Chang the World

“The People Who Crazy Enough To Think They Can Change The World Are The Ones Who Do.” – Steve Jobs

When you grow up, you tend to get told that the world is the way it is. Your life is just to live your life inside the world try not to bash into the walls too much, try to have a nice family life, have fund, save little money. That’s a very limited life. Your time is limited, so don’t waste it living someone else’s life. Don’t be trapped by dogma which is living with the results of other people’s thinking. Don’t let the noise of other’s opinions drown out your own inner voice. Everything around you that you call life was made up by people that were no smarter than you and you can change it, you can influence it, you can build your own things that other people can use and however you learn that. Once you learn it you’ll never be the same again.

When you have a dream, it doesn’t often come at you screaming in your face. Dreams always come from behind you, not right between your eyes it sneaks up on you. Sometimes a dream almost whispers and very hard to hear. So you have to every day of your life been ready to hear what whispers in your ear. It very rarely shouts. Make sure that you’re focused on something you’re passionate about. You can’t follow the fashion. When you’re trying to do a startup company or I think really anything if life.  As an entrepreneur, if you’re going to build a company pick something you think is interesting and then just stay right there and let the wave catch you.

I think it is important that you really like whatever you are doing. If you don’t like it, life is too short. If you like what you’re doing, you think about it even when you’re not working. It’s something that your mind is drawn to and if you don’t like it, you just really cannot make it work I think. I am convinced that the only thing that kept me going is that I loved what I did. You got to find what you love. Your work is going to fill a large part of your life and the only way to be truly satisfied is to do what you believe is great work and the only way to do great work is to love what you do. If you haven’t found it yet, keep looking and don’t settle. 

The only thing you really have in your life is time. If you invest that time in yourself to have great experiences that are going to enrich you then you can’t possibly lose. I don’t know how you can make any pioneering movements in the world. Whatever it is that you want do, there is going to be risk in your life and if I fail, am I going to regret having tried and failed. I knew the answer to that was NO. But I also knew that if I didn’t try that I would always regret that. I would always wonder that it would haunt me. Now it is the time to take risk. As you get older, your obligations increase. And once you have a family, you start taking risks not just for yourself but for your family as well. It gets much harder to do things that might not work out. So, I would encourage you to take risks now and to do something bold. Do something when you’re, when you’ve nothing to lose and keep that in mind and then just work like hell, I mean you have to put in 80-100 hour every week.

How will you use your gifts? What choices will you make? Will inertia be your guide or will you follow your passions? Will you follow dogma or will you be original? Will you choose a life of ease or life of service and adventure? Will you wilt under criticism or will you follow your convictions? When it’s tough, will you give up or will you be relentless? Will you be a cynic or will you be a builder. In the end, we’re our choices. And most important have the courage to follow your heart and intuition, they somehow already know what you truly want to become.  Everything else is Secondary.  

SIP Vs. Lump Sum: Know which works best

 Systematic Investment Plan (SIP) is the investment of a fixed amount of money through time at equal intervals, adjusting the number of units as average stock prices fluctuate. When the stock prices are high, fewer units are bought and when the prices are low, more units are purchased. SIP is a favorable investment strategy if there is time-diversification and the market is not too high. Lumpsum investment is putting a substantial sum of money at one go in a mutual fund or a stock. Lumpsum investment performs well in the early stages of a bull market.

SIP is a desirable method as it takes advantage of the stock market's up and downs. This method might be advantageous if the stock returns are negatively correlated, as in the academic literature of mean-reversion theory.

Mean-Reversion Principle

Using Mean-Reversion Principle, SIP strategy is introduced in which the stock purchases (or units of mutual funds) are increased after a market decline and reduced after a market advance. It is particularly appealing when investing in volatile stocks over a substantial horizon.
In a normal situation, SIP does not really reduce volatility or raise returns. Relatively, Lumpsum investment strategy tends to have a higher return because it is more fully invested and has lower volatility because it is more uniformly invested. If the expected return is higher than the return from fixed income securities, lumpsum investment is preferred to the SIP method. For example, immediately after the market crash in March end. Therefore, if there is an opportunity cost of not investing immediately then the optimum decision is to invest the entire sum that is available for investment. Dividing the large sum of money into small segments for future investment over an extended time period is not recommended especially when we are in the beginning of a bull market.

Average the Cost Price

The intent of using SIP is to average the cost price per unit and also avoid buying high and selling low. SIP protects investors from trend chasing and portfolio churning, and avoids a single ill-times purchased that might scare investors away from the future stock purchases. If it is projected that equity prices will trended downward (when the market is overpriced), then SIP might beat immediate lumpsum investing, but with this assumption, not investing in equities is likely to beat both SIP and lumpsum strategy. SIP way of cost averaging is not optimal but in some circumstances, it might be a reasonable approximation.

To conclude, investing through SIP is in a way following market fluctuations and thereby believing the story what everyone else believes. It forces investors to follow herd mentality. SIP might help them to achieve average returns like index returns in the long run but can make them suffer in the extreme like a market crisis. If investors continue SIP during a crisis they will face losses in the existing investment and also miss out when markets recover. A fair understanding of market cycles and the pros and cons of SIP and lumpsum investment strategies at different market cycles can make investors better prepared to effectively use both the strategies to optimize investment returns and reduce volatility.

International Securities Identification Number (ISIN)

International Securities Identification Number is a 12 character alpha numeric code that uniquely identifies securities, across the world. The securities include shares, bonds, warrants etc. Securities with which ISIN can be used include debt securities, shares, options, derivatives and futures.

The ISIN Organization manages International Securities Identification Number. ISIN uniquely identify a securities – its structure is defined in ISO 6166. Securities for which ISIN are issued include bonds, commercial papers, equities and warrant. Think of it as a serial number that does not contain information characterizing financial instruments but rather serves to uniformly identify a security for trading and settlement purposes.

ISIN constitutes of three parts. It has three components – a pre-fix, a basic number and a check digit. The pre-fix is a two letter country code as stated under ISO 6166 (IN for India). The country code is followed by a 9-character alpha-numeric national security identification code assigned to a security by the governing bodies in each country. This is followed by a single character check digit, which will validate the ISIN code.

In India, SEBI has delegated the assigning of ISIN of various securities to NSDL. For securities getting admitted on CDSL, the ISIN is allotted to those securities on receiving request from the CDSL. Allotment of ISIN for G-sec is done by Reserve Bank of India.

Example: ISIN INE 475C 01 012

·        IN: India

·        E – Company time

·        First four digits, 475C – Company serial number

·        01 – Equity (It can be mutual fund units, debt or G-securities)

·        01 – Issue Number

·        Last two digits, 2- Check digit.

The Third digit (E in the above example) may be E, F, A, B or 9. Each one carries the following meaning:

·        E – Company

·        A – Mutual Fund unit

·        A – Central govt. security

·        B – State govt. security

·        9 – Equity shares with rights which are different from equity shares bearing INE number.

In an ISIN number, it is important to pay special attention to the third digit. In a time when trading securities across the geographical boundaries of countries has become common, having a unique identifier for a security greatly helps traders as well as brokers in a various countries to unambiguously identify and trade a security.

How rating agencies rate the risks that bonds carry

One of the biggest risks for a bondholder is credit risk or default risk. This is the risk that the issuer may not pay the coupons on the schedules coupon dates, and/or the risk that the face value may not be repaid on the scheduled maturity date. Unlike other inherent risks, such as interest rate risk or inflation risk, default risk varies from issuer to issuer. The rating agencies rate the securities.

To get a better rating, some issuers choose to have their bonds insured by an insurance company. The advantage is that such bonds are examined by two entities, in the sense that the process of due diligence is followed by both the rating agency as well as the insurance company. A good rating makes it easier and cheaper to borrow. In the case of an insured bond, the issuer will have to pay a premium to the insurance company. However, this may be passed on the investors in the form of lower coupons, if the insured status facilities a better rating. The insurance is typically irrevocable. That is, if the rating agency were to subsequently downgrade the issue, the insurance company cannot withdraw from its commitment.

Rating Bonds

Like rating agencies, insurance companies also look at factors like the  asset base of the issuer, the track record of the promoters, and the lines of credit available. If an emergency line of credit is available to the potential issuers, the odds of getting a better rating are brighter. In the case of bonds which are issued to fund projects with a projected revenue stream, the uncertainty associated with getting the cash flows is a key factor. The standard practice in the industry, in such cases, is to scale down the projected revenues and scale up the projected expenses and see whether the project is still financially viable.

Bond issues

Quality bond issues are rated as investment grade, that is they are recommended for investment. Others, which pose greater risk of default are called 'speculative grade', or non-investment grade, or junk bonds. Junk bonds may be the original issue of junk or fallen angels. Original issue junk bonds are issued by entities who are of poor credit quality at the time of issue. Fallen angels are bonds that were investment grade at one time but have been subsequently downgraded because of a deterioration in credit quality. Thus, such bonds will be characterized by low coupons and high yields to maturity.

Junk bonds are risky investment, but if the buyer is lucky and there is no default, then there could be sufficient money to be made via high coupons. In the US market, investment bank have successfully marketed such bonds as high yield bonds.

In countries like US, investors can buy insurance policies for their individual portfolios. That is, if a person has 5000 IBM bonds, he can acquire policy for his portfolio, which insures him against the specter of default. The premium, in such cases, is directly payable by the bond holder. The rating agencies have a reasonably good track record. Analysis of 80 years of data in the US shows that not a single AAA rated bond defaulted in the first one year after issues, and less than 1% of such bonds defaulted in the first 10 years after the issue.