On vacation earlier this month my wife and I visited a casino during an evening with friends. We were clearly the poorest of our group. We started setting a limit to the amount we would lose that evening. Like all our friends, we lost. The difference in amounts lost was just a matter of decimals.

The losses showed us who paid for plush setting of the casino, good liquor and food, served “free.”

The capital markets are in some ways akin to a casino. Large advertisements by merchant bankers, stockbrokers and mutual funds are paid for - by the person in your mirror.

I have written earlier about methods of analysis. At the risk of repeating them, then: they are fundamental, technical, and logical. Call them the three guides to making money.

Three ways of losing money would be:

1. Gambling on horses, cards or at the casino - the fastest

2. Women - the most pleasant

3. Speculating on the stock market - the most certain and definitely the most boring

Add to these, a fourth - watching too much TV or reading too many expert opinions, mine included. Rewind to the beginning of the last boom and early April 2003 when the jokers on TV suggested a drop to 2,200 for the Sensex from 2,800. Less than a fortnight later, this same bunch was speaking of the Sensex going up to 6,000. There had been no fundamental change during those two weeks.

Fast forward to January 2008: 25,000 was almost the overnight target, 40,000 in the rather near future, for the Sensex (which was then at 21,000). During a meeting with a brilliant fund manager recently, he showed me a clip from a TV channel. It had a number of the most respected names in the capital markets providing sound bites on the Sensex crossing 20,000. Everyone was advocating a buying spree. There was to be no end to the boom.

Now the same purveyors of garbage suggest 6,000 and lower. The difference is that we have a fundamental change in lower earning forecasts, which was obvious even before Diwali 2007 when the index was around 20,000. Will the experts be correct in their bearish forecast? Unlikely for an extended period, would be my guess.

Yes, they will be for a few days, or weeks. Fear and the memory of recent losses will ensure the investor will refrain from committing fresh money to the markets. But the smart money that exited the markets in January, close to their peak PE of 30 on the Sensex will nibble at choice stocks on offer, now at a market PE of about 10. Along the way will be opportunities to grab at the feast table - opportunities such as a payment crisis, the failure of a large institution, announcement of elections or formation of a Government, when shrill loudmouths, only distinguishable by their shrillness, from Mayavathi, Jayalalitha, Mamta Banerjee, Yechury, and the Karats confirm their idiocy on TV. Each occasion such as the ones mentioned above that causes a temporarily sinking Sensex, the smart money will refill its pockets with the crème de la crème of the equity markets.

Start loosening your purse strings in bits and build a quality portfolio. Take a couple of years doing that, for the opportunity cost of money in a stagnant market would mean an erosion of 50% of your money’s risk-adjusted value in 3 or 4 years. At 10%, the current bank FD rates, your money doubles in about 7 years. Expecting double that rate of return on equity investments is fair considering the market risk, thus leading to my above assumption. However, the markets might just surprise and double next year or stay flat till 2015. I am not gambling on the time frame!

Getting into an SIP in mutual funds, or directly in a personal portfolio is a good idea now. This will likely be a good sum in 10 years, if not sooner.

Meanwhile, if you decide to visit that casino carry just as much cash as you believe you’d pay for a nice evening. You will also find that it’s a lot more fun losing it yourself, than on the advise of an expert.

Naveen Fernandes is Vice President - Sales at Orbis Financial Corporation Ltd., a SEBI approved custodian. He is a Certified Financial Planner. On good days, he fancies himself an investment expert.

Mr. Patel retired after a very successful career in a private sector bank. He held his head high all through his career and now wants to do the same in future also. His only daughter Supriya got married to Anshul working with a leading American investment bank in Mumbai last year. Being the only child, the wedding was a very grand occasion. The entire cost of the wedding was around 40 lakhs which included his daughter’s jewelry, the car he gifted to Anshul, and other normal wedding expenses. He stays at Kandivali and the cost of his flat is around 60 lakhs.

Mr. Patel used up almost all his savings he had done till date in marrying Supriya off. Mrs. Patel, a house wife, also contributed around 6 lakhs that she had saved over the years. Now, the only money Mr. Patel has is around 5 lakhs in his bank fixed deposits and Rs. 10 lakhs in his PPF & EPF accounts. Added to this, he will get around Rs. 6 lakhs as gratuity from his company.

His worry now is how to arrange for his monthly expenses, somewhere between Rs. 25,000 to Rs. 30,000. He also wants to take his wife to Vaishno Devi and Haridwar - a promise he had made to his wife, to be kept once Supriya’s wedding was done.

The traditional option he would have had was to rent out his flat and move with his daughter or move into a smaller flat. Not any more.

Citizens such as Mr. Patel can now opt for a reverse mortgage. A reverse mortgage is where a senior citizen can mortgage his/her primary residence with a bank and receive the mortgage amount as periodic payments, be it monthly, quarterly, half-yearly, or yearly. So, Mr. Patel visited a few banks and found two options from most of the banks. In the first option, he would qualify for 90 per cent of the realizable value of his property at the end of his chosen tenure. This amount would be paid to him in monthly EMIs for the chosen tenure.

In the second option the loan amount would be 50 per cent of the present value of his property.

He went ahead and did a little calculation to find out which of these options would suit him better.

In the first option, he assumed the property rates to grow at rate of 8% per annum, which is the current risk-free rate. All other conditions remaining constant, he was getting an amount of Rs. 41,329. His calculations yielded only Rs. 38,686 on option 2. If he did the same calculation taking the rate of return on real estate at 12 per cent he got the EMI amount of Rs. 71,313, which is way above what he would get in Option 2. Choosing to go for the reverse mortgage helped Mr. Patel to live with his head held high for the rest of his life. With the amount of money he got from his gratuity, he took his wife on a pilgrimage of all dhams in India. He gifted all his fixed deposits to his daughter after the birth of her first child.

While those of you who are wondering what does F.D have to do with life insurance…Beware…you could be a victim of it.

As it happened with Mr. Mangesh Pai who went to the largest private sector bank to rollover his F.D maturity into another F.D; he landed up rolling over his maturity amount into a life insurance policy instead. He was told by a bank officer that this would be like a F.D with life insurance cover and 10% interest minimum. Mr. Mangesh found it attractive and signed the papers.

Being a busy heart surgeon, he didn’t get time to go through the papers he got after few days until to his surprise he got notice from insurance company intimating payment for renewal premium after a year. He started wondering “when did he buy this company’s insurance policy, that too with such a huge premium?” (his F.D maturity was huge). While digging through all his financial papers in his file, he found that he was cheated and been sold a life insurance policy instead of F.D which he wanted. Moreover the policy has annual premium paying term of 20 years. He further found out that it was a ULIP with 35% charges and very low life cover. He has filed complaint with RBI and is fighting against the bank.

With thirst of earning huge commissions, bank hire people mostly young who have inadequate knowledge and experience on insurance. These people with tag of “Financial Advisor” or “Relationship Officer” are given targets and incentives. On the verge of achieving those targets and earning incentives, they tend to mis-sell in a big way. Same is the case with “Relationship Managers” of most broking firms. They are trained for aggressive sales and thus have only one thing in mind…sell insurance to anyone anyhow and achieve targets. The ultimate losers? Consumers. Beware…

In another case, Mrs. Priya Arora got call from a MNC bank where she holds a credit card. Despite showing no interest in an insurance product being pitched to her, she found insurance premium being debited in her credit card bill. Mr. Ahmed who went to a public sector bank for opening a savings a/c was asked to take an insurance policy. “You need to take this product along with a/c opening,” said an officer at the bank.

While the advent of private life insurance companies have definitely increased insurance penetration in India which is still very low, it has also definitely increased mis-selling of insurance products. With increasing number of insurance companies so are increasing number is insurance agents. Companies are hiring agents very aggressively to boost sales as a result of which you will find many college students, housewives, doctors, teachers, and people with part time jobs as insurance agents who sells insurance part time merely to earn some extra buck. These people lack knowledge, skills and experience; result of which – wrong product being sold or mis-selling. Insurance agents merely push the product which is earning them higher commission irrespective of weather such product meets your needs and requirements or not. As is happened with Mr. Kamlesh the only earning member in the family who ended up paying 70000 p.a merely for 5 lakh of insurance cover, most of them are ULIPs with high charges. Being bread earner of the family he should have been given much higher life insurance coverage at a lower premium.

Most of the agents typically are trained on only two or three ULIP products and they sell only those products. If you ask such agents about an endowment or term plans most of them don’t know much about it and they will try to convince you that this or that ULIP product is better, that it has given 30% returns in last 5 years.

It is recommendable to avoid buying insurance from part time agents primarily because you may be victim of the wrong product which may not meet your needs, you would suffer from bad service from the agent and secondarily this is their part time work, they would be out of it anytime and then you would be all lost.

So shouldn’t we buy insurance at all? If we have to, where do we get it from?

While life insurance cover is one of the most important things to have for an earning member of the family, we need to determine goals, requirements and how much insurance do we need. Typically, when we think of buying insurance we ourselves don’t know how much cover we should take. Most of us decide it on the premium. We opt of whatever Insurance cover we get on lower premium. Some of us just opt for whatever cover the agent says. Most of us land up being underinsured. You need to look upon various aspects such as cost of living, expected cost of living, your income and increase in your earnings, your dependents etc. before taking a cover.

“It’s a complex process, I don’t have time, skills, and expertise to access all these factors and determine my insurance need!”

You need not - hire a Certified Financial Planner (CFP). The role of a qualified Financial Planner is to look at all aspects of your lifestyle, goals, and requirements and develop a financial strategy suitable for you. The recommended strategy should help you reach your goals effectively and efficiently. Insurance Planning is a part of it in which they would recommend you how much insurance you should have and what mix of products you should opt for viz. term plans, ULIPs etc which would make you financially secure and help you meet your requirements and goals. Once you have a plan designed by a CFP, you can buy various kind of insurance products as recommended by him/her. This will help you getting what you actually need and not what actually an insurance agent needs.

Do not fall in pit of aggressive insurance agents or bank officers who may sell you a ULIP with high charges and low cover. It would be very difficult for you to get out of it!!

Get a strategy and plan developed by a CFP and be financially secure.

Happy Financial Freedom!