Are Indian investors running up a down escalator?
In this issue:
» China no longer the biggest lender to the US
» Indonesia be the next member in the BRICS?
» China Inc. results show proof of slowdown
» Unhappy birthday for Dodd-Frank Act
» ...and more!
------------------------------------ Is the next Global Crisis closer than we think? ------------------------------------
Many of you may refuse to believe it at first...
Some of you may even ignore this without reading further...
But it's our duty to bring you the facts.
You see, many renowned financial experts around the world strongly believe that we are on the brink of the next Global Crisis.
And if that happens, even India may not be spared this time for reasons we both know.
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If you're serious about protecting and growing your wealth in the tough times that could lie ahead, I suggest you click here to read full details right away...
This information is time-sensitive, literally!
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"If you (a) forego ten hamburgers to purchase an investment; (b) receive dividends which, after tax, buy two hamburgers; and (c) receive, upon sale of your holdings, after-tax proceeds that will buy eight hamburgers, then (d) you have had no real income from your investment, no matter how much it appreciated in dollars. You may feel richer, but you won't eat richer."
Buffett's take on the plight of high inflation- high taxes afflicted investor has hardly ever been more relevant for Indian investors. On one hand, India's wholesale price-based inflation continues to remain sticky and high. Though grossly archaic in calculation inputs, the inflation number has to a good extent captured rise in food and fuel prices. What this means is that the real return for an average investor is getting further squeezed. Neither stocks nor fixed income papers are currently offering stupendous near term returns. In such a scenario, investors can only hope for lesser impact of inflation on nominal returns. But that is not to be.
Add to that the prospect of higher tax payouts, both directly and indirectly. The inflation-adjusted post- tax returns could effectively leave you with a fraction of what you had invested. According to Buffett, investors suffering from such plight are "running up a down escalator whose pace has accelerated to the point where the upward progress is nil."
However, both inflation and taxes may continue to cannibalize net real returns in the medium term. Investment in high return tax efficient instruments is therefore the ideal solution. Long term investment in safe stocks fits this requirement well. But investors need to be very careful about whether their stock portfolio adds to their wealth over time. Companies that grow earnings without sustaining or growing return ratios destroy shareholder value rather than create it. Investors putting money in such high growth low return stocks would therefore do better keeping the money under their carpet. It is a cautious and well researched approach to investing that one needs to take.
Do you think high inflation and high taxes have a lethal effect on investor portfolio? Let us know your comments or post them on our Facebook page / Google+ page
01:30 | Chart of the day | |
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Source: Economic Times |
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Truth be told though, it is not a race that both China and Japan could be particularly proud of. US treasuries are perhaps the biggest enigma of our times. Despite being issued by an economy that is not in the best of shapes, it continues to find takers year after year. Thus, both China and Japan would be better off putting their hard earned money in other more attractive asset classes.
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There is another emerging economy that appears to be a lucrative investment opportunity for investors. The name is Indonesia. Currently ranked 16th, the country is expected to become the 7th largest economy by 2030. Owing to factors such as robust domestic consumption and a rising middle class, Indonesia features among the fastest growing economies in the world today. It must be noted that the country was severely affected during the Asian financial crisis of 1997. However, it has shown great resilience in the recent global crisis. The economy has been growing at a healthy rate of about 6%. And the same is expected to continue going forward. Will Indonesia be the next member in the BRICS? Seems quite likely.
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Now the practice followed by the Texas bank is prohibited under Dodd-Frank. As a result the Texas bank has to discontinue the same. The result being that the farmers either go to the large government banks for loans. Or the smaller guys do not get any credit facility. Therefore the bank has argued that the Act is actually killing credit for the smaller farmers rather than making banking safe for them. If they win, the Act would have to be rewritten accordingly. If not, the banking system in US would continue getting more skewed. Considering that the regulators want to increase credit growth in the country, the latter option would not be a viable one.
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04:50 | Today's Investing Mantra |
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3 Responses to "Are Indian investors running up a down escalator?"
Gangadharan Nair
Oct 16, 2012In Indian market the inflation was equivalent to 15% compound for the last 50 years. If you see, the value of currency in terms of cost of gold, the currency was loosing its value @ 15% per year. The value of currency has come down to 1/677 in 48 years. So any investment which has brought less than 15% return is a loss. Instead of investing on share one should have invested in GOLD.
Ganapathy Sastri
Oct 16, 2012Thirty years back you could buy property for one lac. Thirty years from now you can have proper tea for one lac. That is the kind of inflation our politicians and central bank have been maintaining during the last forty years. We have had massive inflation year after year since early seventies. During the last 3 years prices have doubled meaning a CAGR of 24%. There is no way one can earn more than the inflation rate with his money. If he pays taxes on his nominal interest, it makes the situation worse.
Just imagine thirty years back one could have lived off a corpus of Rs. 10 lacs very comfortably. How much of that will be left today? Every paisa of that would have wiped off. Today every one talks of accumulating 1 cr or more.
sunilkumar tejwani
Oct 16, 2012Warren Buffet is a speculator par excellence. (a long term speculator with vested interest in the stocks he is invested) therefore, any of his quote/ unquote is to be taken with not a pinch but tons of salt.
Therefore, any of his comments are best ignored.