The Debilitating effect of Inflation on Investments

This article was published in The May 2014 issue of the Global Analyst

       ·      Rs. 1 lakh invested in Equities 25 years ago will now be worth Rs.47 lakhs before inflation and Rs. 7.6 lakhs after inflation!
·         Rs. 1 Lakh invested in Gold 15 years ago will now be worth Rs. 6.7 lakhs before inflation and Rs. 2.7 lakhs after inflation!
·         Rs. 1 Lakh invested in Fixed Deposits 10 years ago will now be worth Rs. 2 lakhs before inflation and Rs. 1 lakh after inflation!
·         What Rs. 6,700 could buy in 1980, you will now need Rs.1 lakh for the same!

    Almost always we make investment decisions based on absolute performance rather than inflation adjusted performance. In my humble opinion, this approach can have very costly consequences in terms of our wealth and overall financial well-being.

     Without considering the effect of inflation, the investment performance can look really dramatic. For eg., Rs. 1 lakh invested in 1979 in equities can now be worth Rs. 1.88 crores!. But when adjusted for inflation it is worth only Rs. 12.6 lakhs, still better than other investments like gold and fixed deposits. Also, inflation creates more havoc in the long run than in the short run as it is a steady and silent killer. For eg., if you have invested Rs. 1 lakh in a fixed deposit in 1979, it is now worth Rs. 15.5 lakhs. But when adjusted for inflation, it is worth only Rs. 1 lakh! In other words, for 34 long years your investment worth has remained unchanged.

Source: RBI, BSE, and other sources. All data for period ending 31^st March 2013. 

     The table above reflects the complete picture across time and investment category. Let us analyse by investment category. At this stage, it may be worthwhile to explain what is nominal and real. Nominal rate of return is the absolute rate before adjusting it for inflation. Real rate of return is the performance after adjusting for inflation. For eg., during the last five years fixed deposits have returned an annualized return of 8% while inflation was also running at more or less same speed causing the real rate of return to be nil.

      

      Fixed Deposits

     If you are a fan of fixed deposits, think again. Most of us, deal with bank fixed deposits without realizing the meagre return (after inflation) that it offers. It has failed to produce any reasonable real rate of return in any time period. While banks have benefitted by the fixed deposits as they make nice spreads (the difference between lending rates and deposit rates), the investors have not made any returns since inflation eats away all the returns leaving nothing on the table. Whenever inflation increases in the economy, the RBI uses interest rates as a tool to contain the inflation (though I am not sure how effective that strategy is so far). In other words, when inflation increases, interest rates also increase thereby technically protecting the real rate of return. However, as data shows, inflation seems to have had the upper hand resulting in the dismal performance of fixed deposit. Over the long-run, a 0% real rate of return can hurt seriously. 

     

      Gold

    Your wife’s obsession with gold after all is not a bad idea! Gold has always produced good real rate of return across all time periods unlike fixed deposits. Gold seems to be having a gala time of late (during the last 5 years) compared to say last 25 years or 34 years. Gold has generated nearly 25% nominal returns annualized (before inflation) and 15% real return (after inflation) during the last five years making it as the best performing investment. It also had a nice run when seen from a ten year context with inflation adjusted annualized returns at nearly 11%. However, in the long run (25 years and 34 years), its real return (inflation adjusted) seems to be moderate but still better than fixed deposits.

    The recent good performance of gold in the last five years could be more due to global financial crisis and its aftermath all across the world. So long as global uncertainty persists, we can expect gold run to continue.

      Equities

      Indian Equities by far has the best story to narrate, especially in the medium to the long-term. In the short-term, (last 5 years), the equity performance is negative after adjusting for inflation but this is only expected given the volatility with which this asset class evolves in the short term. As said before, the global financial crisis has a direct bearing on the performance of equities and hence it is no surprise that its performance has been lack lustre. However, if you can muster some patience, it is by far the best hedge against inflation. It produced a real return of 8.5% annualized in the last 25 years compared to 1.7% for gold and 0.9% for fixed deposits. The same trend can be observed for the last 34 years where it produced a real return of 7.7% compared to 2.7% for gold and 0.1% for fixed deposits.

     It is thus clear that if we can have a time frame of 10 years+ then we can expect equities to protect us from the inflation beast. In the absence of treasury inflation protected securities (TIPS) as it exists in US, the only place to hide against inflation seems to be equities. Though there is no statistic to back the claim, I also feel Real estate doing a good job of protecting value against inflation.

      Welcome to the world of Finance!

     On a side note, while inflation is certainly not benefitting investors, it is benefiting insurance companies in terms of launching products. Recently Aviva launched “Family Income Builder” scheme which states as under:

    “You would be surprised to know that the cost of living has doubled in the last 12 years, and this trend is expected to continue. Are you sure that your savings are also growing at a similar pace? Presenting Aviva Family Income Builder - a life insurance plan that doubles your money. Pay an annual Premium for 12 years and get double of what you have paid every year, for the next 12 years, guaranteed”

    Simply put, what they are saying is that they will double your money in 12 years! A back of the envelop calculation says that the annualized return of such a proposition is just 6%, far lower than the fixed deposit returns that you get in banks! The catch is not in doubling, it’s how soon you double. Welcome to the world of finance!

   

     Trends and Challenges:

     There are 3 trends that are worth noting from a lifestyle point of view:

     ·        You will live longer than you think-more importantly your wife will live longer than you (based on life expectancy)
·         Your investment will produce lower returns as you age yielding lower income &
·         Your cost of living will increase more than what you estimate

      The power of inflation probably comes in directly in the last trend i.e., cost of living and to an extent in the second trend where after inflation the net returns will be lower. The final outcome of these 3 important trends is that you will experience a lower standard of living in retirement.

     

      How to beat it?

        ·         Focus on health-don’t just be content with maintenance. Spend money on building a healthier body.
·         Develop an investment strategy that is inflation proof (and fixed deposit is certainly not one of them)
·         Work longer-move your retirement age from 65 to say 70 or even 75

      The author thanks Karthik Ramesh and Rajesh Dheenathayalan for assistance. 

Why is Liquidity important?

Liquidity is at the backbone of any market development and GCC stock markets are no exception. Strong oil price backed wealth effect coupled with retail nature of the market triggering speculative activity contributed to very robust liquidity levels in the past, especially before the financial crisis. Liquidity is generally measured as total value traded and is expressed as a % of total market capitalization to arrive at the velocity. A high velocity may indicate that liquidity is running ahead of the market and vice versa. Also, improved liquidity has many benefits including cost of transaction. In the context of GCC stock markets, the following questions beg answers:
1. By how much did the liquidity drop for key index movers measured in terms of before and after Global Financial Crisis?
2. What impact such a drop had on the bid-ask spread (a proxy to measure transaction cost)
3. Are there any inconsistencies in this and if so what can explain it?
Before we answer these questions, let us quickly explain the methodology of this small research:
1. We collected daily volume, value traded, market capitalization, bid-ask spread on 15 heavy weights in the GCC stock markets
2. We organized this data in terms of pre financial crisis (before 2008) and post financial crisis (after 2008).
3. We calculated Average Daily Value Traded (ADVT), a measure of liquidity for all the stocks
4. We also calculated the Turnover ratio (defined as total volume traded/number of outstanding shares).

Now let us turn to our findings in a quest to answer our questions:
Table 1- % change between Pre-crisis (2003-2008) and Post crisis (2009-2013) 

1. By how much did the liquidity drop for key index movers measured in terms of before and after Global Financial Crisis?

Regarding the first question liquidity dropped across the board in the aftermath of the crisis as expected. For example SABIC’s daily average value traded (ADVT) stood at  USD 178 mn dollars during the period from 2003-2008. Post 2008 the ADVT fell by 27% to USD 130 mn dollars. Saudi Telecom saw a large decline in ADVT from USD 100 mn before the crisis to USD 11.9 mn a drop of almost 90%. The table above shows the effects of the crisis on the average value traded.

Table 2- Summary of finding

2. What impact such a drop had on the bid-ask spread (a proxy to measure transaction cost)
In general, as liquidity improves, bid-ask spread reduces thereby reducing the cost of transaction. In the case of heavy weight GCC stocks, spreads increased in response to a fall in the liquidity for most of them. SABIC’s  Spread was 0.23% prior to the financial crisis while after the crisis it increased to 0.3%. In the case of Saudi Telecom the Spread increased marginally from 0.27% to 0.29%. The biggest increase in spreads is seen in Zain where before the crisis the spread was around 0.75% (high compared to Saudi companies) while after the crisis it increased by  88% to 1.42% though this cannot be totally attributed to a fall in ADVT as ADVT declined only by 9% compared to pre-crisis numbers
3. Are there any inconsistencies in this and if so what can explain it?
Finally were there any inconsistencies? Some companies in our study showed positive correlation in that while liquidity decreased, the bid-ask spread also decreased and vice versa. Examples include Emaar, First Gulf Bank and industries Qatar. However the main reason behind this positive correlation is that the mentioned companies did not have sufficient history for us to make meaningful comparison between pre-crisis and post crisis numbers. The only company with sufficient data was SAMBA and we could attribute the fall in liquidity to the financial crisis and attribute the fall in spread to peers. In other words, before the crisis SAMBA had the highest spread among Saudi banks under our coverage thus the number after the crisis had to drop to be in line with other Saudi banks.

Concluding Thoughts:Leading GCC stocks today have more bid-ask spread than a few years before thanks to poor liquidity. The bid-ask spread ranges from a low of 0.18% (Industries Qatar) to 1.52% (National Bank of Kuwait). Going forward, as liquidity improves, the bid-ask spread should reduce and may reach levels seen before the financial crisis. Market attractiveness to institutional investors can be significantly increased if liquidity improves and reduces the bid-ask spread.


By -  M.R. Raghu & Humoud Al Sabah

The Alpha and Beta of Commodities Investing

This article was originally published on the website of CFA Institute

At this year’s Middle East Investment Conference, Russell Read, CFA, had a tough task. The chief investment officer and deputy chief executive of the Gulf Investment Corporation (GIC) was called on to explain the complex world of commodities investing and its role in generating portfolio returns. But as the man who helped introduce the first commodity-based mutual find in 1997, attendees couldn’t have asked for a more seasoned professional to explain the role of these often impenetrable instruments.

Commodities may be tough to understand, but they are one of the oldest traded financial instruments. The Dojima Rice Exchange dates to 1730. The Chicago Mercantile Exchange Board was founded in 1858. Most students of finance are in fact reasonably aware of the two main tools for trading commodities: futures contracts, which are exchange traded with minimal counterparty risk, and forward contracts, which are traded over the counter and involve counterparty risk specific to each instrument.

Commodity trading is used for physical hedging, financial hedging, repositioning, and speculating by specialty investors, such as hedge funds. What trips up many professionals is the leveraged nature of the trading, which requires marked-to-market margin levels. This scares away many institutional investors because trading futures and forwards contracts is mostly tactical. Read emphasized that successful speculators need special skills that are not commonly found in stock and bond portfolio managers.

Read put forward the argument that commodity futures and forwards contracts cannot be considered an asset class because they are not natural diversifiers to stocks and bonds for institutional investors. In addition, he contended, the primary focus on hedging and repositioning does not lend itself to either market (beta) returns or the potential for above-market results (alpha). Still, he acknowledged that if commodities are held in an unleveraged and diversified way, they can aspire to be a separate asset class.

Should investors gain exposure to commodities via indices? S&P GSCI and Dow Jones AIG are the major reference indices. The main reasons to invest in them, Read said, are diversification, long-term return potential, and inflation protection. However, inflation protection from commodities is mostly limited to energy exposure. The introduction of energy commodities into a typical portfolio split 60/40 between stocks and bonds improves returns while reducing volatility, thanks to low correlations. However, index exposure to commodities may not appeal to many investors because it is an amalgam of rolling futures contracts and thus tends to deliver beta rather than alpha generation.

So how can investors position themselves for alpha in the commodities space? One way is to buy or sell physical and financial commodities where supply and demand  are “out of balance” due to various reasons, Read said. This is what most active managers and hedge funds do. Of course, traditional managers are often bound by relative returns to benchmarks. They cannot short securities, utilize derivatives, or own leveraged exposures. In contrast, alpha managers are driven by absolute returns. Still, the alpha business is getting highly competitive thanks to less liquid markets, more complex instruments, and innovators exploiting new opportunities for returns.

On balance, though, commodity strategies do have a major and multidimensional role to play in a diversified portfolio — especially for investors in the MENA region, where management of commodity risk remains less developed. Furthermore, the strong relationship between energy prices and MENA stock price appreciation (and economic growth generally) makes commodities a great additional source of returns and an important hedging and diversification tool.

Mutual Funds Should Do More

This article was published in The March 2014 issue of the Global Analyst

It is not my intention to criticize mutual funds for I was also an avid investor till recently. However, the normal claims about virtues of mutual fund investing amuses me sometimes. Recently I read an online article published in Times of India with a fancy title “Why should you invest in mutual funds?” Like a lay reader, I started browsing through the contents till I realized that if not all, many of the claims can be easily rubbished. Here is a run-down on the claims of the virtues of mutual fund investing and the truth explained alongside:

1.     Beat Inflation: 

The MYTH: “Mutual Funds help investors generate better inflation-adjusted returns, without spending a lot of time and energy on it”.

The TRUTH: This is true only if the mandate of the fund is to beat the inflation i.e, TIPS like product (Treasury inflation protected securities). The RBI has just introduced a un investor friendly product and is still dusting the finer elements. However, I suspect the claim was made more in the generic context of equity mutual funds. Equities as an asset class beat inflation not because it is structured as a mutual fund, but because of the inherent ability of the asset class to perform better than the inflation. Even if I buy some 10 good stocks and sleep on it for 20 years, my investment should beat inflation without the hassle of being structured as a mutual fund.

2.     Expert Managers:

The MYTH: “Backed by a dedicated research team, investors are provided with the services of an experienced fund manager who handles the financial decisions based on the performance and prospects available in the market to achieve the objectives of the mutual fund scheme.”

The TRUTH: Academic research has proven time and again that fund managers as a group do not beat the market. Also, those fund managers that beat the market do not do it consistently. In other words, if you invest in a fund that has performed well because you got charmed by the fund manager, in all likelihood, he will trail the performance since there is no consistency in the performance. In the whole of the investment history, there is only handful of examples where fund managers performed consistently and even here they have attributed that more to luck than skill. Obviously there will be some fund managers that will do better than others and the market but there is no scientific way of knowing that in advance. 

3.     Convenience:

The MYTH: “Mutual funds are an ideal investment option when you are looking at convenience and timesaving opportunity. With low investment amount alternatives, the ability to buy or sell them on any business day and a multitude of choices based on an individual's goal and investment need, investors are free to pursue their course of life while their investments earn for them”.

The TRUTH: If technology helps mutual funds to offer convenience, the same technology offers investors the option to directly buy and sell financial instruments including post office savings. Opening a trading account with any reputed institution is just a matter of signing in 37 places, and beyond this hassle everything else is just a click of button. You can buy 1 share of Infosys and sell 1 share of Hindustan Lever and for that level of volume all else including electronic demat, service tax, sms alert, etc is done by the technology.

4.     Low Cost:

The MYTH: “Probably the biggest advantage for any investor is the low cost of investment that mutual funds offer, as compared to investing directly in capital markets. The benefit of scale in brokerage and fees translates to lower costs for investors.”.

The TRUTH: By definition mutual funds have to add extra cost to a transaction due to management fee, custody, etc. While they can bargain for lower fees due to scale, since they are normally applied as a % to total assets, there is no economies of scale. Also mutual funds get research from brokers apparently free of cost and in return for this favour, they are encouraged to trade more (technically referred to as portfolio turnover). The tendency to trade higher due to this in fact increase the cost. Left to himself or herself, the investor can buy when needed and sell when due only sporadically in order to achieve the same result at a far lower cost. 

5.     Diversification:

The MYTH: “Going by the adage, 'Do not put all your eggs in one basket', mutual funds help mitigate risks to a large extent by distributing your investment across a diverse range of assets”

The TRUTH: Mutual funds certainly don’t diversify more than the index to which they are benchmarked. It is due to this reason, they sometimes over diversify! Most of the index have a skewed distribution with the top 10 or 20 stocks accounting for 70 to 80% of the total with the remaining 100 or 200 stocks accounting for the balance 30% or 20%. A typical mutual fund portfolio will have its top holding a share of say 5 to 8% while the last stock in the portfolio will have a share of say 0.2% or 0.1%. While technically the portfolio has more than 40 to 50 stocks (substantiating the claim of diversification), the puny allocation to most of the stocks do not technically contribute anything meaningful to the performance of the overall portfolio. Assuming the last stock with 0.2% weight increases dramatically in value say by 25% in a particular month, its impact on the overall portfolio is only 0.05%, hardly moving the needle! Also, academic research says that you need only 10-15 stocks to meaningfully diversify beyond which the diversification benefit tends to reduce exponentially. 

6.     Liquidity:

The MYTH: “Investors have the advantage of getting their money back promptly, in case of open-ended schemes based on the Net Asset Value (NAV) at that time. In case your investment is close-ended, it can be traded in the stock exchange, as offered by some schemes”

The TRUTH: While it is true that liquidity is provided by mutual funds, the same liquidity is available even for direct investments and hence mutual funds do not provide anything additional in value. The current regulations requiring pay out in T+1 and T+2 ensures that one receives liquidity well on time. 

7.     Higher Return Potential:

The MYTH: “Based on medium or long-term investment, mutual funds have the potential to generate a higher return, as you can invest on a diverse range of sectors and industries”

The TRUTH: The higher return potential does not accrue because it is structured as a mutual fund. The higher return potential probably accrues because of longer time frame and stock selection capabilities in case of equities. As said earlier, if we select 10 good stocks and invest in them for say 5 or 10 years, it should provide higher return potential regardless of the fact that it is not structured as a mutual fund. 

8.     Safety and Transparency:

The MYTH: “Fund managers provide regular information about the current value of the investment, along with their strategy and outlook, to give a clear picture of how your investments are doing. Moreover, since every mutual fund is regulated by SEBI, you can be assured that your investments are managed in a disciplined and regulated manner and are in safe hands”

The TRUTH: Stocks purchased directly and lying the demat account is as safe as mutual fund investment. There is no added safety because it is a mutual fund structure. In terms of transparency, thanks to technology the trading platform provide dissection of the portfolio without any additional cost. 

9.     Product Variety:

The MYTH: “Mutual funds offer variety of products across asset classes like equity, bonds, money market, real estate, etc” 

The TRUTH: While it is true that they offer variety, the problem is investors are perplexed by the swathe of offerings and choices. In fact, the process of choosing among funds today is far more complex than choosing stocks. In other words, investors who avoid picking stocks thinking that they are too complex actually play a far more complex game of choosing funds” 

Apart from these limitations, mutual fund manager also suffer other issues connected with liquidity and fund size. Even well regarded blue chip companies can suffer from poor liquidity leading to higher cost. Mutual funds should suffer this problem especially in mid and small cap stocks. Given their ticket size, their requirement will always exceed what the market trades on a typical day. Also, if the fund has grown big, it will have a tendency to hug the market in order to avoid the risk of underperformance. In other words, the propensity to take risk is reduced while the managers are paid management fee to take risk! 

In summary, a mutual fund is a convenient structure for the fund house that earns good management fees. It is lucrative for the fund managers who earn fat salaries, sexy bonuses and television attention. It is productive for regulators as it keeps them busy. It feeds a host of other related industries like broking, custody, HR, etc. After all this drama, it is still anybody’s guess as to which fund will outperform the benchmark and the peers. As a lay investor, you are better off investing in a Exchange Traded Fund (ETF) that enjoys the lowest cost. If you are slightly informed, you may want to try enhanced index strategies. If you are hands on in the market, you are better off identifying and investing directly in some 10 good stocks and sticking with it.

Happy investing!

PS: The author thanks Rajesh Dheenadhayalan for his assistance on this research.

How do you confront job loss after 50?

This article was published in December 2013 issue of The Global Analyst

The world has become a shaky place – thanks to 2008 global financial crisis. Though the origin of the crisis is the USA, the collateral damage is felt all over the world leading to slower growth, lower investment, higher inflation, and higher unemployment.

Since the center of the problem was leverage (borrowing), companies resorted to wide scale restructuring to optimize their business functions and bring some order to their balance sheets. The effects of such a strategic backdrop is hiving off some business lines, selling non-core assets, reducing headcounts and rejigging the business model to prepare for a “new normal” world that is expected to produce lower growth than the past.

Hence, despite no fault of one, we may simply lose our job. However such job losses can be easily coped with if we are in the mid-twenties or thirties. The simple logic is organization structure is simply a pyramid with more people employed in the bottom of the pyramid than the top. Therefore there are more opportunities at the junior and middle level than the senior level.  Hence, job loss becomes extremely difficult to cope if you are 50+; since you will invariably be in a senior position which is where most of the optimization happens.  

Some of the immediate reaction to a job loss includes one or more of the following:

·         Beefing up your CV

·         Reaching out to friends and acquaintances

·         Reaching out to placement consultants

·         Getting active with job sites

·         Monitoring newspapers for vacancies

In my observation, I find these measures ineffective since they are more of a “reactive” response than a “proactive” response. In other words, we do all of the above post job loss or while we are serving the notice period and not before. When things go fine, we assume that it will be fine for an infinite period of time and hence the lethargy to take some proactive actions. However, corporate failures can be swift and unanticipated. What may seem like a multinational (Enron) can quickly be flamed to dust in no time due to myriad reasons.

I feel that if you have crossed 50, looking for a replacement job may actually produce sub optimal results especially if you have spent long time in your previous job. This is due to the change in the business environment that we operate in. As a response to cost management, companies resort to intelligent out sourcing of many of their non-core, and to an extent core, functions. For e.g., instead of having a 10-member HR team, the function can simply be outsourced to an HR consultant and operate the function at the cost of 2-3 members instead of 10 members. Also, in a competitive environment, companies expect more from less. Hence, it may expect existing employees to increase their contribution thereby avoiding new recruits. Such compression reduces the need to hire especially at the senior level.

Given this trend to cost effectively outsource functions/tasks/operations, it may be a good idea to flip the coin and be on the other side of the spectrum in order to convert a threat into an opportunity.

In other words, be that provider of service which will help companies optimize cost and add value. With such a paradigm, following options emerge:

1.       Consulting on a “Result” basis: It is quite tempting to start a consulting outfit (mostly with your initials as the name!) and go around shopping for assignments. To me it is the least differentiator (since there are many consultants around already) and is a sure recipe for disaster. Instead, you may want to start thinking about “ideas” that can bring about cost efficiency and profitability improvements for a sector/sectors in which you have prior experience and familiarity. Propose that idea for implementation to key players in that sector whereby compensation for your service is directly linked to the “result” rather than your time. When you flip the proposition to “result” rather than “time”, it will be music to the ears of the decision-maker sitting on the other side of the table. Often times, implementation of such ideas should normally be a group work than a standalone assignment. It may not harm to enlist other “co-workers” that can provide support to critical legs of the idea and offer that as part of the solution to improve conviction. As a consultant proposing the idea, we should be able to see the big as well as the small picture of the steps proposed.  Let us consider an example. Hospitality is a booming industry in emerging markets. However, there is a great disconnect between clients (holidayers) and service offerings due to lack of information. Most of the times, clients feel that they could have landed with a better option after signing in on the current option. This results in misplaced expectations and lack of repeat business. A business idea that carefully captures the entire value chain of a “holiday experience” of a client, and link that successfully to a business model that will produce enhanced level of satisfaction can improve the business significantly. This may require dealing with several stakeholders including travel agents, airlines, hotels, car rentals, etc. since the client (user) may need help in the entire “value chain”. Several such ideas can be debated, and structured to make a meaningful impact for the organizations. Having said this, it must also be warned that consulting may not necessarily always take off especially if it is your first experience, and you have always been on the cushy side of giving out assignments rather than receiving them.

2.       “Take it to the next level”: Not all ideas can hit the bull’s eye. As we implement, we may encounter various impediments necessitating mid-course correction. However, after a while, the idea gets perfected and is ready for commercialization on an even grander scale. This requires different skills set thinking in terms of a businessmen setting up a business. With clients already on a roll, try creating a business plan that will involve setting up an organization to handle the same idea on a larger scale with better technology and service parameters. This is how great companies were born and more importantly grew.

3.       Expand your “network” to offer ideas: Most of the time our motive to be part of a network is to receive help rather than provide them. Alternatively, create a network comprising of like-minded people that will be interested to hear ideas from you and relate that to what they are doing. In the process, the “engagement coefficient” will dramatically improve providing more opportunities in the process. LinkedIn and Facebook provide ideal platform for such ambitions.

4.       Engage in teaching or training: There is no other better way to synthesize your thoughts other than narrating your experience. Teaching provides an ideal platform for articulating and perfecting your ideas. It sharpens your skills in many ways since it requires meticulous planning, preparation and most of the time revisit to basics. All this helps in your business engagement when you engage in idea selling. Additionally, if your teaching can focus on training, it can also bring you in contact with corporate executives who may then become the key source of your business.

5.       Have effective “fill-ins”:  A day job does not provide the needed incentive to engage in other activities in which you have deep interest. This is mainly because your time has already been sold and you will just be content with monetizing your time through your job contract. On the other hand, when you are on your own, you will have plenty of spare time, especially during the initial phases. Ineffective way of using this spare time can actually have a critical impact on your motivational level. Most of the people struggle with this aspect when they are in the transition. This is due to lack of proper “fill-inns”. Fill-inns are those that can engage your time in a productive manner with the result being either money or immense satisfaction or both. Some examples of fill-inns could be stock market trading, commodity trading, engaging in your passion (music, art, collectibles), community service, religious service, shaping young minds, etc. A systematic approach to engaging with the fill-inns can provide not only money but very high satisfaction and can in turn shape your main ambition very nicely.

In conclusion, on the one hand global situation will result in tight job market. Traditional method of having a smooth successful career with retirement at 60 may already be changing. On the other hand, companies are grappling with a new paradigm that requires services to be outsourced effectively and efficiently. Connecting the dots will convert a threat into an opportunity. Also, in today’s times where human longevity has increased, it is possible to be quite active till 70. This necessitates physical fitness and mental agility. While age may tell on your body, staying young in mind can produce miracles especially if you have to work with teams comprised of young people.

I always believe that money does not cause success. It is the success that produces money. In order to be successful, the last ingredient we need is money. Hence, having sufficient savings and capital is not a prerequisite to implement any of the above. The essential ingredients that we need are ideas, confidence, clarity, purpose, goal orientation and more importantly ability to dream. None of them need money as the source.

And as a final thought, job loss is not the end of the world. Sometimes it can be a blessing in disguise for personalities that refuses to lift their head from their work little realizing that their family has nothing else but to look to him/her to spend quality time. Grab the opportunity to fulfill that part of your responsibility too.

Happy living!