Behavioural lessons learned over 30 years of investing

[rski]

These are some important lessons I have learnt over 30 years of investing from a young age . These are my experiences , so I cannot really post hard data or do analysis . They have become part and parcel of what I think

1. Get rid of all membership programs , frequent flyer miles, restaurant coupons, exclusive invites . They distort behaviour and thinking . You start seeking comfort and gratification in meaningless trivialities . If you want comfort seek it from family , friends and the almighty .

Over 30 years I have surrender everything , including my black diners club and the Amex platinum charge card .

I only maintain a family membership to a members only club because I like the food and it’s 50 % cheaper to entertain vs a restaurant and my children can access recreation.

1. Condition your brain to live on rent . By choosing to live on rent the opportunity cost savings over last 3 years have been to the tune of 75 L when compared to a bank FD yielding 7 percent . Over 3 years , its significant .
2. The most difficult one , take advise from people who are better smarter richer than you . This is difficult as you have to let go of your ego and cultivate them . I personally found this to be the hardest .
3. Do not hesitate on spending for small pleasures of life to indulge your family . X amount saved now will not amount to much later . But it will help your relationships
4. Keep your investing and accounting simple from the beginning . You avoid wasting time that can be spent productively
5. Manage your liquidity daily , review it daily , and keep it more than adequate . That is what will give you the strength to hold on to your convictions when life, health and investments all three take a u turn on the same day. I have seen it happen in 2009.
6. Cover all risks - life , health and disability . Very few Indians cover disability . We are binary thinkers . Sometimes being disabled is worse than death and certainly more expensive.

8 Segregate your child’s portfolio by age 5 . This will allow you to place long term bets because you know your child has 15 years to go . You may not .

1. When you approach an investment , don’t approach it with hope , approach it with extreme distrust . Let your analysis peel away your distrust . This in Latin is called via negativa .
2. Keep investments in joint names with your spouse or split with spouse . I know several people who kept everything in their name , are getting impacted by higher tax slabs and cess and the spouse leaves no occasion to rub their faces in it .

I believe lower taxes and a happier spouse are desirable outcomes . Others may differ or seek proof. Or want higher taxes and disgruntled spouses .

 

[rapp]

@rski Thanks for sharing your lessons. It helps. I agree with most of it. Could you explain a bit more on live on rent vs opportunity cost?

 

[resjudicata]

@rapp this needs more explanation

 

[resjudicata]

lol your username.

 

[rski]

@rapp Let’s assume the house you want to live in costs 1 lakh to buy .

Your annual rent for it is Rs. 2500

You invest that 1 L a, at 7 % it gives you 7000 as interest

Net addition to your wealth is 7000-2500= 4500

Now if you do it over 5 years, your investment compounds .

Now let’s assume the house you want to live in costs 10 crores , you wana roll like a King . but you can rent it for 30, lakh

What would you do ?

 

[resjudicata]

@rski Doesn't take into account capital gains on the house + tax benefits for loan repayment.

I do agree renting is better in overpriced cities like Mumbai where rental yield is under 3% .

However, in cities where rental yield is 4-5%, buying is better.

 

[jesuschristismylord33]

@resjudicata Annual rental increase in my locality ( mumbai suburb) is 10 % :-|

 

[lisabailey937]

@jesuschristismylord33 Where in Mumbai?

 

[jesuschristismylord33]

@lisabailey937 Ghatkopar

 

[lisabailey937]

@jesuschristismylord33 Wow! 10% seems outrageous. So buying a house for 1cr will yield 10lpa rent.

 

[resjudicata]

@lisabailey937 @jesuschristismylord33 mentioned rental increase, you are referring to rental yield

 

[jesuschristismylord33]

@lisabailey937 No. Rental yields are around 2.5 % that is 2.5 lakh per 1 crore. What I meant is rent is increasing 10% every year. As house prices have stagnated in last few years, House owners compensate for it by increasing rent 10% every year.

 

[lisabailey937]

@jesuschristismylord33 Makes sense. I totally mis-read your comment as the comment above it was talking about rental yield.

 

[mamabdog]

@rski You've given really some really solid advice here. But this calculation assumes that the buyer has enough to purchase the house.

It changes quiet a bit when the buyer needs to get a home loan to get their house.

Personally, I can't put a price on the peace, freedom, and feeling of owning my own home.

 

[heliumskylark]

@mamabdog Everybody forgets that rent also increases every year. After every real estate boom, rent also jumps massively to keep pace with the increased price of property because rental yield needs to stay within the 2-4% range. Currently the RE market is down but it won't remain so forever.

I would rather not have to worry about rent going up so much that I can no longer afford it in future. I can make do with eating less and sleeping on the floor but I can't survive without a roof over my head.

Like you said, there is no way to put a price on peace, freedom and being the king of your castle. I hate being that guy who gets kicked out of house because the landlord feels my time is up.

 

[rski]

@mamabdog Lycurgus , the ruler of Sparta was very circumspect about this .

Someone asked him , should we not build a strong wall around our city , fortify it and build stone houses.

His answer was , the only wall the city needs is one of strong shoulders , each carrying a shield and a long sharp spear .

If houses could provide peace , freedom and relief .......

Oh it gets even worse if you are borrowing and taking a loan . You lose out on the tax benefit of HRA and your housing loan interest tax rebate is capped .

 

[stefo]

@rski Houses do provide Peace/Freedom/Relief, and it can be personal to everyone. Houses also appreciate at times. So while it's true that renting might look better considering the math of it, Housing is an asset which usually goes up with inflation. So it might make sense to buy than to rent.

I personally recommend buying a house once you have a family and are sure you are going to be in the same location for 10+years.

 

[resjudicata]

@stefo

Houses also appreciate at times.

Do they always? Flats do not, most of the times.

Housing is an asset which usually goes up with inflation.

Your house is not an asset said Kiyosaki many times.

 

[stefo]

@resjudicata Yes, Flats don't. I have mentioned in the sub multiple times that flats are never good investment in RE as developer captures most of the upside value.

A house is very much an asset. It has value. Your mortgage payment is a liability.

 

[heliumskylark]

@stefo It's best not to consider your primary house as an asset because you are unlikely to sell it, so it's capital appreciation is meaningless. Even if you do sell it, you will always need to buy another house to live in.