Financial Meltdown in US ...... Impact on equity investors

With Bad news flowing in from US day in and day out, We are in a time of great uncertainty. So what should be the approach to equity / MF investment now???. This has become a common question.
Investment in equity especially through SIP in MFs is essentially avoid timing the market. Equity investments either made directly or through MFs should be made only with a long term time frame in mind. Not everything is assured with a long time frame but things evens out the over a longer time frame.
One who starts investing can start allocating to investment likes Debt, Post office investments initially and slowly move on to equity through balance funds. If such an approach is followed , even in time of crisis you need not liquidate your equity holdings in a hurry. Systematic investments during downturns may help you gain greater returns when the economy starts looking up ( remember we are just started going down may take substantial time to go up).
So...If we follow a systematic bottom up asset building ( Debt to Equity... Lower risk to Higher risk) and have made informed investment decisions , we need not panic. If we have been doing trading in the guise of investing, this may definitely be a rough time.

One more lighter stuff - a mail fwd

Here's a very interesting anecdote that describes how an 'asset bubble' builds up and what are its consequences. Read it even if it confuses you a bit...things will be clear as you reach the end.... ANCEDOTE - Once there was a little island country. The land of this country was the tiny island itself. The total money in circulation was 2 dollar as there were only two pieces of 1 dollar coins circulating around.
1) There were 3 citizens living on this island country. A owned the land. B and C each owned 1 dollar.2) B decided to purchase the land from A for 1 dollar. So, A and C now each own 1 dollar while B owned a piece of land that is worth 1 dollar.The net asset of the country = 3 dollar.3) C thought that since there is only one piece of land in the country and land is non produceable asset, its value must definitely go up. So, he borrowed 1 dollar from A and together with his own 1 dollar, he bought the land from B for 2 dollar. A has a loan to C of 1 dollar, so his net asset is 1 dollar. B sold his land and got 2 dollar, so his net asset is 2 dollar. C owned the piece of land worth 2 dollar but with his 1 dollar debt to A, his net asset is 1 dollar.The net asset of the country = 4 dollar.4) A saw that the land he once owned has risen in value. He regretted selling it. Luckily, he has a 1 dollar loan to C. He then borrowed 2 dollar from B and acquired the land back from C for 3 dollar. The payment is by 2 dollar cash (which he borrowed) and cancellation of the 1 dollar loan to C. As a result, A now owned a piece of land that is worth 3 dollar. But since he owed B 2 dollar, his net asset is 1 dollar. B loaned 2 dollar to A. So his net asset is 2 dollar. C now has the 2 coins. His net asset is also 2 dollar.The net asset of the country = 5 dollar. A bubble is building up.(5) B saw that the value of land kept rising. He also wanted to own the land. So he bought the land from A for 4 dollar. The payment is by borrowing 2 dollar from C and cancellation of his 2 dollar loan to A. As a result, A has got his debt cleared and he got the 2 coins. His net asset is 2 dollar. B owned a piece of land that is worth 4 dollar but since he has a debt of 2 dollar with C, his net Asset is 2 dollar. C loaned 2 dollar to B, so his net asset is 2 dollar.
The net asset of the country = 6 dollar. Even though, the country has only one piece of land and 2 Dollar in circulation.(6) Everybody has made money and everybody felt happy and prosperous.(7) One day an evil wind blowed. An evil thought came to C's mind. 'Hey, what if the land price stop going up, how could B repay my loan. There is only 2 dollar in circulation, I think after all the land that B owns is worth at most 1 dollar only.' A also thought the same.(8) Nobody wanted to buy land anymore. In the end, A owns the 2 dollar coins; his net asset is 2 dollar. B owed C 2 dollar and the land he owned which he thought worth 4 dollar is now 1 dollar. His net asset become -1 dollar. C has a loan of 2 dollar to B. But it is a bad debt. Although his net asset is still 2 dollar, his Heart is palpitating.The net asset of the country = 3 dollar again.Who has stolen the 3 dollar from the country?
Of course, before the bubble burst B thought his land worth 4 dollar. Actually, right before the collapse, the net asset of the country was 6 dollar in paper. his net asset is still 2 dollar, his heart is palpitating.The net asset of the country = 3 dollar again.(9) B had no choice but to declare bankruptcy. C as to relinquish his 2 dollar bad debt to B but in return he acquired the land which is worth 1 dollar now. A owns the 2 coins, his net asset is 2 dollar. B is bankrupt, his net asset is 0 dollar. ( B lost everything ) C got no choice but end up with a land worth only 1 dollar (C lost one dollar)
The net asset of the country = 3 dollar. ****************End of the story*************************** There is however a redistribution of wealth. A is the winner, B is the loser, C is lucky that he is spared. A few points worth noting –
(1) When a bubble is building up, the debt of individual in a country to one another is also building up.(2) This story of the island is a close system whereby there is no other country and hence no foreign debt. The worth of the asset can only be calculated using the island's own currency. Hence, there is no net loss.(3) An overdamped system is assumed when the bubble burst, meaning the land's value did not go down to below 1 dollar.(4) When the bubble burst, the fellow with cash is the winner. The fellows having the land or extending loan to others are the loser. The asset could shrink or in worst case, they go bankrupt.(5) If there is another citizen D either holding a dollar or another piece of land but refrain to take part in the game. At the end of the day, he will neither win nor lose. But he will see the value of his money or land go up and down like a see saw.(6) When the bubble was in the growing phase, everybody made money

(7) If you are smart and know that you are living in a growing bubble, it is worthwhile to borrow money (like A ) and take part in the game. But you must know when you should change everything back to cash.(8) Instead of land, the above applies to stocks as well.

(9) The actual worth of land or stocks depends largely on psychology.

A funny mail fwd - How stock market works

Interesting story to illustrate how the stock market functions.

It was autumn, and the Red Indians on the remote reservation asked their New Chief if the winter was going to be cold or mild.

Since he was a Red Indian chief in a modern society, he couldn't tell what the weather was going to be. Nevertheless, to be on the safe side,he replied to his Tribe that the winter was indeed going to be cold and that the members of the village should collect wood to be prepared. But also being a practical leader, after several days he got an idea. He went to the phone booth, called the National Weather Service and asked 'Is the coming winter going to be cold?' 'It looks like this winter is going to be quite cold indeed,' the meteorologist at the weather service responded.

So the Chief went back to his people and told them to collect even more Wood.
A week later, he called the National Weather Service again. 'Is it going to be a very cold winter?' 'Yes,' the man at National Weather Service again replied, 'It's definitely going to be a very cold winter. “The Chief again went back to his people and ordered them to collect every scrap of wood they could find.

Two weeks later, he called the National Weather Service again. 'Are you absolutely sure that the winter is going to be very cold?' 'Absolutely', the man replied. 'It's going to be one of the coldest winters ever.' 'How can you be so sure?' the Chief asked. The weatherman replied, 'The Red Indians are collecting wood like Crazy.'

This is how stock markets work!!!

IPO trend

Trend of IPOs over the years( data source NSE site- Past issues through NSE)

There was a rush of IPOs when market was doing good. Now we rarely hear of IPOs. Companies overprice their shares during bull phases and make hay.
When I was looking into the data of past issues on NSE site, it was clearly visible that companies were comfortable with IPOs only when markets are on the upward trend . This trend is visible in 2006,7 and early 2008. Now we see a steep decline in IPOs. It's sad that most of the companies and investors dont believe in business model or fair share price, but only on sentiments. This ought to change , if the IPO market has to mature. Stricter regulations on pricing and appropriate circuit filters on day of listing may be a solution. However, this alone cant solve the problem.

Shopping mantras

If you are trying to cut down your shopping bill , here are some tips
1) Always make a periodic budget (as to what you want to shop and set budgets for each category.)
2) Take a list of items that you are going to buy when you go to a mall and try sticking to it. Most malls gain only by impulsive buying.
3) When you want to buy a few items, do access your local shop as you will avoid visiting a big for parking, do some extra purchase,etc.
4)Check your bill very thoroughly ( price &quantity )before you pay for it. I have noticed that a bill is wrong more than 10% of the times. ( at times it may be in your favour too!!)
5)When buying packed food, check for the expiry date. I have seen expired/ almost expired items on the shelves of even premium stores . By this you ensure that you pay for a usable commodity and avoid a possible health hazard.
6)This is a powerful thing--- Carry cash to make your purchase by dropping your cards at home.When you pay cash , you may feel the pinch which is not visible when you pay thorough a card and there is a high possibility that you will stick to your budget.
7) Never buy something for the reason that there is an offer or discount on the product. Buy only if you are in genuine need of it.
If you feel these advises are primitive, then go ahead and shop till you drop. But never crib about your thin bank balance or thick card dues.

Why not buy a house ( esp. when EMI is a burden to you)

Well written article on buying a house@ Greenbuck blog. A must read if you are planning to buy a house.


Simple Indian Food - Feel @home ( Best veg food blog )

" A Ship is safe when it is in Harbour, but the ship was not built for that"


These are just opinions/ ideas exchanged. No one can claim us responsible for any investment failures /losses based on the ideas expressed here.

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