The 4% inflation myth!!!

( unrelated : I do a lot of offline writing , so will post more regularly. Hopefully the quality will improve )

One of the myths you hear when you plan your finances is to take into account the inflation. If you are financially educated , you would have heard the difference in real and nominal rates et al. But have you ever bothered what is the inflation rate applicable to you?

If you live in India like I do, then the mai baap government doles out a figure called WPI - wholesale price index which is what the whole business press creates a ruckus about, but when the heck did you and me buy in wholesale? There is a CPI - consumer price index and rightfully its different for different set of people, but then that comes with a lag. This is not a discussion about the pros and cons of various inflation indices. I will reserve that for a boring chat with some of you who are both statistically and economically inclined.

My limited point is - when you planning for the kind of money you want, think of a factor called "lifestyle inflation" - If the hierarchy of needs were just needs, comfort and luxury - remember they will keep getting redefined. Yesterdays comforts are today's needs and today's luxury will be tomorrows comfort. I come from a class and generation of kids who learnt cycling using rented bicycles.... I don't see those shops these days. So bottomline use your imagination and budget for higher expense on essentials

The other factor to factor ( !!) is remember that your life goals will also change - A few days ago i rediscovered how much I love to travel, that I want to see more countries. My current count is 9, and I want to atleast increase it 45. So my plans better take that into account. So what is your life goal - space travel?

As a generation - am not sure we will stick to an organisation for 3+ decades ( that ~11000 working day!!! - subtract sick leave and earned leave ) - since you will change jobs, career - plan for expenses for upskilling/ reskilling yourself. Those will be significant expenses. Also I think since the stress is higher, crutches of a joint family are missing, other social support systems missing - we will burnout sooner - so get the period right

Am sure there are others - all these are stuff which are like inflation, so don't factor a bland 5% inflation the government wants you to believe....

What my MBA gave me and what it did not...

4 years after my MBA , when I was as usual giving gyan to a wannabe MBA , I thought it was time for introspection – what did my MBA give me, what did it not and what was on offer and I could not take out –

What MBA gave me –

Confidence & perseverance – I always did well in my studies, it was in B-school that I got stretched and boy was it a stretch !!! nightouts, deadlines, competition prepare you well for a corporate job where you are expected to hit the ground running. So although I am sure I will not know most things, I know I can learn and get upto speed to reach where I want.

Respect for different working styles – I was brought up in the work hard and the Indian middle class work ethic. But then you reach school and meet extra ordinarily intelligent people, people with smart working aspects, some with questionable work ethics and you see all of them doing well. Learning to work in teams with diverse styles and learning certain skill sets helps immensely. Also you realize the value of ethics and make choices

Network – My MBA plugged me into a network of extremely smart people. Friends who can open doors for you and push your limits in understanding stuff. Living on campus, having discussions about hundreds of unrelated things helped create a perspective which is very different

Audience – I talk to CEOs and promoters on a regular basis. Advise them about business decisions and get treated as an intellectual equivalent. Although I might serve them a limited purpose and I have miles before I reach the levels of some the fantastic CEOs/ entrepreneurs I have worked with, the learning has been awesome – this wouldn’t have been possible without my MBA

International exposure – I went to Solvay business school in Brussels on an exchange programme and it was an eye opener on both hard and soft aspects. I worked in teams which had people from Vietnamese, Chinese, Italian, Moroccan, Spanish and African origin. And boy was it a lesson in communication and respecting cultures. I will post a different post on how it helped me appreciate India better.

What my MBA did not give me –

Assistance in career decision – Most European and US business schools have career counseling setups. The placement setup in Indian schools is most job process focused. If you need counseling the seniors and alumni need to be accessed. With the week alumni network that we had, this was a definite drawback. Would it have helped maybe, maybe not – but am sure would have liked to have access

Industry interaction – Indian B-schools and Industry I think share a love-hate relationship. Students try to get the industry to sponsor, come to interact, setup chairs but then industry rarely responds. Some of the best classes I had, was when we got an industry person to add to what was being discussed in a case. Maybe the growth in the Indian industry leaves very little time for such things and maybe alumnus don’t really appreciate what the school did for them

Breaking the stereotypes –India is about stereotypes. Science is better than commerce, an engineer is better at quant, an accountant is not creative. MBA made me realize and acknowledge when I was getting influenced by a stereotype. But did the school do enough for all of us to break these, am not too sure.

What my MBA offered but I did not utilize well:

Access to a large library / resource: Most times I think running around took away time to explore the library. Increasingly I am believer in reading what has been written about a subject and chiseling my own views. I didn’t have time

Engaging the profs : Each one them with the eccentricities is a person who could have developed/ destroyed ones interest in a subject. Could I have been a marketer? Could I have been a quant trader? Do I love market research I will never know, didn’t spend enough time trying to find out.

Understanding a subject vs. cracking a system: when you are in a hyper competitive environment and the top 1% percentile is greater than the population of many European countries, one is forced to look at the end but not enjoy the means. I could have learnt a lot (I did learn a little!!) but then the focus got shifted to cracking the system and getting those marks.

This list will grow. Maybe 6 years from now I will have a different view. Do let me know what falls in these three buckets when you look back at your own MBA. If you are an aspiring MBA applicant, watch out for these. Am sure learning by watching others helps you avoid what that famous saying says “ Those who do not remember the past are condemned to repeat it”

So you want to start investing.....

go right ahead, you should, after all there have been tomes and tomes written about how inflation eats into your savings and how you should invest in equity blah blah blah. So here is a checklist of what I think you should be doing -

1. Do you have a clue about what your expenses are? - this is because most of us have a good idea of the income - so get a hang of the disposable income - then how much you dispose every month and see what you have left to invest ( * Note - I am not going to talk about a plan that you need to have before you invest in - thats for a different post)
2. Setup an emergency fund - the funds in this should cover anywhere between 3-6 months of your expenses. I suggest you send this money into a fixed deposit or a liquid fund. Ask your bank to setup a overdraft on this money - so that if ever required you draw down immediately while earning interest
3. Get insured - medical and life - this ensures your lifestyle remains the same ( how much insurance to buy - another post - or will link to some good reading)
4. Whatever is left - split the money into 3
   

• Money you surely want in a year or two - send this into debt products - a bank FD, a Fixed maturity plan, a debt fund - depending on what you are comfortable with
  
• Money you dont want for the next 3-5 years - invest in a mutual fund - select base funds which will form the core of your portfolio - start a systematic investment plan on this and forget about using it - review this monthly and a thorough review quarterly/ half yearly
  
• Money you can afford to lose and will not lose sleep if you lost it - take it and invest directly in shares - but come to this step only if all the above are done

Now how to select a fund , a stock etc - I shall post sometime soon..

some random ramble....

Why the stereo type - Have you watched the veneta cuicine ( did i get the spelling right?) - Its an animated ad - with a jingle going " its a funday cooking in a veneta cucine ......" the maid is shown as a black woman while the rest of the family is of a different colour - How did anyone approve this ad? Yeah as a country we are not so touchy about racism, but I think this was in poor taste

I read some article which had brought a similar observation - The Singapore girl on the Singapore airlines represents the ethnic look and feel of the average woman in Singapore, but on none of the Indian airlines would you see the air hostesses seem like the average woman in this country - mostly fair woman is what you would see. No wonder " Fair & Lovely" has a large market!!!

What to do when you quit a job?

This is a post that is a follow up on my learnings from job post - People asked me how do you exit a company.

I have exited a company thrice by now and each one was an experience in itself. When I quit the Bangalore stock exchange - people were happy for me as I was heading to IIM-B and they wished me luck. Even now when people from the Exchange meet me, its a family feeling and they are proud of where I have reached.

Coca Cola, my next employer was the worst exit till date for me. I quit and I thought I indicated quite well why I quit. I was asked to deliver on a few things before I left and ensure the thinks I was working on did not completely fall through. My last 30 days were far more chaotic than what most people on 'notice period' would have. The HR people kept dilly dallying and my notice period writeoff (90 days in all and I served 60+ days). I was told by my department it will get waived but ultimately I shelled more than 2 months take home for they actually took stuff like PF, canteen money etc from me while cashing my leave ( 45 days) at a piddly basic rate.

KPMG was very nice and professionally done. And the exit was so smooth, its a pity they put their best face when I was on my way out. So what are the lessons

1. Speak to your boss first when you have decided - have an official chat and an unofficial chat ( the latter if you share the rapport)
2. Immediately speak to your Head of department and tender the resignation in writing copy marked to HR - Get your HR to tell you the procedures and get your boss/ HOD to tell you what is expected of you before you leave
3. Create a backup of all your work and cross reference them for future use within the organisation. Leave notes where required - Trust me being a good employee also shows great professionalism
4. Inform the team you work with ( when , depends on the understanding with your boss/ HOD) and ask if there is anything that they need from you - You might work with again so leave a good taste - Also people reference these days through a lot of things - you never know the guy in the next cubicle might be the guy they call!!
5. Start your signoffs sooner than the last day. It usually takes time. So dont wait for the last day. Leave your contact details - let people know where they can find you.
6. Keep in touch with people who were good friends - to put it differently, keep in touch with people you know will be of any assistance. Remember its quid pro quo - if you are useful to them, they will be of use to you.
7. If you had a mentor in the organisation - stay in touch - my guide from coke is still my best career advisor, the manager I worked the best in KPMG is still my guide when I am stuck.
8. Every organisation builds you professionally - acknowledge the good part, leave constructive feedback ( most organisations dont take it well - so dont criticize too much!!) and see the people in the organisation different from the organisation

Action points on the financial front

I have been investing in the market for a long long time, but had stopped in the middle for some years during my MBA and then for sometime during my first employment primarily due to lack of investible funds. Then about 3 years ago I started investing and have been regularly. Then somewhere, I decided to actively plan my finance completely. So I have been trying for a complete coverage - not just on the assets side but also on the liabilities side. I used my bonuses to pay off my education loan well before time, then took a loan to put that down payment on a flat and paid it off with the next bonus. Now I have a loan taken to fund my brothers education and I will let it run its course, since the cost of prepaying that loan is very high.

I have a SIP running every month - and I juggle around which funds I invest in based on how my portfolio is looking. I take turns in investing in a base fund like Fidelity equity, HDFC equity then shift to growth options like Reliance growth, Reliance Regular savings fund, Magnum Global and then sector/ contra bets like magnum contra, DSPML Tech, Bank BEES.

I have investments in equity directly. Most of them are shares not owned by the funds I own. Its also to do with the thought process of benchmarking my own stock picking skills over the fund managers :) , Will post how I did in about a years time.

Right now, I think I have a low insurance cover. I want to buy term cover - have explored the options, just need to execute it. Actually, I will increase my insurance cover drastically over the next 2-3 years, but primarily term covers with residual cover after the premium payment period if possible.

I need to brush up on my derivatives front and start investing there - but that is the target for April 08 - when I estimate I will have more investible funds ( read - can also lose more!!)

Need to evaluate if I should take a pension plan anytime soon and how it will work out.

Investment in commodities is also on the horizon - but need to think through.

Primarily - I want to setup a sizeable passive income stream which will contribute to my investment corpus soon.

In case I seem to have missed out on some very obvious things - leave a comment, will be grateful.