Equities as a tool for long term wealth creation

INERTIA Your Gateway to Financial Freedom

“All of human unhappiness comes from one single thing: not knowing how to remain at rest in a room”

- Blaise Pascal

“While enthusiasm may be necessary for great accomplishments elsewhere, on Wall Street it almost invariably leads to disaster”

Making your money work for you should not be full of hard work!

Working to make money … Making money work!!

Job, small business Invest in business/equity/debt/real est/gold

Physical work/IQ/Creativity EQ

Do…Do…Do…. Allocate capital and relax!

Automatic adjustment for inflation No certainty of ‘above inflation’ real returns

Income source in early stages Income source in later stages

INFLATION: THE SILENT TAX…While most individuals save (defer consumption) so as to utilize this purchasing power in future, governments typically spend far in excess of what they earn

The gap is filled by borrowings or by printing more money

In effect the governments have a credit card without any limits and they utilize it very predictably – by going on a never ending spending binge

Most financial instruments other than equities will not be able to generate significant ‘above inflation’ returns

EQUITIES BEAT INFLATION AND COMPETING ASSET CLASSES HANDS DOWN

Inflation Gold Sensex G-Sec1970-75 12 291975-80 4 171980-85 10 11 81985-90 8 10 111990-95 10 8 29 121995-2000 8 -1 9 132000-2005 4 7 5 82005-2010 8 21 22 82010-2014 10 12 6 81984-2014 CAGR 8 9 20 10

Gold Sensex G-Sec1970-75 171975-80 131980-85 1 -21985-90 2 31990-95 -2 19 21995-2000 -9 1 52000-2005 3 1 42005-2010 13 14 02010-2014 2 -4 -21984-2014 CAGR 1 12 2

Stocks also happen to be the only asset class attracting NO long-term capital gains tax

HISTORICAL 5-YR AVERAGE INCREASE (%) 5-YR AV RETURNS EX-INFLATION (%)

SENSEX AVERAGES 20% RETURNS VS 9% FOR GOLD,VS 10% FOR FIXED INCOME AND 8% INFLATION

Source: RBI

10% DELTA RETURN CAN MAKE YOU VERY RICH!

The power of compounding

unleashed !!!

Mar-84 Mar-14

Gold 100 1333

Gsec 100 1,652

G-Sec 100 1,652

Sensex 100 22,386

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0

5,000

10,000

15,000

20,000

25,000

Cash (0% CAGR) Gold (9% CAGR) GSec (9.8% CAGR) Sensex (20% CAGR)

Delivers real returns i.e. Significant increase

in purchasing power over long-term

Traditional store of value; can

modestly beat inflation

Helps protect

purchasing power

Inflation erodes

all value

Vola

tile

Price fluctuates,

but reasonably

Low risk of capital loss

Safest asset given sovereign guarantee

Short-term

long-term

CASH

EQUITIES

GOLD

FIXED-INCOME

THERE ARE NO SHORT-CUTS TO PLACES WORTH GOING

TAKING CUES FROM WORLD’SMOST SUCCESSFUL INVESTOR…

Name Warren Edward Buffet

Age 82 years

Net Worth (March 2012) US$62b (INR 3,72,000 Crores)

Source of wealth Self-made; Investment

Guru Benjamin Graham

Preferred instrument Equity, business ownership

Investment Style Value investing

Target Companies with predictable business (and cash flows!) enjoying sustainable competitive advantage

"Rule No.1 is never lose money……Rule No.2 is never forget rule number one!”

•Over the past century currency based investments (like bank deposits) have destroyed the purchasing power of investors in many countries, even as the holders continued to receive timely payments of interest and principal.

•This ugly result, moreover, will forever recur as Governments determine the ultimate value of money, and systemic forces will sometimes cause them to gravitate to policies that produce inflation.

WARREN BUFFET ON FIXED-INCOME & GOLD

•Unproductive investments like gold require an expanding pool of buyers, who, in turn, are enticed because they believe the buying pool will expand still further.•Gold, however, has two significant shortcomings, being neither of much use nor procreative. If you own one ounce of gold for an eternity, you will still own one ounce at its end.

WARREN BUFFET ON PRODUCTIVE ASSETS

•My own preference is our third category: investment in productive assets, whether businesses, farms, or real estate.•Whether the currency a century from now is based on gold, seashells, shark teeth, or a piece of paper (as today), people will be willing to exchange a couple of minutes of their daily labor for a Coca-Cola.•In the future the population will move more goods, consume more food, and require more living space. People will forever exchange what they produce for what others produce. Our country’s businesses will continue to efficiently deliver goods and services wanted by our citizens.•Metaphorically, these commercial “cows” will live for centuries and give ever greater quantities of “milk” to boot. Their value will be determined not by the medium of exchange but rather by their capacity to deliver milk. •Proceeds from the sale of the milk will compound for the owners of the cows.• Over any extended period of time this category of investing will prove tobe the runaway winner among the three we’ve examined. More important, it will be by far the safest.

BUFFET’S CRITERIA FOR WONDERFUL BUSINESSES

• Good return on capital without a lot of debt

• Understandable• See profits in cash flow• Strong franchises and, therefore, freedom

to price• Don't take a genius to run• Earnings are predictable• Management is owner-oriented

INVESTING VS SPECULATING An investment operation is one which, upon thorough

analysis promises safety of principal and an adequate return. Operations not meeting these requirements are speculative

Invest only if you would be comfortable owning a stock even if you had no way of knowing its daily share price

People who invest make money for themselves; people who speculate make money for their brokers

GOOD TIME TO ALLOCATE CAPITAL TO EQUITIES

SENSEX: HISTORICAL P/E

Market valuations within historical norms; good time to allocate long-term money, adverse noise not withstanding

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MODEL INVESTMENT PROCESS

Allocate Capital

Create Portfolio

Review

Re-balance

INERTIA

HOW WE CAN ADD VALUE TO YOUR PORTFOLIO

• Inertia: Your one-stop advisor for all long-term equity investments

• Help you allocate the right amount to equities - balanced allocation key to successful wealth creation through equities

• Review your portfolio at optimum intervals – we believe three months is a good period to review and re-balance

• Direct access to portfolio managers which is impossible in an institutional set-up

EXPERIENCED TEAM; PASSIONATE ABOUT MAKING MONEY FOR YOU ‘THE RIGHT WAY’

• Portfolio design and review done by professionals 10 years of experience in equity research and investing

• Zero tolerance to permanent loss of capital• Expect to accumulate wealth through ‘power of

compounding’

Investment strategy: To build a diversified portfolio of companies well-positioned to utilize opportunities in their core area of strength with impeccable management and promoters who are fair to minority shareholders. Back management/promoters cognizant of ‘Return on Investment’ rather than those chasing growth wildly.

PORTFOLIO STRATEGY AND EXPECTATIONS

• Diversified portfolio of 30 companies• Portfolio re-balancing every three months which would include

tweaking the weightages as well as entering/exiting stocks• Highest initial allocation in one stock 5%, lowest 2.5%• No stock >10% or <1% weight post any quarterly review

Expect the portfolio to generate 15-20% CAGR in the long-term on an absolute basis and outperform the Sensex on a relative basis

Leadership position in non-challenged

sectors

Good profitability and return ratios

depicting competitive advantage

Promoters willing to share profits through

healthy dividend pay-out

Reasonable valuations

FOUR KEY CRITERIA FOR INDUCTING STOCKS INTO INERTIA PORTFOLIO

ITS STILL EARLY DAYS…BUT PORTFOLIO PERFORMANCE WELL ON COURSE

Performance (%)1-month (Aug 14)

3-month (Jun 14-Aug 14)

6-month

(Mar 14-Aug 14)

12-month (Sep 13-Aug

14)

Since inception (31st Aug 2012)

Inertia Portfolio 4.4 13.7 28.5 53.4 59.7

Sensex 2.9 10.0 26.1 43.1 51.9

Nifty 3.0 10.0 26.7 45.4 51.3

PORTFOLIO INVESTMENTS: PARTIAL SNAPSHOT

FLAT FEE STRUCTURE; NO CONFLICT OF INTEREST!

PORTFOLIO SIZE ADVISORY FEE

INR 0-2 Lakhs INR 1,000 per quarter

INR 2-5 Lakhs INR 1,500 per quarter

INR 5-10 Lakhs INR 2,000 per quarter

> INR 10 Lakhs 0.8 % of Portfolio size

MUTUAL FUND

‘AUM’ and ‘NAV’ Focus

Agency Problem

RETAIL BROKER

‘Trade’ Focus

Lack of Expertise

INERTIA

Client retention and service focus

Expertise with complete alignment

Advisors committing their own capital (INR35 Lakh) to inertia portfolio

This should allay any reservations on ‘conflict of interest’

ALIGNING OUR INTEREST WITH YOURS - ADVISORS ALLOCATING INR35 LAKHS TO INERTIA PORTFOLIO

WELCOME TO INERTIA: YOUR GATEWAY TOFINANCIAL FREEDOMMail us at service @equities4wealth.comVisit Us : equities4wealth.com

THANK YOU