Mr. Damani, the speaker of the session began by stating an example of how one can save consistently and become part of the top percentile of rich Indians. He continued by asking three questions to assess the financial literacy of the attendees, the first question focussed on compounding, the second on how money value is calculated when inflation is a consideration? (how inflation eats into your savings and how the purchasing power reduces due to inflation) and the third was whether single stocks are safer than mutual funds? (indicating portfolio diversification makes investment safer), thereafter, he asked the full form of acronyms such as EPS, PE, CAGR, ETF and BS to test the level of financial literacy knowledge of the attendees. He further went on to distinguish between NSE and NYSE, Dow Jones and Sensex, Unicorn and Rhinoceros and Margin of Safety and Marriage of Convenience. Later in the session he dwelled on three important concepts such as a) Margin of safety, b) Circle of Competence and c) The principles of compounding. He mentioned that the roots of Margin of Safety began in the field of engineering - related to maximum tonnage estimated to carry load over a bridge. He gave an example, that when ones' mother goes shopping for vegetables, she tends to purchase the best produce and at reasonable rates. This is akin to the margin of safety where one tends to purchase the best at a reasonable rate. The second concept discussed was the circle of competence, he discussed, that there are certain aspects we understand well, he continued to elaborate with an example, one may work in the technology industry, so one might be able to understand the changes in the technology, which firm is an early adopter etc. Here, one may understand the technology industry so the person possesses competence and understands this industry well. So, he stressed that focus on the area where you have competence. He further suggested that one can marry all these two concepts well using an example of an Ed Sheeran concert, where one is offered a good seating arrangement at the concert and an opportunity to get two tickets at INR.1,000. It is common knowledge that the ring side seating for an Ed Sheeran concert will cost INR.10,000. This is similar to investing, where one possesses a circle of competence and yet understands, that it would be a scam if one is offering tickets at a rip off price of INR.1,000. So, a market may present you with good bargains, but you have to pick and choose wisely, as the market oscillates between fear and greed. Finally, he discussed the concept of compounding where he suggested that the earlier you begin the better it is in terms of money compounding. For example in a 32 year career one would have 8-10 doubling of money i.e. doubling every 4 years, if you begin with 20 lacs you will have 200 crores over a 40 year period which will put you among the richest Indians. So, if you find stock equities which you hold over a long period of time, one would face tax implications only when one liquidates the equities whereas when you invest in fixed deposits you pay tax on the interest earned. He suggested that equities are a good mechanism to compound money over a period of time. He ended the session with a quote, "Expenses know how to compound forever, income doesn't because we keep breaking its compounding, that is the problem to solve for an investor".
The Financial Literacy course will provide a comprehensive view of personal finance and financial investments to the FLAME University Undergraduate students. It will also familiarise the learner with various topics such as capital markets, personal savings, role of borrowing, the accounting language, asset classes – equity, fixed income, real estate, commodities etc., asset diversification, investment options, wealth creation, etc.
Speaker: Mr. Ramesh Damani
Mr. Damani, member of the Bombay Stock Exchange, is one of the most successful investors in India. A proponent of the Buffett style of value investing, Mr. Damani’s views about equity is ardently followed. He is also the Chairman of Avenue Supermarts Ltd. He completed his undergraduate at HR College and post graduate at California State University.
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