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Thoughts of a Corporate Consultant – Part XIV

The last three months have been crazy. I’ve been consulting – all day – at a banking software company, doing things like creating PPTs, reviewing documents, working through project plans, fighting fires, writing SQL and wading through RBI regulations. It has been a learning experience in many ways, and a taste of corporate life

The thing that’s been neglected, sadly, is the blog. I have had very little time, with the consulting and the family. But this has given me some time to retrospect as well. So I’m going to pen the thoughts I’ve had.

1. People don’t have time.

I have always been of the opinion that everyone should take control of their finances. That their retirement income is going to be their best friend. So they might as well track it now. Having seen corporate life more closely I’ve realized that there is just not enough time. Not enough time to do proper justice to stocks, or markets or even track a portfolio. It’s therefore easy to either buy stocks on “hot tips”, or give money to a PMS to manage. Or they get sold by an insurance plan simply because it’s easier. Anything as long as I don’t have to do much real work.

This is not something I knew intimately. As an entrepreneur I have always had the time to pursue what I wanted, and finance was always close to the heart since 2003. But in general, if you have to respond to the gargantual reply-all mega thread which has more “FYI” than real content, and do this every day, and then take phone calls that ask you what you think of that email, you will have no time to see if Reliance’s gas margins are showing a sequential decline, or even if your stock just broke it’s 35 DMA.

Why this is meaningful: I wanted to create a great web site where people could do stock and mutual fund research on their own. Haha. The number of people who do self-research are too few to matter today. It is, to a large extent, pointless to build a great experience or a great analysis tool unless – and this is the real lesson – unless you are investing or trading real money. It is then that great analysis matters, when your job is to make money. If your job is to provide great analysis, then attempt to provide it for people who are trading money – not retail investors. That is what I learnt.

You might thing this means advisors will make a ton of money. I don’t think so either. That’s because there is a huge change in the advisory game. I’ll come to that later. But the first point is that people don’t need to make money in the market. No, really. Because:

2. Salary hikes are young India’s growth strategy.

If your wages are going up 20% per year, then you don’t need to invest in the market. Because a person making Rs. 50,000 per month today will make Rs. 100,000 a month in four years (or lesser, going by anecdotal evidence). So the saving of Rs. 5,000 per month sounds ridiculously small even if it compounds.

Our wages have gone up that much in the past, in urban territories because of inflation led growth, easy money and wage arbitrage with the west. Inflation has been north of 10% (CPI) for most of the last five years. Cheap funding has made certain sectors pay ridiculous salaries (airlines, media, telecom) even if the companies make continuous losses. Wage arbitrage increases the salaries for the lowest hanging fruit (IT Maintenance, BPOs) which has a trickle up effect.

Whatever the reason, if your wages are going up consistently at that rate, you will not bother with investing in the market. You make your money work for you when your income is more stable – when the income curve is so steep, why invest? It will take a crisis and years of stability before investing becomes a viable option; otherwise we’ll just have to find new suckers chasing “momentum” stocks until they all fall down. (We’ll have those anyhow, but no one seems to be left behind after a downturn!)

3. The Advisory Game has to change.

Over the last few years, people and companies that have said they can “help manage your money” have been damaged. From PMS providers, to brokers, to mutual fund distributors to insurance intermediaries, all of them have faced a downturn. And this is not only because markets are weak. Weak markets definitely have a lower investor interest, but that isn’t the whole story.

The other problem is of fatigue. Such intermediaries have looted people over the last years. Regulations were then created to stop the loot. Mutual fund distributors got as much as 6% as commissions to peddle IPOs – that was stopped, and eventually entry loads were removed when it was found the higher one time loads made distributors churn the investors’ portfolios. (Remember, investors don’t have that much time). Insurance distributors looted ULIP investors with false promises and outright lies, and the collateral was (and is) hugely confusing to any layperson. PMS providers routinely used pool accounts to transfer profits from one investor to another. Others overleveraged or underperformed. Overall, sick of having been stolen from and reading stories of those that were looted, investors have decided to not bother. After all, they don’t have that much time, and their wages are anyhow taking care of growth.

The game changer will be something – I don’t know what. But I believe now that many of the current players will die. There will have to be new, lean and efficient players in the game, who use technology to keep costs low. Investors will learn to pay to play, but regulators won’t let them charge as part of the product.

And until this happens, the intermediary game will involve a lot of cribbing from everyone involved. Financial products are designed to be sold, not bought. Intermediaries will be unhappy about direct plans, mutual funds about having to spend money on education, insurance companies at strong IRDA fines (which will eventually be unshackled and allowed to compound) and companies like Sahara about what-does-regulation-mean.

4. India is at an inflexion point.

We are either going to see a huge growth story start from here, or a massive fall. I believe that some of the issues a growing country had learnt to ignore – the corruption, the sleaze, the Khaps, the dowry murders, the scams – are now becoming a larger part of our lives. If we don’t become totally numb, we will eventually revolt and demand that heads roll.

Think of the economic situation too. High inflation. Slowing growth. Moderating money supply. Ineffective reforms. Inadequate investment. Lack of research. Lies. More Lies.

The great story needs a great moderation as well, so that much of the evils of the current story can get wiped out. This could be a really bad ending.

If on the other hand the worst is behind us, then India’ can take itself much higher. GDP growth will go back to 8% and inflation will be moderated.

Unlike the west – where I see a muddle through economy and a slow, killing not-quite-a-recovery – I think India either grows massively from here, or fails and collapses (after which it will recover, we always do).

5. Blogging frequency doesn’t need to be “Daily”

Oh, it had become an obsession. And addiction. I felt withdrawal symptoms for two months. But now that I’m down to 3 updates a week, I see the futility of getting one post, at least one post, per day. I would rather think and write now, and I’ll have a better story to write about!


Part XIV is just for kicks. If you find the earlier parts, please let me know.

  • DJ says:

    On point 4, I’d like to add a few things. China has had 10% economic growth through the last decade. What has the Shanghai composite index returned during that time? 0%. Who would have thunk? Hang Seng has returned 150%, that would make it 10% per year. Within that time frame the Shanghai index also went up by a factor of 6 in 2 years.
    So, while the focus on corruption and economic growth, etc is fine. Don’t confuse economic growth with stock market performance or vice versa.

  • givemegold says:

    Point No: 5. Blogging frequency doesn’t need to be “Daily”
    Yes – need not be daily is ok. But, keep it with in a system where at least once in a week it is updated. (Like a SIP) ..
    Just like investing in market, it may not give desirable result if blogs / websites are updated irrationally. No need much to say beyond this.. you know better.
    Cheers – regards

  • fubar says:

    I am not really sure what caused the growth in the last 10 years.
    1. Was it low base effect?
    2. Was it IT boom where we excelled?
    3. Was it the wealth effect once money started flowing?
    4. Was it the easy money sloshing around the world thanks to Mr. Greenspan?
    5. Low Oil prices?
    Except for easy money, none of the other things are present today.
    So while I agree we are at an inflexion point, we can stay at that inflexion point for years.

  • Shankar says:

    A. It is not that people dont have time, they dont want to but because of point 2. As long as they are likely to get > inflationary salary growth they can safely sleep at the wheel.
    B.That in 2007 they allowed themselves to be looted seems lame excuse, no one would have bothered about it if markets doubled along with the GDP. Thing is that right from regulators, insurers, MFs, salesmen all way to investors have slept at the wheel for too long. Leaving it or even blaming it on beaver is not a great investment plan. (Discl : am an intermediary, but definitely have refrained from looting investors πŸ™‚
    Thing is that the environment is a game changer for everyone, all the way from regulator to down. While inaction was there for a long time, acting for the sake of it just like blogging for the sake it does not work.

  • dilip says:

    did not get the 2nd point, even when income is increasing wouldn’t increase investments too?
    the point of savings/investments is to finally not depend on that income right?

  • Krish says:

    This article is like as if you read my mind. Very thought provoking and immensively makes sense for retail investors. At least you seemed to grasp the underneath point applicable for many corporate working staff.
    Just to share my experience, my investment portfolio of considerable size is all in Bank Fixed Deposits. My salary growth in the last 6 years is around 30% per annum. Now am part of the top management. But to get this raise, my working hours have become long and can hardly devout time to scout for the right property or equity investment. My RMs, financial advisors or friends redicule me for parking funds in Bank FDs and more often criticise me that my capital is getting eroded on account of inflation. Not sure this is the right approach but I love my work and don’t have any complain about longer hours as well. As a result, I have been rewarded career & financial wise in my company. Some financial blogs gives me guilt feeling about my portfolio but still maintaining status quo. I am sure the time would decide whether am foolish or wise overall.

  • Raja says:

    on point 1.
    Not sure if you are aware, but these days collaborative research on investing has become a force to reckon for people who have time and inclination for it.
    check out theequitydesk dot com or valuepickr dot com and thread on introduction of people on the forum to get more idea of what am talking about.
    The user base is mostly salaried ppl who have a passion to learn about investing.

  • Vikas says:

    Clear/Cloudy thoughts, but make sense. We are living in a time, when you can’t be sure which way things will turn. The only people that have failed this time & like every time are the politicians. They are holding everything to hold us back. Otherwise, I would say entrepreneurship beats in every heart around here. There is irrationality abound, India’s Solar companies have no tech, but lots of land, politicians are owning tens of companies, illegal mining, roads are missing in big cities and towns, builders raising prices every 3 months or less for no extra value addition or cost escalation, institutions are occupied by senile hostile bureaucrats, even after paying 1Lakh rupees tax per year, one would be afraid to seek help from Police, traffic police stealing your pockets for sleeping under a tree. So even if GDP doubled, there are free loaders in that, so thats wasted GDP, and there is other GDP that is being run in black. Stock market and tax collection do not account for that. Nobody acts because it hurts the cronies.

  • Kishan says:

    I think the present situation in India has lot do with just crowd frenzy, none of this is new and its just been blown today not because things have come to a breaking point but that its been exaggerated. The whole TV news media has become toxic, before it was impossible to get a news bulletin during prime time on the news channel, now it is becoming difficult to get one even during the day. This is only because TV channels are covering trivial news as cover news and go on about it for a long while.
    I do not track local Kannada, Hindi or Tamil news but people who I interact with who primarily get their information from those sources are far more optimistic and matter of fact, and here especially people who read Kannada newspapers know very little about even the latest Kejriwal allegation.

  • With regard to point 2 in your blog, these huge salary hikes might happen in only a few sectors and industries – the rich class and upper middle class and not among the middle class and those in the lower rung of the upper middle class. I doubt if their income grows enough to beat the alarming rate at which food, medical and education inflation is growing.

  • pawan says:

    Time, money, good work and good life… Everyone wants all of these.. but life is a complex function… we can have one more only at the cost of other : )

  • feltra says:

    Deepak ji,
    This is the part I liked best: “Part XIV is just for kicks. If you find the earlier parts, please let me know.” Hahahahahaha!
    Yes, daily blogging (as daily being glued to prices) is not necessary – and so when the next post comes along, it will be so much more profound – not that that problem is there with any of *your* posts…
    Thanks & Regards,

  • Anup Pai says:

    Amazing insights drawn and absolutely true. Not sure about the entrepreneur having time to pursue his/her interests, though. πŸ™‚