S1E1:
Kyle MacDonald, a Canadian blogger, is a simple fun loving guy. He had a red paperclip which wasn’t really one of his fondest belongings. An idea hit him and he wanted to exchange that red little paperclip for something interesting. So he put the proposition up on a website, and on July 14, 2005, he went to Vancouver and traded the paperclip for a fish-shaped pen. No take away for us, isn’t it?
Yes, but once you follow what happened in the next 12 months, something amazing comes up.
He then traded the pen the same day for a hand-sculpted doorknob.
On July 25, 2005, he traded the doorknob for a Coleman camp stove.
On September 24, 2005, he went to California, and traded the camp stove for a Honda generator.
On November 16, 2005, he traveled to Maspeth, Queens and traded the generator for an “instant party”: an empty keg, an IOU for filling the keg with the beer of the bearer’s choice, and a neon Budweiser sign.
On December 8, 2005, he traded the “instant party” to Quebec comedian and radio personality Michel Barrette for a Ski-Doo snowmobile.
Within a week of that, he traded the snowmobile for a two-person trip to Yahk, British Columbia, scheduled for February 2006.
On or about January 7, 2006, he traded the second spot on the Yahk trip for a box truck.
On or about February 22, 2006, he traded the box truck for a recording contract with Metalworks in Mississauga, Ontario.
On April 11, 2006, he traded the contract to Jody Gnant for a year’s rent in Phoenix, Arizona.
On or about April 26, 2006, he traded the year’s rent in Phoenix for one afternoon with Alice Cooper.
On May 26, 2006, he traded the afternoon with Cooper for a KISS motorized snow globe.
On June 2, 2006, he traded the snow globe to Corbin Bernsen for a role in the film Donna on Demand!
On or about July 5, 2006, he traded the movie role for a two-story farmhouse in Kipling, Saskatchewan.
The gist of the journey from a paperclip to a house sounds WOW. ALMOST UNREAL. But when you go through the entire process, not only does it become more real but it also appears obvious. And to be frank, going through the details was kind of boring to me.
S2E1:
Volatility is the oxygen of SIP returns. They make rupee cost averaging playout in its best potential and hence a LONG TERM SIP in Mid/ Small cap makes a lot of sense. True. As an example, here is the last 10 year journey of one of the funds I have an SIP with, DSP Mid Cap fund, and yes, it looks great. A red paperclip to a house.
But, in this narration, what we forget is any LONG TERM is a summation of a lot of SHORT TERMS. And to make sure you stay put to see the gift of long term, you have to make sure the client goes through and stays throughout. Is that what is happening? One part of your mind wants to say, I am sure it is happening. We have come a long way as an industry! Let us put this to an acid test.
https://www.livemint.com/money/personal-finance/sip-stoppage-ratio-hits-new-peak-in-may-11591941540690.html
“Monthly systematic investment plan (SIP) flows in India have held steady above the ₹8,000 crore mark despite the equity markets nose-diving post the covid-19 crisis. The net inflow figure dipped marginally from ₹8,376 crore in April to ₹8,123 crore in May, although the drop compared to March level is a more significant 6%.
However, another measure of SIPs shows more alarming signs. The ratio of SIPs stopped as a percentage of fresh SIPs registered (SIP stoppage or closure ratio) hit 81%, a 15-month high. Most of this spike was due to existing SIPs being discontinued. The SIP stoppage ratio was 71% in March and 72% in April 2020.“
Now, it is easy to blame an investor for doing it. But that’s not going to solve the problem. Let us see the last SHORT TERM that he experienced. Taking the date of the article published, 12th June, standing on that day, the poor investor probably was thinking:
Kal Ka Taj Mahal Chhodo
Aj Ki jhumri Talaiyya Batao!
(Courtesy: HaqSeSingle, ZakirKhan)
Is this experience very unusual? It is the worst? No. Not even close. Here is the 2 year rolling return range of SIPs (read: all the experiences of 2 years sips in the fund plotted)
20% times -ve, -46% is the Minimum!
Doesn’t look good. Just checking, is the fund all right? What about a 10 years’ all experiences plot? Here. Again, amazingly good. Red paperclip turning into a two storeyed farmhouse again.
Minimum is 9.3%, Median is 17.8%, Maximum is 22.4%. 95.6% experience is 12%+ return in your bag!
Thus, it will be a lot easier for every investor to see this 👆 if we can ensure we make all the small exchanges from the red clip to the farmhouse = the SHORT TERMS in between a little more comforting.
Let us see if we add two pieces to this portfolio, one piece which moves between equity and debt automatically and thus axes the volatility down (DSP Dynamic Asset Allocation Fund) and one piece which has a very very low correlation with Indian markets, thus doesn’t allow the entire portfolio to have an unidirectional fall at bad days (DSP US Flexible Equity Fund).
We are calling the portfolio where we have allocated equal weightage to all three funds: All season.
Did this make a difference to his 3/5 years experience too? Indeed. It landed a bridge between experience and expectation and gave him confidence to stay on.
It is almost like choosing between these two teams:
Playing with 3 Virendra Sehwags or Making sure you have a right mix to face all situations and keep the scoreboard moving.
And in Investment, we need to keep the scoreboard moving. Otherwise, they are saying, 81% times, the umpire (read investor) will come and walk out with the scoreboard itself!
chakstalks 