Part 1: Empty your Cup or Why the heck most people are terrible at Investing? And how to put an end to it
1.4 Then how do you know you are investing successfully?
This is perhaps the most important question. And you know ‘earning 20-25% returns’ is not the answer. To answer this you must understand clearly, the difference between being efficient and being effective. Do you?
Stephen Covey author of Seven Habits of Highly Effective People helps get the point across very clearly through the famous wall-ladder analogy. He says suppose you want climb a wall and you need a ladder to do it. Then efficiency is how long you take to climb it. The shorter the time, the more efficient you are. But placing the ladder against the correct wall, the wall you need to climb for whatever purpose, is what makes you effective. Placing the ladder on the right wall and using your enthusiasm and skill to climb it faster without falling makes your effective and efficient. If it placed on the wrong wall, you are not effective and efficiency does not matter.
Returns is measure of efficiency; its money earned divided by money invested in a given period of time. Earning higher returns is being more efficient with the money that you have invested that earns this returns. But if you are unable to invest sufficiently through this ‘higher-returns-way-of- investing’, or you are unable to stay invested for long enough then you will not earn enough money and grow your money to meet your goals. Then this way of investing is ineffective for you. It’s like climbing fast on a short ladder…. you don’t reach your goals no matter how fast you climb the ladder.
Investing effectively means you manage your investing in a way that you are able to provide for your goals. It’s like climbing a very tall ladder that is placed against the wall that has your goals right at the...........Read More
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MoneyWorks4Me method for rating and ranking mutual funds for SIP
MoneyWorks4Me rating and ranking of funds for SIP is available to subscribers only. Moneyworks4Me is not a rating and
ranking agency, however it is required that users have a way of selecting funds and building a Portfolio. The method used by it are described below to enable users to understand the logic behind the rating and ranking Subscriber will find more details on this in the
various content made available from time to time. In case you need more please write to besafe@moneyworks4Me.com
MoneyWorks4Me rates and ranks mutual funds based on the following data-driven system:
Performance Consistency: This is measure based on whether the fund has beaten the benchmark index consistently. For
this we compare the 3-year rolling returns of the fund with the benchmark for a minimum of 5 years and preferable 10
years. The period of rolling is one month and holding period is 3 years. Fund are color-coded Green on Performance when
the fund beats the benchmark more than 90% of the time. It is Orange if it beats 80% to 90% of the time and Red if less
than 80%. Funds with less than 5 year data are color-coded Grey.
Quality of Portfolio Holding: Moneyworks4Me has color-coded stocks as Green, Orange and Red based on whether the
company's performance has generated a ROCE above a threshold level (cost of capital) over 10 years (minimum 6 years) and
generated positive Free Cash Flow. For Banks it checks whether ROE is greater than 15% and sales has grown over previous
year. Stocks that perform consistently on these combined metrics are color-coded Green (min score 14 out of 20), Orange
(between 8 and 14) and Red (less than 8 out of 20).
Fund are color-coded Green provided the portfolio has 70% holding in Green stocks but not more than 10% in Red stocks.
Funds with more than 15% Red stocks in the portfolio are color-coded Red. The rest are Orange funds
Funds ranking in screeners: Performance Consistency and Quality are two parameters used for ranking funds for SIP. The
ranking as follows GG, GO, GR, OG, OO, OR, RG, RO and RR.
With the same color-coded funds, the one with the higher Average 3-year rolling returns (over 5 to 10 years), the number
that appears in the Performance tag, ranks higher.
Here is the summary:
The third tag Upside Potential is not relevant for SIP. It is relevant for lumpsum investments in Mutual Funds.
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