It has been over 7 years since I have started working and really standing on my own two feet. 7 years of starting to earn, spend and manage money. However, for a long time, my money was mostly coming into the account and being spent. There was no pattern to it or any thought to the spending.
It is only off late that I have started to realize the importance of and my interest in money – managing, saving and investing it. I was thinking back and I realized that over these 7 years there have been some lessons learnt.
HOW DID I SAVE
When I opened my first solo bank account, I had gone with my dad to the nearby HDFC Bank branch (at that time it was his favourite bank). Smartly he ticked on the option to have a flexi FD (automatic sweep-in for Fixed Deposit) beyond Rs. 50,000.
While I was literally living hand-to-mouth in the expensive city of Mumbai, whatever I got as an annual bonus got automatically swept into this automatic Fixed Deposit account. While I hated it at that time, because I barely felt the consumerist joy that my annual bonus should have afforded me, I was also not OK breaking the FD (the age-old Indian habit). That led to a healthy savings atleast in my first job till the time I used that account as my salary account.
Beyond this I did have some half-hearted attempts at a Recurring Deposit. However, whenever I felt the going was getting tough with respect to my disposable income, I simply broke it and moved on.
Lesson: Automated savings plans work very well, especially if reversing it comes at a high cost.
THE TRIGGER TO INVEST
When I started working in my second job, unintentionally it turned out to be a bank.
During the induction, the salary account opening team pitched the 3-in-1 account (savings + demat + trading) to us new joinees. As soon as I heard of the account option, my dad’s repeated gentle nudges of starting to invest rang in my ears. When an opportunity is presented to you on a platter, it would be dumb to not take it up, right?
However, simply opening the demat account did not translate into an investing journey for me.
Lesson: Having the means to do something, does not translate to getting it done
THE FIRST TIME AT MUTUAL FUNDS
Me and the husband had been discussing mutual funds for some time. One fine Saturday (15th May, 2015) with not much to do, we went on to explore the website of Franklin Templeton Mutual Funds. We followed their instructions and ended up starting a new Folio. This folio could be used to buy any of the Franklin Templeton Mutual funds directly from their website.
We then selected the Franklin Templeton Smaller Companies fund and decided to put in a grand sum of Rs. 5,000. Honestly, the experience was pretty smooth and we were pretty proud of ourselves.
In my excitement, I called up my father to tell him of my mighty achievement. Happy as he was, his logic did not ditch him. He simply asked – “So, what was the NAV (Net Asset Value)? How many units did you guys get on this investment?”
Those two questions drew me short. I was like Um, what NAV? What units? I told him “Dad, we simply put in Rs. 5,000. There was no NAV or units. I don’t know what are you talking about.”
Lesson: Investing is good, but knowing the bare basics of investment are even more important.
THE FIRST TIME AT DIRECT EQUITY
I have not always been confident of investing in equity. In fact, when I started browsing through my demat account, I found it so complicated that for a long time I did not dare to put in any money.
Finally on a trip home to Delhi, I asked my dad to help. Thanks to a representation bias (going in for a big or well-known brand) I decided to buy shares of my employer. I did not want to take too much of a risk so my first purchase was a miniscule 6 of those shares at Rs. 306 a share for a grand total of approx. Rs. 1850 (including brokerage and securities transaction tax).
Over 2 years, it kept fluctuating like mad and barely ever made it above my purchase price and recently I sold it at an almost break-even price. Other better researched stocks have done much better for me.
Lesson: Just because you have heard of or work for a brand does not mean it will be a good equity buy. Some research on the numbers of the stock is a must.
THE 20-25% PROFIT RULE
For quite a long time I was harbouring a view that a 20-25% surge in the stock price is good enough. The idea is to make that profit and get out instead of waiting around for possible loss. Classic loss aversion in play.
In July 2015, I bought a few shares of TVS Motors at 244 a piece. About a year later, in November 2016 I sold them with a whopping 39% profit at about Rs. 339 per share. I should be happy right? Well, just about another year later, today the price is at Rs. 724 which is almost a 200% profit!
Lesson: Do not be in a hurry to sell stocks of good companies, even during temporary storms
DIRECT STOCKS ARE MORE VOLATILE AND EXCITING
I have a practice of maintaining an excel sheet where I track my invested stock movements once a quarter (sometimes more frequently). In 2015, I had bought 3 Mutual funds by June – Franklin Templeton Smaller Companies fund, Motilal Oswal Most Focussed 30 Midcap fund, Axis Long term Equity Fund. In June 2015, I also bought a few stocks of Ashok Leyland at Rs. 66.
By November while all 3 Mutual Funds were where they started or at a slight loss, Ashok Leyland had raced ahead at 45%.
At the same time, fighting loss aversion, I finally sold off another share that I bought – JSW Energy – after waiting for more than an year but only seeing constant drops in price. Loss on that share? 45%
Over the long term, Mutual funds are slow to show progress, but are also more stable. Adding Franklin Templeton Build India fund, my mutual fund portfolio is now, after over 2 years up by about 35%.
Lesson: Choose stocks for exponential growth over time but add mutual funds to the mix for stability
A STORY SPUN WELL
One of my best learning at stock investing so far has been while investing with Welspun India (now you see what I did with the section header ;)).
I first bought 5 shares at 633 a piece. Soon we realized it’s almost like a rocket share and in 2 months invested to buy 27 more shares at 721 bringing our average price to about 707.
In March of the following year, the company announces a stock split of 1:10 ratio. However I decided to sell 22 of the shares which meant redeeming almost my total investment into the stock. That still left me with 100 shares of the company.
Lesson: Long term stock investing with good companies is a much better bet thanks to possible windfalls like stock split and bonus shares.
I am a recent convert to being a student of personal finance. Before that I was a total dud when it came to money. If I can move from there to an above average knowledge and interest on money and its’ working, so can anyone.
What about you? What are the lessons that you have learnt on your financial journey? Do let me know in the comments below or email me at firstname.lastname@example.org