“Always stick to your gut.” With Jason Hartman & Vijay Valecha

As a rule of thumb, a person needs to have 3–6 months’ worth of living expenses in his/her personal contingency fund. This should always be kept in a savings account as it would benefit the individual with interest rate component. Depending upon the individuals’ monthly salary & also the job stability, appropriate choice regarding 3 […]

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As a rule of thumb, a person needs to have 3–6 months’ worth of living expenses in his/her personal contingency fund. This should always be kept in a savings account as it would benefit the individual with interest rate component. Depending upon the individuals’ monthly salary & also the job stability, appropriate choice regarding 3 or 6 months can be made. The basic idea would be to always build up reserves in high income months & contribute consistently thereafter even in low income months. Primary aim for any individual has to be to plan for a scenario where the expenses may exceed beyond the normally allocated budget.

As a part of my series about “Investing during the Pandemic”, I had the pleasure of interviewing Vijay Valecha.

Vijay Valecha is the Chief Investment Officer at Century Financial, a key position he has held since January 2015. Vijay has over 10 years’ experience trading the financial markets, with a deep knowledge of both fundamental and technical analysis, specializing in asset management and derivatives trading.

In his current role, Vijay tracks economic and market trends for global markets, bonds, shares, commodities, and currencies, formulates trading strategies, and plays a key role in educating clients. He also frequently produces research reports which give an in-depth look at topical financial and economic events that have the potential to impact regional and international markets. He works closely with clients to help them understand their risk and return expectations and provides support to the novice and experienced traders, HNI investors, and corporate.

Vijay is very passionate about spreading the critical message of prudence in money management by employing proper risk management techniques and is especially interested in the economy, behavioral finance, fin-tech, retirement planning, systematic & modeling methods as well as short-term trading and long-term investing strategies. He has delivered several seminars on trading strategies and technical analysis and has been a regular contributor to business channels across the country.

Before joining Century Financial, he spent over 5 years as a Financial Analyst in firms like Edelweiss (India) &Hira Global DMCC (Dubai) and as a quant analyst at Rasmala Investment (DIFC).

Vijay holds an Engineering degree from Mumbai University and an MBA with a specialization in Asset Management from ISBM. He is also a certified Financial Risk Manager.

Thank you for doing this with us! Before we dig in, our readers would like to learn a bit more about you. Can you tell us the “backstory” about what brought you to the finance industry?

I have always loved exploring avenues that require intense brain crunching as I come from a technical background. I was interested in financial markets & further developed my knowledge and learned more about the different nuances during my MBA & FRM courses. This further motivated me to take up finance as a full-time career option. Financial markets owing to its very nature are composed of a complex set of elements. I take every challenge in this field as an opportunity and utilize it in the best interest of my organization and its clients.

Can you share with our readers the most interesting or amusing story that occurred to you in your career so far? Can you share the lesson or take away you took out of that story?

This relates to the current fall in the commodities market with a huge fall seen in oil & palladium. Palladium prices had dropped by 40 % in a span of 2 weeks during early March. Similar was the fate of Crude WTI which saw its prices plunge by 60 % in just last month. Owing to this, many traders & clients got caught on the wrong side of the trade as the majority of the market still felt that initial dip seen during late Feb & early March would be a good buying opportunity. Problems were even worst for clients who did not diversify their portfolio as they had only invested in commodities which tend to be highly volatile. This incident teaches us to be extremely careful in measuring future risk & having a knowledgeable foresight for the immediate term. Current market scenario is such that it would always be wise not to put all eggs in one basket.

Are you working on any exciting new projects now? How do you think that will help people?

We recently established our own wealth management firm in Dubai — Century Private Wealth. Century Private Wealth is a Category 3C licensed Independent Wealth and Asset Management firm based in the Dubai International Financial Centre (DIFC) and regulated by the Dubai Financial Services Authority (DFSA). We provide services that include wealth management, investment advisory, arranging & advising credit & arranging custody.

None of us are able to achieve success without some help along the way. Is there a particular person who you are grateful towards who helped get you to where you are? Can you share a story about that?

One person to whom I would be really grateful is our CEO — Mr Bal Krishen Rathore. With over 28 years of financial expertise across various investment fields covering bonds, real estate, equities, currencies, commodities and capital appreciation products, Mr. Bal Krishen is a pioneer in mapping and developing investment strategies that have proved to be very successful. On the leadership side, it is really worthwhile to mention the amount of trust & work space that he gives to each & every employee of his company. For him, the employees are not just a professional colleague but also a family member who is constantly groomed & looked after. Having the right job with right boss is what differentiates & defines an individual’s career.

Let’s shift a bit to what is happening today in the broader world. Many people have become anxious from the dramatic jolts of the news cycle. The fears related to the coronavirus pandemic have understandably heightened a sense of uncertainty and loneliness. From your experience, what are a few ideas that we can use to effectively offer support to our families and loved ones who are feeling anxious? Can you explain?

In order to ride out the current job loss threat due to coronavirus pandemic, right now the need of the hour is personal savings & building up of emergency corpus for future essential needs. The current coronavirus situation has created chaos everywhere. On the one side, we have the pandemic which has already affected millions & millions of people employment wise & on the other side we have the financial markets that are currently experiencing huge volatility. Millions and millions of people have already applied for unemployment benefits in countries like the USA & Canada. As a rule of thumb, a person needs to have 3–6 months’ worth of living expenses in his/her personal contingency fund. This should always be kept in a savings account as it would benefit the individual with interest rate component. Depending upon the individuals’ monthly salary & also the job stability, appropriate choice regarding 3 or 6 months can be made. The basic idea would be to always build up reserves in high income months & contribute consistently thereafter even in low income months. Primary aim for any individual has to be to plan for a scenario where the expenses may exceed beyond the normally allocated budget. This requires maintaining a sufficient buffer in order to avoid getting debt trapped. It would be best suited to always keep some amount of cash in hand/ at home for want of immediate liquidity.

Ok. Thanks for all that. Let’s now jump to the main core of our interview. As you know the stock market and the economy in general have become extremely volatile and uncertain. Many people “dollar cost average” and put aside a monthly sum into a long term savings plan for retirement, college, or a home purchase. If a loved one or a client came to you and said, “I have been saving and investing $500 every month in an S&P 500 index fund. Over the next few months until the dust settles, should I be doing something else with my money?” what would you say to them?

The very basis to understand the above question is to use a simple calculation rule put forward by US Senator & popular politician Elizabeth Warren. Elizabeth Warren’s 50/30/20 rule is a simple plan that categorises spending into three categories — Needs, Wants & Savings. The first category is the after tax income that must go towards paying essential bills such as mortgage payments, insurance, utilities, credit card dues, groceries, transportation fares, etc. This also happens to be one of the most essential categories of expenses as it directly affects individual’s day to day living. Second category of “wants” that comprises of 30 % of net income is comprised of all non-essential spending such as shopping, vacation and luxury outings. The third category of “savings” is essentially the normal savings that an individual does for his/her & family’s future retirement needs. For a family who earns USD 15K/month, using this method they would be required to save at least 7.5 K and till the higher threshold slab of 10.5K (Needs + Savings combined category). The basic purpose over here would be to save at least 50 % of the active monthly income and even extending it to the upper limit of 70 % depending upon the number of family members & the overall spending requirement at family level based on previous historical records. What this is essential means is quantifying the exact amount under every category once the income is received is the most critical thing. A person or an family who is under a higher income salary bracket may further increase / decrease the above rule limits in order to have a more comfortable | luxuries lifestyle & also be more aggressive as far as their investment approach is concerned.

Eventually the economy will recover and rebound. Certain sectors, like travel and hospitality might be hurting for a while. But other sectors, like technology and healthcare, might do very well. If someone wanted to prepare today to take advantage of the future recovery, what would you suggest they do?

As the corona virus outbreak continues to hit global markets hard, the travel industry is suffering its worst crisis in over 2 decades. On the transportation side, non-essential as well as essential business trips in the hardest hit zones have been curtailed. People planning their vacation for the next 3 month period have postponed their plans. Already fragile state of the travel industry which comprises of airlines, cruises as well as the hotel industry has further been impacted by ongoing oil wars. This has hit investor confidence across major oil producing economies as well the sector stocks. As an estimate, the International Air Transport Association (IATA) calculates that revenue worldwide this year could decline dip between $63bn and $113bn. After 9/11, airline revenues fell by 7%, or $23bn. Such is the scenario that major airplane operators are now making use of chemicals to ensure that internal aircraft body parts like engine do not rust or wear out owing to prolonged lockdown. Employment wise, travel & tourism as well the oil sector is one of the major employers in USA. Global travel & tourism industry employs 1/10 of the world population. Any prolonged lockdown globally as well as in USA is likely to affect the entire global supply chain and have a sharp economic impact on global GDP.

Airline industry by nature is cyclical, but this pandemic induced shutdown has come out of the blue and has literally crippled the industry. To find out the best in industry we analyze them from liquidity, solvency and profitability perspective. And some of the best ratios used for this purpose are Return on Assets, Quick Ratio and its Capitalization ratio. Three companies from US and Europe which stand a cut above the rest in terms of the above mentioned ratios are Ryan Airlines, International Consolidated Airline Group (Parent of British Airways) and Wizz Air Holdings PLC. Ride sharing companies like Uber Technologies Inc and Lyft are cash rich and should survive this downturn. Battered online travel-agency stocks, Booking Holdings (BKNG) and Expedia Group (EXPE) are likely to rally once there is a recovery and normalization of customer behaviour.

Are there sectors that provide exciting and lucrative investment opportunities today, specifically because of the volatility and uncertainty?

Some of the companies which benefitted from the virus meltdown are Microsoft, Zoom Video Communications (ZM), Teledoc, Netflix (NFLX), Peloton Interactive (PTON) and Slack (WORK). A huge surge in use for online meetings has benefitted Zoom while increase in the number of people steaming videos for entertainment has helped Netflix. Slack has seen a jump in number of users from 10 million to 12 million in March while Microsoft has seen usage numbers from 32 million to 44 million. Peloton Interactive has also seen a jump in the number of customers opting for online exercise classes.

Verizon as a pure telecom play is a great investment when recessions strike and the sector outperformed the markets in 2008. Wal-Mart (WMT) also is considered as a recession-proof stock (or a bear market stock) as its revenues and sales tend not to take a hit from any kind of economic turmoil.

Looking at individual stocks in oil sector that are likely to provide a good bargain, we can sort them according to good credit rating as well long term players in their field. In the oil sector, companies like ENI SPA & Total SA (European), Exxon Mobil | Chevron | Baker Hughes CO (USA) have good investment grade ratings. Among the hotel industry, Marriot Hotels and European hotel operator Accor are good names.

Are there alternative investments that you think more people should look more deeply at?

In March, public markets endured their rockiest ride since the last 2008 GFC and in some cases since 1987. Alternative investments such as private placement fund investors (like private equity, venture capital, real estate, and hedge funds) do not have easy metrics to peruse for updates unlike listed companies on stock exchange. Additionally, these types of investments are often structured in ways unique to the fund and could include provisions, such as capital calls, limits on withdrawal and gating provisions. In the current market scenario especially for new entrants, this might be against the investor’s best interest to avoid it altogether unless the risks are well understood beforehand. Certain terms, such as a capital call, could have short term implications. Others, such as whether the allowed investments of the fund are flexible enough to confront the investing realities of the market, will have longer term impact.

For existing VC & PE funds, there could be pockets of opportunity to grab currently. As an example, lot of good value stocks in travel & hospitality sectors

If a person in their thirties and forties came to you today and said that they have $10,000 that they want to put away today for a long term investment what would you advise them to do with it?

In order to plan for future investments & retirement need, it would be wise to formulize investment slabs under each category. A popular rule of thumb states that a person should allocate 100 — individual’s age in to stock /equity investments. A 40 year person should look to invest at least 50 to 60 % of his investable income into equities. For the remaining basket of 40 %, the individual may look to allocate between retirement based fixed income plans / other low risk debt investment strategies & gold. Gold has recently outperformed other safe havens not just on the extra ordinary FED stimulus but also its relative allure as traditional safe haven buy. Looking at the split, $ 10K could be split into following baskets: $ 5,000 Equities; $ 2500 — $ Fixed Income Retirement & Mutual Fund Schemes; $ 2500 — Gold based ETF’s & sovereign bonds. A person who is not sure of his current job prospects or even a person who is anticipating of getting laid off would be better of reserving at least 50 to 60 % of his current saving into immediate cash requirements.

Ok, thank you! Here is a more general finance question. You are a “finance insider”. If you had to advise your adult child about 5 non intuitive essentials for smart investing what would you say? Can you please give a story or an example for each?

  1. Industry experts are not the only holy bible for everything — Very often, we come across certain people in our daily life who make a better impression on a certain concept /domain idea that even the more educated professionals of that industry fail to portray/convey. Listening & having a growth mind-set would always give rewards in the long term.
  2. Always stick to your gut — Life’s lesson always comes with enormous amount of experience that one gains. Stick to your gut & the outcome would sure be beneficial
  3. Looking at the physical real asset value & not the future projected financial value — Before buying or investing into any product, always look for the real physical value the product offers. A company like Mac Donald’s will always serve burgers & cater to the physical food market requirement. A virtual currency like Bitcoin is still a speculative investment as it is still not being adopted as a medium of transaction / money exchange.
  4. Love to hold Cash — Current market scenario has seen likes of big hedge funds & commodity companies going bankrupt as they simply didn’t have the base collateral in form of cash to protect against the current market downturn. Decade long bull run had made markets extremely complacent & investors tend to think of “ Cash as Trash”
  5. Always have a contrarian approach — Although this doesn’t imply one should always act in the same manner, it would be wise to think of how various elements of market interact with each other. A typical stock investing approach is that of a herd mentality. People tend to always front load their opinion & even discount the facts that are not readily available. Always try to make sense of the current chaos as per individual opinion.

Can you please give us your favourite “Life Lesson Quote”? Can you share how that was relevant to you in your life?

Quote by Peter Drucker — “What gets measured gets improved.” Deciding what to measure & taking that measure to the industry benchmark is the core in any industry. Being into finance & volatile global markets, a very definite measure of survival is to manage the surrounding risk. This is only possible if we know what to measure & at what level it should be managed. Individual KPI’s have impact not only on one’s learning & growth but also on the customers, employees & internal business process. A person who is professionally happy tends to have a healthier personal life too.

You are a person of enormous influence. If you could inspire a movement that would bring the most amount of good to the greatest amount of people, what would that be? You never know what your idea can trigger. 🙂

The current coronavirus has forced us to ponder rigorously on the global food supply system & future disruptions. The farmers cannot get their produce to consumers because of lockdowns that aim to stop the spread of coronavirus. Across the globe, millions of laborers cannot get to the fields for harvesting and planting. There are too few truckers to keep goods moving. Airfreight capacity for fresh produce has plummeted as planes are grounded.

The world now needs a coordinated response not just to the current food crisis but also for preventing future major food supply outages. This can only be done when governments & big corporations around the world come under a single umbrella and jointly agree to form an ethical alliance that serves the interest of the entire global population. This movement needs to be non-commercial with equitable stakes distributed to all participants.

Thank you for the interview. We wish you only continued success!

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