Understanding risk is more important now than ever
In this issue:
» Reforms for small investment schemes
» Are auditors keeping a close watch on PSU banks?
» The worst President of the United States
» Will education ensure employment?
» ...and more!---------------------------------------------- Don't Miss! ----------------------------------------------
He's the Oracle of Omaha.
He's the world's most successful investor.
Your guess is right.
The Warren Buffett Quiz. Click Here to participate. It's Free!
---------------------------------------------------------------------------------------
00:00 | ![]() | |
The report suggests that India's economic boom has spawned a new generation of rich. These households see savings and investments as two separate categories. Hence, they set aside one-fifth of their income for each. The 'investments' in these cases refer to exposure to a new array of financial products. This includes hedge funds, private equity funds, structured products and derivatives. Since most of the investors do not understand the risks attached to each of the complex investment avenues they seek financial advice. We believe that this trend will not just continue but also precipitate to households with more modest income levels in coming years.
The key risk here is that of financial advisors doing their duty in familiarizing the investors with the risk involved in each product. The crisis of 2008 showed that banks that advised companies to invest in derivatives did not do a good job of it. Most companies faced the reality only once they saw the massive losses on their books. If the same were to happen with individual investors the consequences could be disastrous. Hence it is paramount that the advisors not just educate the investors about the scope of returns but also the risks from each product. At the same time investors themselves should not get greedy and look for some steady returns over the long term.
Investors could be better off not touching even with an 8-foot pole anything that they do not understand. Finance, after all is not that difficult and it should stay that way. Secondly, an investment proposition that sounds too good to be true could well be just that. These two principles can go a long way towards protecting your portfolio against huge losses.
Do you study the risks carefully before choosing an investment option? Share your comments or post them on facebook page.
01:15 | Chart of the day | |
![]() |
01:50 | ![]() | |
02:35 | ![]() | |
We agree that the Obama administration has not done a good job at all. But putting the entire blame on them alone would be a bit unfair; because the economic crisis that America is currently witnessing is a cumulative effect of past follies.
03:00 | ![]() | |
Currently there are 123,265 secondary schools in the country, which cater to over 29 m students. As a result, the teaching capacity is stretched. Opening new schools remains an uphill task as the Central government pitches in only 65% of the funds. The balance has to be put in by the State Governments, who are reluctant to open up their purse strings for this. The States tend to encourage more private sector participation instead. And the private schools charge a bomb as fees, which naturally deter the economically weaker sections of the society. The government schools on the other hand are bursting to the limit. Therefore, even though education is imparted to all, the quality of education remains poor. So while the government may come up with such incredible proposals, their correct implementation is more important.
03:40 | ![]() | |
One being, that maybe auditors of public sector banks are not doing their jobs well enough. They are supposed to keep an eye on the reported numbers year long, and raise a flag whenever there is anything fishy going on. Private sector banks on the other hand report predictable profits quarter after quarter. This stability is one of the reasons why they command high valuations.
Another issue facing public sector banks are the rising levels of non-performing assets (NPAs). Sure, these banks need to focus on the government's priority sector lending norms, by lending to the agri space. But, SBI's aggressive efforts to gain market share also led to the proliferation of bad loans. Economic slowdown, and rising interest rates seem to be just excuses. These banks need to focus on creating strong internal systems, and tighten their lending habits. Blaming the past chairman is not a solution.
04:30 | ![]() | |
04:50 | Today's investing mantra |
Today's Premium Edition.
Recent Articles
- All Good Things Come to an End... April 8, 2020
- Why your favourite e-letter won't reach you every week day.
- A Safe Stock to Lockdown Now April 2, 2020
- The market crashc has made strong, established brands attractive. Here's a stock to make the most of this opportunity...
- One Stock that is All Charged Up for the Post Coronavirus Rebound April 1, 2020
- A stock with strong moat is currently trading near 5-year lows.
- Sorry Warren Buffett, I'm Following This Man Instead of You in 2020 March 30, 2020
- This man warned of an impending market correction while everyone else was celebrating the renewed optimism in early 2020...
Equitymaster requests your view! Post a comment on "Understanding risk is more important now than ever". Click here!
3 Responses to "Understanding risk is more important now than ever"
Farrokh
Jun 8, 2011Hello, thank you for all the information. Could you please mention/advise some good FMP, MIP, Equity, etc with approximate return possibilites in % in your 5 minutes wrapup.
Regards
farrokh
umesh karkhanis
Jun 8, 2011Do we really know what has caused such a dramatic drop in SBI's 4th Qtr results? Is it something that was always there and overlooked by Auditors in the past or additional provisions required as per new regulations?
Aloysius
Jun 8, 2011It is very important to know the risk attached to every financial opportunities available in the market for better return on investments. Even today the Europe and why not US also has not come out their 2007-08 financial debacle. Another fallout is Middle-East with many of them having surplus facilities remaining idle. As rightly said greed needs to be tamed and if one do not know that technique then it is better be where we are, rather than carried away by financial advisers who themselves are naive in the outcome of what they say.