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Better to Invest in Stocks Rather Than Real Estate

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Better to Invest in Stocks Rather Than Real Estate

Last updated: July 20 2009
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  • #51

    #51

    Re : Better to Invest in Stocks Rather Than Real Estate

    Wiseman,

    I have heard people in U.S. asking to subtract one's age from 125 to know the percentage of risk a person has to take in their investment through their life.

    In India, the risk appetite of the general population is very less.

    I dont know how many can confidently say their individual net worth when questioned.That's how poor our personal finance planning is.

    I really feel sad to see people who toil day and night to earn their salary every month, deciding to go ahead and invest in a plan or take loan at the behest of a marketing executive/bank agent/financial consultant without even thinking twice.

    Had each one taken atleast a day time to analyze other options before getting carried away by the growth story and secured future talk, I am sure they would have taken better decisions and needn't have to blame the economic slowdown or job scenario for their plight.

    Having said that, what other options do we have?We got to beat inflation and get wealthier somehow right?Everyone has a family to provide, children to educate,medical expenses to be met,emergencies to manage, retirement life to plan etc.

    For people who lack financial astuteness and who are lazy to spend time to monitor/manage their investment constantly naturally tend to choose from options like diversified Mutual funds,ULIP, Gold, RE etc and hope if they can strive and systematically pay off their EMI's,premiums,dues etc they can become wealthier and have a peaceful life later on.

    In India, there's huge social pressure to succeed.Here personal and financial failures are not seen as part and parcel of life.Even today, wealth in the form of Real estate and gold is whats accepted and respected.

    I am sure many would be facing the dilemma on how to get wealthier and also remain conservative in their investments.

    Sometimes, I feel all the financial instruments available from the government and financial instituitions are a faux and are just ways to get people slaving their whole life funding the monetary system and sustaining economy whilst fooling themselves that they are getting rich.The reality is nothing changes for them in terms of purchasing power.It seems to be just manipulation of currency value,inflation and extended deficit.

    I wish to hear from you whether sustainable wealth creation is achievable and what would be your advise on portfolio allocation to people starting their finance planning.Requesting you to kindly share your thoughts and experiences.

    Thank you very much in advance.

    I also take this opportunity to thank you for your 100 Rs in the pocket advise.I have been able to cut down lots of unnecessary expenses adopting that strategy.It really makes me feel cash rich and am saving better and also not giving up on living the life of my age.
    Last edited by nabishek; June 30 2009, 11:00 AM.

    Comment

    • #52

      #52

      Re : Better to Invest in Stocks Rather Than Real Estate

      Originally posted by wiseman View Post
      Why do you say Oil does not carry technology or R&D risk? Oil, as an increasing number of serious analysts are coming to a conclusion, is in a longterm decline. In fact technology and R&D spend is becoming a dead loss (and a large one at that) in oil as the return on these investments are literally becoming non-existent. The last major find of oil was before 1965, nearly 45 years ago. Most major wells, like Cantarell in Mexico, Ghawar and so on are in permanent decline and may see catastrophic declines because of the habit of pumping saline water to keep pressure up. We must not confuse the criticality of Energy in general with the prosperity of the oil economy. I believe that Indian Oil has significant risks going forward as its losses can become catastrophic (what would the Indian Govt do with oil price control, if say, crude goes to $300 per barrel?), while its profits will always be controlled with price controls. This is a classic head-I-win-tails-you-lose situation. While your losses can be devastating - covered up by loans provided by Govt - the profits will always be capped and in a slow decline into the future. And you think this is a safe investment?
      I hope you analyse better, fundamentals as well. Indian Oil is not a oil exploration company, it is a refiner. There are other by products in refining which will still give high profit margins to IOC even if crude hits $300/barrel. By the way crude would hit $300/barrel only if salaries also rise at same levels which they will in BRIC economies.

      Originally posted by wiseman View Post
      And who told you that banks are conservative? The largest loan portfolio of banks are to corporates and then to the home sector, both of which will see significant rise in NPAs and large bailouts of banks in the near future. In fact, rather than loan to manufacturing and tying up large amounts of money in oudated machinery (a dead loss) wouldn't it be better to hold a portfolio of market traded stock which can be managed with much more flexibility?
      Giving loans directly to corporates is one thing....and giving low interest long term loans like you said to punters, who will put that money in stocks is another thing.

      Banks will directly loan to corporates and collect interest. Why should they give it into hands of brokers/shufflers/punters -- they don't need brokers in between.

      Manufacturing industry is the mother of all industries...otherwise you will not have roads, bridges, trucks, buses, ships, plates and spoons nothing......giving loans to good manufacturing companies is good for banks & the economy.

      Comment

      • #53

        #53

        Re : Better to Invest in Stocks Rather Than Real Estate

        Originally posted by nabishek View Post
        Wiseman,

        I have heard people in U.S. asking to subtract one's age from 125 to know the percentage of risk a person has to take in their investment through their life.

        In India, the risk appetite of the general population is very less.

        I dont know how many can confidently say their individual net worth when questioned.That's how poor our personal finance planning is.

        I really feel sad to see people who toil day and night to earn their salary every month, deciding to go ahead and invest in a plan or take loan at the behest of a marketing executive/bank agent/financial consultant without even thinking twice.

        For people who lack financial astuteness and who are lazy to spend time to monitor/manage their investment constantly naturally tend to choose from options like diversified Mutual funds,ULIP, Gold, RE etc and hope if they can strive and systematically pay off their EMI's,premiums,dues etc they can become wealthier and have a peaceful life later on.

        In India, there's huge social pressure to succeed.Here personal and financial failures are not seen as part and parcel of life.Even today, wealth in the form of Real estate and gold is whats accepted and respected.

        I am sure many would be facing the dilemma on how to get wealthier and also remain conservative in their investments.
        Yes in India risk appetite of general population is less...that is why we are not having huge debts like americans.

        Yes Indians will invest only in gold and real estate....both have not failed us till now.

        Comment

        • #54

          #54

          Re : Better to Invest in Stocks Rather Than Real Estate

          Hindu rate of returns

          Yah both have not failed and why not bcose....


          They provide the classic Hindu rate of returns.

          Comment

          • #55

            #55

            Re : Better to Invest in Stocks Rather Than Real Estate

            Originally posted by Sansei View Post
            Yah both have not failed and why not bcose....


            They provide the classic Hindu rate of returns.
            Gold was Rs400 per gram in 2002.

            In Dec 2007/Jan 2008 (when stock market peaked everywhere) Gold was Rs.950 per gram.

            Between Oct 2008 - Mar 2009 (when stock markets bottomed everywhere) Gold was wavering between Rs.1300 to Rs.1600 per gram.

            Now Gold is Rs 1470 per gram.

            At every occasion Gold was solid and consistent.

            So Hindus/Indians are the smartest people beacuse we love Gold.
            Last edited by contra; June 30 2009, 05:36 PM. Reason: language softening

            Comment

            • #56

              #56

              Re : Better to Invest in Stocks Rather Than Real Estate

              I am quoting from my earlier post

              "Most of us find RE as a safe investment, which is true. But one should think how much return they will get if they invest in the already much appreciated RE. Decide yourself."


              I previously hold stock "OZN". I purchased this stock on last DEC-2008. This is a mining stock that involves extracting gold. I bought at 15 cents. It went upto 75 cents. I sold at 65 cents three months before. This company was later bought by
              "IAMGOLD Corp". The stock price now remains flat. It did not appreciate much further.

              The timing is important which determines the return of investment. If you buy RE or Gold now, you can't get much return.

              Comment

              • #57

                #57

                Re : Better to Invest in Stocks Rather Than Real Estate

                Originally posted by contra View Post
                I hope you analyse better, fundamentals as well. Indian Oil is not a oil exploration company, it is a refiner. There are other by products in refining which will still give high profit margins to IOC even if crude hits $300/barrel. By the way crude would hit $300/barrel only if salaries also rise at same levels which they will in BRIC economies.

                Contra,

                Not trying to pick a fight here, but ...

                Where exactly did I say that Indian Oil was not a refining company? Could you point that out? If you read a little more carefully, I was talking about risks in technology as well as R&D in the oil business. And that spans the whole lifecycle except maybe marketing, including exploration as well as refining.

                When the entire oil business is starting to go down the tube - don't look at
                current profitability alone - in terms of the supply side with crude only taking a temporary dip in price and there already being a talk of $100 by early 2010, who do you think will get squeezed by the rise?

                I'm using the very statements you have used.

                At $100 per barrel, Indian Oil (which is a refining company as per your words) will take a hit from input cost side from the companies that supply it!!!

                On the other hand the Govt will cap its output price due to political compulsions. And given the severely impaired balance sheets of corporates as well as countries, pray tell me who will actually be able to buy all those bye-products you are talking about at double or triple the price at the same volumes without immediately triggering off inflation? Do you think the cap will be only on petrol, diesel, kerosene and ATF? I'm sure you have heard of the price-volume curve in economics!

                Contra, now you do the thinking for me. Who will get hit? The exploration company? Or the Refiner? when crude pries go up and end-product prices are capped by political compulsions? Does the point come across clearer now?

                But I'm talking something completely different here and that point was missed entirely! I have been doing at least 3 years serious research into the oil business (one of the reasons I jumped into clean, renewables when I got a chance!). Please read up stuff like "Twilight in the Desert" (]http://www.twilightinthedesert.com/[/url]) by Matt Simmons. If you don't like someone so extreme like him (remember, he is a highly experienced oilman), read up guys like T Boone Pickens, etc. Why do you think the highest investments in renewables and non-oil fuels is being done by the oil business? Did you know that? Because they know that, while they are seeing record profits from he business today, their future is coming to a close rather quickly.

                So, crude hitting $300 has nothing to do with BRIC rising. It will do so irrespective of Bric or anything else, and much sooner than you think, is what oil industry insiders are saying, increasingly loudly.

                In fact, try as they might, oil producers could not produce more than the roughly 86 mbd (millions barrels per day) last year, which was roughly about the consumption. It is rumored that the oil producers are quite happy about this global recession because, if consumption had risen by the 5% it was rising every year, the cat would have been out of the bag when it would have been seen that production could not be raised above last years levels. This 5% gap alone was what was rumored would have sent crude prices to $200 as estimated 3 years back by the Goldman analysts. But then again, all these are rumors and one can't really ask for printed proof!

                I'm talking about a very real danger of the whole oil business going rapidly down the tube and taking the world as we know it down with it - and world-scale alternative industrial energy is at least 15 - 25 years away (I have access to some of India's foremost energy guys and they are all scared). And we may run out of cheap oil much sooner than that!!!

                Time will tell!!!

                cheers
                Last edited by wiseman; July 1 2009, 01:45 AM.

                Comment

                • #58

                  #58

                  Re : Better to Invest in Stocks Rather Than Real Estate

                  Extremely tricky question!

                  Originally posted by nabishek View Post
                  Wiseman,

                  I really feel sad to see people who toil day and night to earn their salary every month, deciding to go ahead and invest in a plan or take loan at the behest of a marketing executive/bank agent/financial consultant without even thinking twice.

                  Had each one taken atleast a day time to analyze other options before getting carried away by the growth story and secured future talk, I am sure they would have taken better decisions and needn't have to blame the economic slowdown or job scenario for their plight.

                  Having said that, what other options do we have?We got to beat inflation and get wealthier somehow right?Everyone has a family to provide, children to educate,medical expenses to be met,emergencies to manage, retirement life to plan etc.

                  For people who lack financial astuteness and who are lazy to spend time to monitor/manage their investment constantly naturally tend to choose from options like diversified Mutual funds,ULIP, Gold, RE etc and hope if they can strive and systematically pay off their EMI's,premiums,dues etc they can become wealthier and have a peaceful life later on.

                  In India, there's huge social pressure to succeed.Here personal and financial failures are not seen as part and parcel of life.Even today, wealth in the form of Real estate and gold is whats accepted and respected.

                  I am sure many would be facing the dilemma on how to get wealthier and also remain conservative in their investments.

                  Sometimes, I feel all the financial instruments available from the government and financial instituitions are a faux and are just ways to get people slaving their whole life funding the monetary system and sustaining economy whilst fooling themselves that they are getting rich.The reality is nothing changes for them in terms of purchasing power.It seems to be just manipulation of currency value,inflation and extended deficit.

                  I wish to hear from you whether sustainable wealth creation is achievable and what would be your advise on portfolio allocation to people starting their finance planning.Requesting you to kindly share your thoughts and experiences.

                  Thank you very much in advance.

                  I also take this opportunity to thank you for your 100 Rs in the pocket advise.I have been able to cut down lots of unnecessary expenses adopting that strategy.It really makes me feel cash rich and am saving better and also not giving up on living the life of my age.

                  Abishek,

                  See what a lowly Rs.100 note can teach us about financial prudence that many high-profile MBA courses could not teach American Bankers!!!

                  Don't you think that was a powerful idea? Came to me one day when I was p**sed off with myself and took a vow never to be swayed by marketing pull. So, I thought, why not resist temptation at the micro level and build a habit? Worked for me!!! And its such a simpe idea, it will work for anybody who has the will!

                  You question is extremely tricky. In one of my arguments with Nats, I stated that in my opinion, most wealth building is either by inheritance (highest percentage) or by accident. Very few people have the knowhow, luck, stamina and persistence to navigate through life's tricky waters to somehow end up after 25 years being wealthy.

                  But there are some simple thumbrules and truths one may follow and try their luck. One of them is "Nothing ventured, nothing gained!.

                  I see too many people want the wealth as well as want to be safe about getting it. A "safe" fixed deposit is a "sure" losing proposition if you factor in inflation. Which is why I spread my investments across a wide spectrum of FDs, RE, Gold and Stocks. Why, I have even started (after studying the subject for a few years) a small derivatives section which utilises around 3% of my net worth but takes extreme risks in the options market (if you know how to play, there is very little risk and big returns). If it goes you lose 3% (and not your shirt). If it works, your portfolio returns are supercharged to as much as 9%-15% of total value which is no small thing in the long run - compound it and see!

                  In short, I think the power above plays games with us from birth to death.
                  While we can go on ad nauseum about Asset allocation, Modern Portfolio theory, Alpha, Beta, etc, ultimately I think, we must do our best to play the game in the right spirit (educating ourselves in the best possible manner) and hope that we are one of the lucky ones to rise to the top!

                  And by education, I do not mean an IIT or an IIM degree (though that helps). If one has the focus, you can match that education by simply reading up and putting to practice the knowledge from the best books in the business within a matter of months (and I have seen this being done time and again by people). Most people do not have the self-confidence to jump off the deep end with the thought, whatever happens, I will use my brains and wits and learn to swim! This is why they so easily trust an even-less capable marketing guy when they could easily have been better at deciding with a little education. Youngsters today are simply not willing to put in the time and effort to work through the details to win. Like the American way (which we have so admirably imbibed through the IT trade), we like to be spoon-fed with a nicely packaged spoon!

                  Of course, all visitors to this forum are exempt from this rant as they are so involved in the RE business before they jump in ! 25 years back, we never had this opportunity to interact and learn from other's mistakes and simply jumped in blindly with only a will to win at any cost! Luckily India boomed and we did win on those bets :p

                  Corny as it sounds, thats my best answer!

                  cheers

                  Comment

                  • #59

                    #59

                    Re : Better to Invest in Stocks Rather Than Real Estate

                    Originally posted by nabishek View Post
                    I also take this opportunity to thank you for your 100 Rs in the pocket advise.I have been able to cut down lots of unnecessary expenses adopting that strategy.It really makes me feel cash rich and am saving better and also not giving up on living the life of my age.

                    What is this "100 Rs in the pocket advise"? pls let me know.

                    thanks in advance

                    Comment

                    • #60

                      #60

                      Re : Better to Invest in Stocks Rather Than Real Estate

                      Originally posted by wiseman View Post
                      Abishek,

                      See what a lowly Rs.100 note can teach us about financial prudence that many high-profile MBA courses could not teach American Bankers!!!

                      Don't you think that was a powerful idea? Came to me one day when I was p**sed off with myself and took a vow never to be swayed by marketing pull. So, I thought, why not resist temptation at the micro level and build a habit? Worked for me!!! And its such a simpe idea, it will work for anybody who has the will!

                      You question is extremely tricky. In one of my arguments with Nats, I stated that in my opinion, most wealth building is either by inheritance (highest percentage) or by accident. Very few people have the knowhow, luck, stamina and persistence to navigate through life's tricky waters to somehow end up after 25 years being wealthy.

                      But there are some simple thumbrules and truths one may follow and try their luck. One of them is "Nothing ventured, nothing gained!.

                      I see too many people want the wealth as well as want to be safe about getting it. A "safe" fixed deposit is a "sure" losing proposition if you factor in inflation. Which is why I spread my investments across a wide spectrum of FDs, RE, Gold and Stocks. Why, I have even started (after studying the subject for a few years) a small derivatives section which utilises around 3% of my net worth but takes extreme risks in the options market (if you know how to play, there is very little risk and big returns). If it goes you lose 3% (and not your shirt). If it works, your portfolio returns are supercharged to as much as 9%-15% of total value which is no small thing in the long run - compound it and see!

                      In short, I think the power above plays games with us from birth to death.
                      While we can go on ad nauseum about Asset allocation, Modern Portfolio theory, Alpha, Beta, etc, ultimately I think, we must do our best to play the game in the right spirit (educating ourselves in the best possible manner) and hope that we are one of the lucky ones to rise to the top!

                      And by education, I do not mean an IIT or an IIM degree (though that helps). If one has the focus, you can match that education by simply reading up and putting to practice the knowledge from the best books in the business within a matter of months (and I have seen this being done time and again by people). Most people do not have the self-confidence to jump off the deep end with the thought, whatever happens, I will use my brains and wits and learn to swim! This is why they so easily trust an even-less capable marketing guy when they could easily have been better at deciding with a little education. Youngsters today are simply not willing to put in the time and effort to work through the details to win. Like the American way (which we have so admirably imbibed through the IT trade), we like to be spoon-fed with a nicely packaged spoon!

                      Of course, all visitors to this forum are exempt from this rant as they are so involved in the RE business before they jump in ! 25 years back, we never had this opportunity to interact and learn from other's mistakes and simply jumped in blindly with only a will to win at any cost! Luckily India boomed and we did win on those bets :p

                      Corny as it sounds, thats my best answer!

                      cheers
                      Confidence boosting advice and powerful thoughts wiseman, You have been extremely candid and humble.Thanks a lot.

                      With so many options and avenues available, I am also sincerely hoping that working hard,taking well informed decisions, making calculated choices would yield fruit someday and am trying not to leave everything to providence.

                      I felt the 100 Rs idea was very effective due to its simplicity, It really helps to stay financially aware and self disciplined.Its a lesson ought to be learnt the moment we start getting pocket money.It seems to cultivate the habit of saving as against being stingy.

                      I am pulling out excerpt from your post for those who have missed earlier

                      Originally posted by wiseman View Post
                      I'll give you a simple exercise to do which will show you how spending-adicted we have become:

                      Take 3 days normal spending money (if you spend Rs.50 per day normally, take Rs.150) in your pocket. Then go about your normal daily activities with the target of having at least Rs.50 left in your pocket after 3 days. Then try to have Rs.75 left after 3 days.

                      20 years ago, when I was a maha-kanjoos as well as did not have much opportunity to spend (movie tickets were Rs4.40 and 6.60 for balcony ), I could do this easily. Now-a-days, it is a Himalayan task to resist the urge to spend at every opportunity (our tendencies as well as opportunities have changed).

                      Try it! I see that many of us will be forced to adopt this kind of behavior in our lives, the way the Economy is going. And note! If it is so difficult to resist the urge at the 100 rupee level, imagine what havoc it is causing our lives at the 1 crore level (for the flats!!! )

                      Comment

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