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India Currents gave me a voice in days I was very lost. Having my articles selected for publishing was very validating – Shailaja Dixit, Executive Director, Narika, Fremont
One of the great joys of migrating to another country is discovering its culinary offerings. When I landed in Newark, Delaware some two score and several years ago, I badly missed one thing. If breakfast was an important ritual in Indian households then the dosa (or dosai more accurately) was its chief offering. The thought of a crispy, roasted finish of a rolled-up dosai and its sambar and chutney accoutrements still make my mouth water. Who cared if it was actually carb-packed with some saturated fat to spare? Now, where in the middle of Delaware, could you find a dosai? Not anywhere actually, at least not in the late eighties and early nineties. The closest place that served a decent dosa was actually on Route 1 in New Jersey and I didn’t have a car. So I did what most international students did, and that was to look for an American substitute. Enter the bagel. Many years and several pounds later, I still crave for a toasted New York-style bagel with Philly cream cheese. Not exactly great if you want to keep your heart pumping smoothly, but boy, what a nice way to start your day! It took a long time for me to warm up during those first wintry mornings, and a warm bagel followed by a hot cup of Folgers was just what the doctor ordered.
My friend Eric at the university was (and is) a lot smarter than I am. He’d keep a safe distance from that full fat cream cheese. At lunchtime, I’d go running for cream of broccoli soup at the Round House Café, and back then the good women who ran that café really took their cream seriously. Eric would demonstrate through a simple experiment how bad it was for your heart. He’d stick a spoon in the middle of the cup of soup, and the spoon would stand like one of those ceremonial guards outside Buckingham Palace.
Many years on, I’ve become a tad wiser. After a few blood tests, my doctor advised me to hold off on the cream cheese. Apparently my genes weren’t exactly conducive to digesting the stuff. I still indulge in an occasional bagel and cream cheese, but it’s on a rare occasion and only when I’m feeling fit or I want to treat myself. And that’s exactly what I do in the market.
I have carved off a very small percentage of my portfolio to indulge my trading instincts. The rest is according to a well-prescribed plan. As in life, there are no guarantees with the plan. Just because the doctor ordered me off cream cheese doesn’t mean that I am going to live to be a nonagenarian. But I have the comfort of knowing that the plan is based on solid asset allocation techniques, and I am comfortable with the risks associated with my investments.
As the end of the year rolls around, it is an ideal time to take stock of your portfolio. There is no magic to this time frame other than the fact that the holidays are a relaxing time of year and between bites of turkey (or Tofurky if you are part of my household), pumpkin pie, and that pint of ale, you are in a relaxed frame of mind to evaluate the financial success of the past year. If your plan has been truly prepared for the long run, you may not need to make any drastic changes.
However you do need to consider the following questions:
1) Has there been a big change in your income?
2) Did you incur unexpected expenses during the year?
3) Has there been a change in your personal status i.e. did you marry or get divorced?
4) Do you anticipate any medical expenses or other expenses in the near term that were not accounted for earlier?
The answers to these questions can guide you as you reevaluate your personal asset allocation. Academic studies have shown that asset allocation decisions (the decision to be in one asset class versus another) are the greatest determinants of portfolio return and not whether you had success in speculating on individual stocks. If you don’t use the services of a financial advisor start with a simple 70/30 portfolio i.e. 70% of your assets in stocks and 30% of your assets in cash and bonds. You can then calibrate your portfolio according to your age and your own tolerance for risk. The closer you are to retirement age the greater should be your allocation to risk-free assets. Regardless of your age, if you are particularly sensitive to market volatility, that is another reason to hold a greater proportion of your assets in risk-free assets. The trade off is that you will sacrifice potential return in exchange for safety.
Back to my own approach—I have realized that the time to be foolish and reckless, taste buds notwithstanding, is over. Occasionally, just occasionally, I will jump in and buy that “cheap” stock. It may or may not work out, but at least I’ve satiated my hunger to “trade.” Just like that rare bagel. After all, what is life without an occasional indulgence?
Prabhu Palani, CFA, was formerly a managing director and the head equity strategist at Mellon Capital Management in San Francisco. Previously he was senior vice president and Portfolio Manager at Franklin Templeton Investments and Portfolio Manager at Barclays Global Investors. Prabhu holds graduate degrees from Stanford University and the University of Delaware and is a member of the CFA Institute and the Institute of Chartered Accountants of India.