Keep It Simple, Silly

A for assets, B for blue-chips, C for cashflows…Going by these guides, personal investment is kid’s play

Odes to gold have been whipping around town like there’s no tomorrow. If you want to put money away, gold sure beats a stuffed mattress. It even reminds me of John Donne’s poetry:

I, when I value gold, may think upon / The ductileness, the application, / The wholesomeness, the ingenuity, / From rust, from soil, from fire ever free; / But if I love it, ‘tis because ‘tis made / By our new nature, use, the soul of trade

Except that this poem, Donne’s last-but-one ‘elegy’, is not an ode to gold. Taken in its erotic entirety, it’s a eulogy to a ‘centric’ focus of love and an eccentric way to zero in. And unless your ankle has been clamped to an ironball in a dark dungeon for four centuries at a stretch, you’d know that gold is not the soul of trade anymore.

Nor is gold an investment. It is, in fact, a gamble. For anything to qualify as a bona fide investment, it needs to be an asset: it must yield regular inflows of cash, no matter what its resale value is. If you acquire assets, you’re an investor. If you buy things to sell off at higher prices, you’re a gambler. Or trader at best (if you are sure of your gains).

That is the focal message of Robert Kiyosaki’s Unfair Advantage: The Power of Financial Education. ‘The poor focus on expenses. The middle class focus on liabilities [a house, car and other things that result in outflows of cash]. The rich focus on assets.’

Wait a minute. Isn’t this what he said in Rich Dad Poor Dad, his 1997 book that was hailed as an investment guide even school kids could understand? Well, since adults are not that smart, he has made a fortune saying it again and again in an entire series of Rich Dad books since then. Unfair Advantage is his 2011 crack at it.

Except that the advice no longer sounds paternal. It sounds hysterical, even by American standards. ‘This decade will prove to be the most volatile world-changing decade in world history,’ Kiyosaki warns, with all the subtlety of a hammer throw at a TV screen, ‘The next 10 years will mark the end of the American empire. The dollar will prove to be a fraud, and a whole new world economy will emerge.’ The ignorant are doomed, he says, especially the educated who deny their ignorance.

Rivetting stuff. An Indian investor, however, should ignore this book’s specific advice. If Kiyosaki got rich selling books, he got richer playing a real world version of Monopoly, buying house after house (with loans) to put on rent, and urges readers to do likewise. But this model takes America’s contortionist credit and fabulist fiscal policies of the past decade—an Uncle Sam on stilts, so to speak—for granted.

Investing in India is a different dice-game. For one, the Indian economy is emergent, so corporate shares are some of the best assets going. For another, India is incredible, so school kids with rich dads are found to write sensibly on the subject. Take Aryaman Dalmia’s Graham, Buffett & Me. What sounds like a spread of inflight delectables to replace the classic coffee-tea-or-me is actually a 14-year-old boy’s take on ‘value investing’ as espoused by two American gurus. Again, if you simply ignore Dalmia’s specifics, it’s a good read. It snaps Rich Dad’s long-term asset focus into a neat piece of ‘value’ advice: always find out how much a share is worth paying for.

With stockmarkets in a slump, even ‘blue chips’ can prove to be bargains. The idea, though, is not to gamble but get some of the money a company makes. To do this without overpaying, it’s advisable to buy shares with an affordably low ‘price-earnings ratio’, which is essentially the market price for each rupee of annual earnings: for a blue chip, a ratio under 10 is a steal. Of course, what a company pays shareholders every year is only a slice of its earnings, its annual dividend: anything that yields above 2 per cent of your investment is good going. Right now, that’s less than what a bond yields. But going long on equity is about looking 10 years ahead. Or more. If earnings expand as expeditiously as the economy, your silly single-digit yield will turn into a doughty double-digit dividend… even as your asset base zooms.

India is irresistible—so long as the economy hums along. It’s not really the ‘India’ of Donne’s lavish verses, but the poet sure had focus. And ‘tis focus that doth whet a privy purse.

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