Query: Mr. ABC is real long term quality equity investor for the last 32 years in the Indian Stock Market. He has invested only in IPOs from 1969 till 1985 and afterwards just holding to his equity portfolio till today! Almost one third of his equity holdings were vanished over a period of time. Every year he is receiving approximately Rs. 5, 00,000/- to Rs. 6,00,000/- as dividend from his existing equity portfolio.
At present he would like to restructure his existing equity portfolio to earn 10% dividend every year! Also he would like to sell his entire equity portfolio in December 2012 due to his own assumptions about world coming to an end!
Mr. Gerard Colaco: Where the restructuring is concerned, it appears to have been done correctly. I have not understood what the investor means by expecting 10% dividend every year from the portfolio. If by this he means the dividend yield, this is clearly an unrealistic expectation. He can expect a dividend yield of between 1.5% and 2% of the present market value of his portfolio.
I am also unable to understand why client wants to sell his portfolio in December 2012! With reference to predictions about the end of the world, these are nothing new. As assortment of lunatics has from time to time predicted the end of the world over thousands of years. They have been remarkably consistent in their predictions: all of them have been wrong without exception!
What makes client think that he will be magically right, given the comprehensively inaccurate track record of such predictions hitherto? More to the point, does client believe he can delay or prevent the end of the world by liquidating his equity portfolio?! And if the world actually ends in December 2012, how does it matter to him whether his portfolio is left as it is or liquidated?!
You want my advice on the issue? One, introspect about whether you want such nuts as clients! Two, I see he is a doctor – don’t go to him for treatment, because he has no incentive to keep you alive beyond December 2012! Three, tell him to restructure his portfolio and leave it as it is. There is no need to liquidate it in December 2012 – if the world ends then, it is tantamount to liquidation of the world, and by implication liquidation of all portfolios in the world, including his.
Give him this final clincher to my argument – by doing nothing, his portfolio will be liquidated (when the world ends) without having to pay brokerage! As you may have guessed by now, I feel mean this morning. Wouldn’t mind destroying the world even before December 2012!
Query: Now Mr. ABC does not want to liquidate his equity portfolio one more year since now he thinks that, the world would come to an end during December 2014!
Mr. Gerard Colaco: Consider yourself lucky to have a client who has the power to reschedule the end of the world at Will…!!!