In the seventh episode of Insider Investing, we look back at the roller coaster ride that was 2021. Our Co-Founders Vaibhav Porwal & Sandeep Jethwani discuss the different emerging trends- market dynamics amidst the pandemic, enhanced participation among retail investors, rise of the Finfluencers, the Crypto boom, evolving role of central banks, and much more!
Tune in to learn how the next gen is denominating things in Bitcoin terms, how the new age careers are overshadowing traditionally coveted jobs and the increasing polarity in the post-social world. Don't miss our take on the evolving regulatory restrictions, the Hotel California Problem, and how to invest your money in 2022 to achieve your long term goals.
Hello Everyone, Welcome to the seventh edition of insider investing. This is a special one. We cover what's happened in the year 2021, especially how markets have changed, how younger investors are now coming in. How are they getting influenced by financial influencers and interesting points and a debate that happens on the show?
We also talk about Bitcoin, Gold and how Central bankers are stuck in a "Hotel California problem". Find out more on this new fresh episode.
Hi and welcome to the first year ender podcast of dezerv. It's incredible how time has flown and it's i think back to may 2021 when we actually incorporated dezerv and here we are in what is like the seventh month of our existence. And it's incredible how long this an amazing this journey has been.
Vaibhav, Welcome again, on insider Investing
How have you been?
Allgood. Missed you for a week or so.
Yeah. It was incredible., for those of you who don't know, I took off to Kashmir and this was really like, I think about like my first trip in over a year in the humdrum of, covert starting up dissolve. So it was incredible. And one thing like when going to Kashmir is this beautiful experience where you see amazing scenic beauty, but what also was incredible or different was the kind of poignancy or sadness that there is around that place.
There's a lot to be done in terms of poverty alleviation. There, people are really poor and I think they need all our support in terms of us going there as tourists and visitors. Hoping to make that place much better. In fact, there is this saying that if there is heaven anywhere on earth, it's Kashmir.
And I was talking to a taxi driver and I repeated that line and he came back with a very interesting retort. He said that. So for you, it might seem like heaven for us. It doesn't seem like heaven. Because we still have to work hard to get our daily bread. There are times when there are no tourists and we would wish that more people like you would come to Kashmir.
And in that sense, this beautiful and sad dichotomy is what 2021 was also. Right. Well, I mean, if you think about it sitting here today, we feel markets went up. Stocks did very well. Great. IPO's happen companies, 42. I lost count, unicorns, got created. But in the midst of this, we forget that we went through a very intense second wave and through COVID, we've now lost nearly five lakhs of our countrymen.
So it's been a crazy year. If you look back,
Absolutely, on Kashmir has also been lucky enough to visit Kashmir in 2015. And a lot has changed after that similar feelings, extremely, extremely bad, taking a beautiful, and, you have extremely mixed emotions about visiting both. You're excited with the place at the same time.You're worried about the state of, people that, and people are extremely friendly.
Market's also. Last one year, it was a rollercoaster ride, individually for us also because we started dezerv and we witnessed April and May 2021 like and as you said, all of us have extremely short memories. Somehow we get up, move beyond that. So. Hopefully New Year will be much better than what we saw in 2021. So almost all of these markets were extremely resilient, if you could go back in time and just starting up in April, there was chaos all around us, but markets remain intact and continue to live moment.
For the next six or eight months. So maybe the market. So a strong possibility of vaccination and treatment for COVID coming. Some of us could run any subject.
But in the midst of this, you also look at how much has changed in Indian equity markets, the kind of participation that domestic investors have made in this particular year.
And you'll have the data much better than I would. That has been really impressive, incredible. Is it a one-off or do you think this is something that is here to stay?
There's a trend which is playing out Sandeep and it is interesting that you brought up this point. And what I call is at least on one front, we are Atma Nirbhar Now.
Now, as far as capital requirements are concerned, we are completely Atma Nirbhar Now, I was looking at the data and FII's sold more than $90,000 equity in calendar year 2021, the same amount bought by domestic institutional Investors. And on top of that retail investors invested directly in the markets and resulted in a 20% move in the market in a year where FII's sold 90,000 crores worth of equity markets to be up 20% is unimaginable.
It shows maturity of investors and Indian investors, willingness to write the volatility in the market. One thing we just played out and which is consistently playing out for the last four or five years is participation of retail investors in the market. In 2016, we went to 33%. So 33% of the market volumes were controlled by retail investors who did the number at 45%.
It's visible all across. When you look at the mutual fund numbers, the number of folios It got edited last year is closer to 2.26 crores. Whether you look at the number of demat accounts, we added more than 3 crore accounts. So overall we are developing this self-reliance, at least on one friend, which has been a long complaint of all the.
Yeah, I think, I remember when we started working or at least in 2005, 6, 7, we used to track FII numbers as a front runner of what markets will be In the next few years. And in fact, a lot of financial models at that time had this data point baked into the, how the market modeling will be one additional thing, which I find really interesting and has changed is the average age of the Indian equity investor has gone down dramatically.
Now we hear of people that, you know, in an indoor cleaner, local circles, young kids, first time, you know, earners starting to invest in equity markets coming up and asking which stocks should I buy this mutual fund? Should I invest in? And I think that's really interesting. Part of the change that is happening.
It's not only that new investors are coming in. It's also the new younger investors who are coming in and hopefully a lot of these guys will stay invested in the markets for the next many decades. And that to me is a very interesting part of the change that is happening.
No, absolutely. And most of it has to do with the experience that these people have of investing and what they've seen in the market.
Last 10 years. If you look at the market and I am talking about Nifty specifically, out of last 10 years, nine years, I've been positive for the buck. So obviously that gives a lot of confidence. Leasing list does, item and what I new possibly you would also remember when we started out, when we would go to the investors, possibly the first generation would always take the decisions.
And whenever we met up with the second generation in the family, they would say that my father looks at investing. What that is if you get along with that, I said the location of investors is also changed. So predominantly fixed income asset allocation portfolio school, having equity portfolios are something that we are seeing now, which is bringing in a good change.
And, most of these investors, young investors want to invest in all asset classes, as, looking at the data and. The AUM asset under management of Global forigen funds, which are there in India has gone up from 7,000 crores to 44,000 crores.Thats almost rising an ESL. So obviously all of this money is coming from these young investors and these on top of their direct investing in the stocks of global companies crypto again, an interesting asset class for this segment, we have discussed about that in the past, more and more investors, young investors. who wants reflection of the belief in investing in these asset classes? So a complexion of the portfolios change significantly, not just the age of the investor.
Yeah, no, I think that's interesting. And I think, while it's really good that a lot of younger investors are coming, and I think the point that you made is very important about how some of the younger investors have not seen Market down cycles. And that's the responsibility of the wealth manager or the people who are advising them becomes much more acute. They have to ensure that they guide them about the fact that markets cannot be unidirectional. There will be times when markets will fall and that is the time that you need to be ready for and potentially invest more at that point.
But, unfortunately, this generation is not listening to wealth managers. They're listening. Whole different group of advisors, if you will call financial influencers. And some of these influencers actually come from very different backgrounds. They come from fashion, they come from entertainment, they come from comedy and they're now beginning to create content around investing, which is great in the end that it is creating more awareness, but it's also very worrying.
They start giving out advice about what to do, how to select instruments, how to invest in and where to Invest. For me. I think that seems to be a very strange phenomenon. Vaibhav, you and I, we have given so many regulatory exams over the last few years, especially in the last one year If you're talking about the NASM, Ten A and B, you do read up even after having been in the industry for 15, 16 years, we study before we go so that we are able to.
Clear some of those qualifications and some of that information is really useful. You learn a lot and you're able to advise investors better. So in that sense, SEBI has done a great job, but on the other hand, when a financial influencer comes up and he, or she is able to. Give advice on Instagram, Twitter, et cetera.
It's a little concerning whether the right amount of diligence, the right context is being set before these recommendations are going out. And then obviously there's this question of transparency. How much money are we making? One thing, which we've been very cautious and clear about, is that we will tell people how much we own from their portfolios.
Some of it is regulatory requirement when it comes to RIA's and portfolio managers. But, transparency is not required when it comes to financial influencers. What do you make of all of this?
See Sandeep, if you know my skepticism around financial influences, they have a remarkable job in creating awareness about financial markets.
And I think that's where the role should end. When it comes to giving specific advice to the investors, every advisor's situation and context is different and therefore advise us to be specific and indigenous. Targeted for a particular individual. The other thing that you said, and possibly missed out on one important aspect, is liabilities.
The number of liabilities, which are there for us, for Misadvising none of that is applicable to any financial influence. So regulators have to possibly define the boundary.Upto these financial influences can walk and beyond which it should be the experts job as the advice. That's how I would see it. There is a card which has been created and individuals with the number of followers are assuming that role.
I don't think most of them are qualified to pick up that role. If they want to seriously pursue that road, they should also take an equal number of qualifications that we did and should be subject to other liabilities that we are.
Yeah. Like if you actually think about it, I recently led this Bloomberg article about how certain financial influencers are now making more money than wall street.
Bankers are. And we should probably become influencers maybe, but I think there is another point that they also attract a lot of passionate belief in themselves. And that is something that I, I feel as another level of change that is happening and probably it's got to do with the backgrounds that we are coming from.
In the current, a new set of investors. I see the impact of their belief playing much bigger roles in their investing business. And nowhere, is it more pronounced than it isn't a Bitcoin or cryptocurrency? I was recently listening to Anthony Pompliano, who was a Bitcoin enthusiast and you know, when he was asked this question about how Volatile dollar is with a Bitcoin is worth the dollar, he said, no, The, dollar that is volatile against the Bitcoin, because it's about how you think about it.
For a long time, we have been used to seeing dollar as the denominator, with which we value everything. Whether we value all the things that we eat, apple products that we buy, companies that we value- everything is denominated in dollar terms.
And suddenly there's this new generation of people who're denominating things in Bitcoin terms. Potentially, there is a change in belief also that is happening here, which the world is not ready yet.
So I would attribute much of the polarized world to the advent of social media. And it's not as prevalent in this thing, experimenting across your religious views, your political views, everything itself because people can express their views and can find those supporters on both sides, which was difficult before Social Media.
You did not have one single platform to express your views and cryptocurrencies are nothing about the manifestation of that view, honestly, we have also been slightly slow on that front, both in terms of developing a deep understanding of the subject and adopting that. But as we go along, most of these beliefs will translate and translate into real asset classes and eyes looking at this data.
Forever our parents and family, I have looked at the total market cap of gold. Today is $12 billion. Cryptocurrencies are already at $2.4 trillion, even if they were to match up to gold, which means there's potential five to six times upside in cryptocurrency. Now the only question is how will regulators.
As long as we treat all cryptocurrencies as assets, I don't think regulators will have any issue with that. The moment we try to use it as a medium of exchange, then regulators will have an issue. So that's, one, a bridge that we still have to. But, yeah, as you said, people love, want to have a reflection of their belief in everything.
And one thing is also not untouched by that.
I liked the point that you made that it is social media, which is enhancing the polarity of these beliefs because in some sense, belief was always a part of investing. Yeah. How do we attribute a value to gold over copper? For example, I mean, at the end of the day, both are metals.
If anything, copper is probably more useful than gold. And yet we have, we call gold or precious metals. So the fact that it is precious is a value attributed to that metal by us. Um, then came the second point where for a very long time, Currencies we'll mark to the gold standard, where you could only issue currency equivalent to how much gold you had in the bank, till, maybe in the forties or fifties when United States first departed from the gold standard and said that they will issue currency against their own reputation.
So reputation became the asset against which the dollar was issued. And today we are at a point where Bitcoin. Is being created on the basis of another reputation or distributed reputation, if you will. So I think in some sense that has not changed. What has changed is the polarization that is happening around it.
There are for and against games in practically everything. And also now we see that in investing also.
So the platforms are easily available Sandeep for all of us, it's just a matter of going onto your twitter handle or Facebook or LinkedIn and just express your views and you'll find enough followers on both sides. The other thing, which is interesting, only in terms of gold is, for long ago, we used it for jewellery. And suddenly again, you and I have discussed this, that this generation is no longer interested in gold. So that commercial use of gold is also if it loses its relevance as a hedge against currency inflation currency, Gold inflation, then we'll have real turf.
And when you talk about currencies, I think it's also important to understand how life has changed from a central banker perspective. Also, I read this very interesting article recently where Vivek Kaul called it the "Hotel California Problem", where as the song goes, you can check out anytime you like, but you can never leave. And that's essentially what has happened since 2008 with central banks.
That has been constant printing of currency that is happening globally by the large central banks. And they are now finding it very hard to withdraw from this printing of currency. That is always a talk of. But the taper has never really happened. So when the first taper tantrum happened, markets failed because markets thought that, potentially, the Fed will actually start cutting back on printing and start shrinking its balance sheet.
But, we are here now six years or seven years later, and that has not happened. And we are again talking about a potential taper that will happen, but this time, the market doesn't believe that it will happen. So how. Like, how, what do you think will change this equation? Or are we in a permanent situation of, more currency printing and therefore affect getting inflated further?
I will Spend two, three minutes on this. Talk about the period. When I was 13, we were always told that government and central banks are two independent entities. Government will focus on fiscal and central banks will focus on monetary policy. Somewhere over the last 20 years, both of these roles, conversed, both of these agencies are working in collusion and the reason for which find it funny that when people say that intersections will go up significantly is because the government is the largest borrower. If interests go up, who has to pay the maximum amount of interest, governments and governments can't afford to pay that kind of an interest. Therefore, I don't believe that.
Government or central banks will increase interest rates or reduce liquidity extremely easily. The other thing which has happened is, which we'll discuss in the initial part, retail investors have invested significantly and in the last nine years I've been positive that most of these young investors will then spend most of the day.
Can you make them agree by pulling down liquidity in the system or increasing rates, which impacts the network, it's going to be extended after it's for the dog. So both central banks and governments are acting in collusion. Both of them know that the government is the biggest portal for them to increase.
Difficult sometimes, central banks. And specifically to your point about the Fed coming and saying that they won't use liquidity in the system. Sometimes they hear these announcements or noises just to make sure that inflation remains under check. So it's more like a threat than the actual action that went to take.
I don't seriously believe that the government is still in that position where they can address, reduce liquidity, increase interest.
I agree. So there's this interesting thing with threats, right? I tell my son and he's quite naughty that I will ground. But, because I never ever grounded myself around it, I don't take my threat seriously at all.
So I think that is something similar that's happening with the markets. So I don't think markets are taking the fed chair powell very seriously. In fact, there used to be a concept called Powell put, which is that, every time markets fall, our will, will step into support the markets. Now it's called the powell pivot that he will say that he will taper the balance sheet.
But if you look at, since the third November announcement of the Fed that they will taper the, or reduce the size of the balance sheet, the balance sheet has further increased since then. So I think, I think when you look at 2022 and looking ahead, I think that is going to be the big defining factor for markets. Is the Fed or global central banks able to withdraw capital from the markets, from where we stand here in December of 2021 that does not seem likely.
And therefore, when we look at our portfolios, being reasonably invested is going to be one important part of, you know, staying relevant, staying well otherwise assets will continue to get more expensive while your money is not growing.
Well, absolutely. The man would just love to add one more point.
If you go back in time and look at the history of equity markets, obviously we have a spiel a little bit only for the last 40 years, and you look at global markets also. So 70% of the time markets are treated positively on a daily basis and only 30% of them, they were treated negatively. So odds are heavily against you.
If you decide to stay in. So more than two thirds of the time markets are driven positively.
Yeah. So I think though your ending message for our dezerv. members and for people who are listening is that stay invested, keep investing gradually over a period of time, and hopefully we'll all achieve our goals of 2022.
Thank you. Vaibhav. Well, this was a very interesting conversation. We covered a lot of ground. Let's do this again soon. Thanks Sandeep.
We Hope you enjoyed tuning in today and got some great takeaways.New episodes of this podcast are out every alternate Thursday, you can listen to the episode on our website or wherever else you listen to your podcast.
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