversify and manage risks. Our perfectly balanced basket would wither all the market volatility to generate our client’s superior long term returns.

With regards to long term investments, it is crucial to invest wisely in those outlays which provide optimum risk component as well as promising returns in the investment horizon. One of the critical strategies to reduce the overall risk of the portfolio is with the help of ‘Sectoral Diversification’. It reduces the risk of your diversified portfolio by allocating funds in various asset classes at a very minimum cost. However, it is imperative to identify promising sectors by making some forward-looking estimates. Sectors such as mining and utility have shown slow growth in the past, whereas industries such as finance, transport, retail, aviation, agriculture are rapidly growing. Growing sectors are essential for safe and prolonged investments. However, it is furthermore crucial to understand the viability, sustainability, profitability and survival of a particular business because of the rapid change in technology, business dynamism and market conditions. Taking an example of Pharma sector was an underperforming sector since last 4-5 years. However, it has shifted gears recently and outperformed the broader markets in recent times. Change in the external environment affects the decision making and asset allocation of the investor. 

Here are a few promising sectors to watch out for:

  • Information Technology (IT)

Without a doubt, India is moving towards becoming a digital economy. Being one of the fastest emerging sectors, IT has shown global reach, lower risk, high- quality infrastructure, and connectivity that contributes immensely to the Indian economy. Its growth is escalating due to components such as BPO and government initiatives such as Digital India, MeitY Startup Hub (MSH). With technical services coming into the mainstream, IT sector shows escalating growth potential for the long term investment. Further, most of the industries like shopping, education, health and fitness are moving online, leading to increased demand for the IT infrastructure.

  • Pharma (Pharmaceuticals)

India is one of the largest exporters of generic drugs, globally. The current health crisis has been a blessing in disguise for the pharma companies. The companies were under a long term bear market since 2014 and have recently bottomed out and entered a long-term potential bull market. The consumer expenditure on medicines for chronic diseases is projected to go higher, paving the way for investments in R&D by the companies. Besides programs for rural health, preventive vaccines, and mass checkups augur well for pharmaceutical companies. Amidst the pandemic situation, the market is going bullish on pharma and healthcare sector following the increase in demand for medicines and drugs. The current health crisis has put doubts in the minds of the people on personal hygiene and safety. There are more cautious and careful in their way of living, leading to more fear amongst individuals. Fear of death has always contributed to the success of the Pharma companies. 

  • Fast Moving Consumer Goods (FMCG)

It is one of the most potent and defensive sectors serving essential items. It will always remain in business irrespective of the overall market condition, i.e. they have a constant demand, thereby providing consistent returns even if the economy faces historic low. These companies continue to deliver daily household items to an established consumer base. Being the fourth largest sector in the Indian economy, central initiatives like Food Security Bill, direct cash transfer subsidiaries support the growth of this sector. With the urban segment being a significant contributor to the volumes of such companies, there is a lot of unpenetrated potential in rural India. 

  • Telecommunication

India is one of the largest data consumers countries in the world, with the usage of a monthly average of 9.8GB per consumer and is expected to double by 2024. With a daily increase in subscriber base, app downloads, affordable tariffs, and broader availability, this sector shows exponential growth. It remains promising in the future as rural segment developments have also started. Work from home and increases usage of data amidst the COVID situation has benefited this sector. Telecom sector has recently seen some foreign direct investments from global giants like Facebook Amazon and Google, along with few of the top private equity players across the globe as well. To become a Digital Economy, Telecom Sector has to be one of the biggest beneficiaries in times to come. Telecom shows excellent prospects for a safe investment. 

  • Non-Lending Financial Sector

The non-lending financial sector would include companies in the insurance, asset management and securities business. These businesses have a little penetration, i.e. lower customer outreach as compared to the overall population of India. With an increase in financial literacy programs in India, the demand for insurance products and new Demat accounts is bound to increase. Also, the overall change from a saving economy to an investing economy shall lead to higher participation from the retail population into the capital markets. Currently, a small percentage of the total population is investing in Mutual funds, and an even lower portion of the population has insurance as a risk cover. Therefore, there is a vast potential in the Indian markets, which is unpenetrated. 

  • Argo-Chemical and fertilizer

Indian chemicals companies will benefit from the expanding speciality chemicals market globally led by manufacturing shifts from China following the outbreak of a virus. Countries across the globe are looking for an alternative to China to reduce its dependency on a single country. Indian companies could benefit from such a demand shift globally by capitalizing on the export of such chemicals.

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