Investing Young for a better tomorrow: An Interview with Mr. Murtaza Jafferjee
- Details
- Written by Super User
Mr. Murtaza Jafferjee, the Chief Executive Officer and Managing Director at JB Securities (Pvt) Ltd is a veteran in the Sri Lankan Finance Industry, with many years of experiences and insights to share with our enthusiastic young audience. We were delighted to sit down with him for an insightful and profound interview that left us all a little more financially responsible than before by the end of it.
The prompt for the interview was spreading awareness of good investment habits for young people, however, our conversation ranged widely in the areas of learning, understanding, and practicing good financial habits in general.
Mr. Murtaza Jafferjee, the Chief Executive Officer and Managing Director at JB Securities (Pvt) Ltd is a veteran in the Sri Lankan Finance Industry, with many years of experiences and insights to share with our enthusiastic young audience. We were delighted to sit down with him for an insightful and profound interview that left us all a little more financially responsible than before by the end of it.
The prompt for the interview was spreading awareness of good investment habits for young people, however, our conversation ranged widely in the areas of learning, understanding, and practicing good financial habits in general.
Was finance something that you were always passionate about?
“I basically got in 23 years ago”, he said. Going on to describing how he started up in the field of finance by overlooking a brokering company which was a part of his family business.
“I studied engineering and computer science at the university.” Therefore knowing very little about both the practical and theoretical aspects of finance in the beginning of his career.
“So I had to learn it on the go. Most of its technical knowledge came from CFA. I started back in 1994 and finished in 1997.”
Without further ado, we dived into the area of savings and investments.
We see many people mistaking saving money for investment. Can you tell us how to differentiate between saving and investment?
“If you look at the formal theory, there are a few fundamental motives why people save. One is called the precautionary motive, which means that you quite literally put away money for a rainy day.”
He explained how the savings did with a precautionary motive is not sensitive to the return that one gets. Despite the return, these savings are done with the intention of using during a time of need or trouble.
“Another motive of saving is the need for retirement.”
When one starts saving for retirement, which is a long-term savings plan, how much he or she gets by the end of that period depends on the real interest that they get.
**(Note- Real interest is when we take the nominal interest rate and subtract the inflation rate.)
“If your real interest rate is high, that means your money has a higher purchasing power at a later date!
According to the theory, it is about delaying gratification.
So higher the real interest rate, the higher the incentive in delayed gratification.”
Then he shed some light on the correlation between the return of investment and the risk factor.
“If you are looking for a higher return, it always comes with a higher risk and volatility. Owing to the period of time the investment is done, during some periods you will be up, and some periods you will be down. However, in the course of time those ups and downs cancel out, you will end up with a higher return!”
Savings are low-risk funds that must be liquid when you need them. The purpose of saving money is so you can have it for a specific purpose within a short time frame.
Investments, on the other hand, are for wealth building, and will not be needed for many years. Yes, investments do involve greater risk, but, investments also yield much greater returns when left alone long enough to ride out the turbulence of the market.
“As long as you diversify yourself with your investments, take out unsystematic risk – with any industry or country, over time you should be rewarded. That Is really the summation of what it takes to save and what it takes to invest.”
Why is investing at a young age is important?
“I will start with one of the famous quotes by Albert Einstein, ‘Compound Interest is one of the man’s greatest inventions’.
If you start saving at the age of 18 as opposed to age 30, by age 55 the differential probably will be 20-30% better off in your retirement.
The reason is that although at a young age you will not have a large amount of income to save whatever the small amount money you save compounds over time – you get interest on interest.”
Quite frankly if you begin investing at a young age you will end up with far more than those who invest later in life. Having time on your side means having a longer time period of being able to save money to invest and a longer time period of being able to find investments that can increase in value.
He further explained, “The interest that you earn when in your late teens and early twenties, during each year, an additional amount rupees start generating thereafter. Then you can reinvest that amount and get a better return.”
If you start early you can save less later on. You also have the option of ending up with a larger sum of funds in the end.
“Another important factor is that, from a young age, you go through a learning process when you invest, since it is also about discipline in consumption – foregoing something. The earlier you start the more experience you have about foregoing. So it’s a self-discipline that you have to build early on in life.”
“So, many spiritual teachings talk about complete restrict - foregoing materialism”, he said. “That’s a very extreme philosophy that not everybody will be able to adhere to. However, some element of restricting in this materialistic world is necessary – that is why when you start saving at a young age, you basically attune your mind of foregoing.”
Then we moved on to discuss how does one actually makes it work when finally savings are in place.
“Putting your savings passively in a bank account is a lot easier, as opposed to making investments. The more complex and riskier an asset class gets, there is a lot of information elements to those investments. To distill and navigate all of that takes a lot more skill. Therefore, for an average person, it might be better to partner with an investment manager who is being paid to do that!”
With all that information, we could not wait to dig into the practicalities of actually starting investments as a young person.
If someone is passionate and capable of investing their savings, where should they start?
“I would think that first of all, without you trying to do it, it is always good to try and learn from another. The most obvious option in Sri Lanka is to try a unitrust.”
**(Note – A trust which in the distribution of benefits from time to time to the beneficiary, pools capital and income, and does not otherwise distinguish between the capital of the trust and the income of the trust for the purposes of establishing interim payments to a beneficiary. By using a “Unitrust,” sometimes called a “Total Return Trust,” everybody gains.)
Instead of you trying to do it all by yourself first, through a unitrust you can get the experience of an asset trust. That is how you understand what equity is. Once you have perhaps invested for 4-5 years and you have had an experience of equity as an asset trust, then you can try to venture on to either taking in more risk or do something else according to your experience.
We see many young people hesitating when it comes to committing themselves to long-term investments. Can you break down the differences and advantages of short term and long term investments for us?
“Different people have different goals”, he said. Then continued to break down the theoretical and practical aspects of long-term and short-term investments.
“A really long-term goal would be a retirement plan – what you call the end of the life care. It is shown in the health care system that a 70% of the healthcare expenditure is in the last six months of a person’s life. Therefore, that’s your really long-term objective that you have a comfortable retirement - the latter years of your life, your sunset years – when you become less able, you need care and you need to have enough funds to take care of yourself.”
Nevertheless, short-term could also mean more.
“For most people who are young, their primary goals are very much short term - to buy a vehicle, to travel, to buy a specific gadget, or even a house. We don’t have the so-called property ladder in Sri Lanka where people can get a small place and move up over a period of time. The savings-investment continuum is quite wide. So that’s how you trade off.
This is why the government set up mandatory savings. People, when left to their own devices aren’t very good at making their long-term choices. That is where the state comes in and makes that decision for you so that you act in your best interest. That you keep something for the future!”
What are the common mistakes young investors make?
“The first common mistake is trying to make quick money. There is this perception of making quick money and generally, they are chasing a fad.”
With too many financial fads out in the society, he elaborated on how these fads work and harm the gullible investors.
“There is a significant amount of speculation element to these quick money fads. For most of these, if you get in early, invariably, you stand to make a lot of money. However the average person never gets in early – they get in once there had been a significant run, and they may falsely believe that the run will continue for a significantly longer period of time. So everybody participates – and obviously, the run accelerates till the people who started early deciding to leave the party! They are the most sophisticated and experienced people, who then leave the whole gravy train to the new people and then invariably it collapses. So chasing a fad, chasing quick money is the number 1 mistake people do.”
“Number 2 mistake is that they bet the whole house on a few ideas, which is very risky. So for an example, in a unitrust investment trust deal, we say that there should be no more than 15% in any stock which is a fairly conservative rule to also adhere to in.
Unless you have an extreme market situation, or that you have very insightful information about the product or a company in greater detail than anybody else has which allow you to have a high level of conviction to make that kind of an investment, you shouldn’t put all your eggs in one basket!
What are some of the good financial habits a young investor should have?
“Coming back to what I’ve already said – self-restrict. We live in a very consumer focused and materialistic society. The majority of this country is religious – who practice resisting materialism. If they live according to what has been preached, then most of the financial problems would be solved.”
“Resisting materialism is an age-old problem, which was why even back at 600BC, it was still taught when it was a far less consumer-oriented society. You can equally bring it to 2017, to a country like Sri Lanka where you have splashing billboards, social media, and television continuously promoting people to spend. In this age, you need even a greater degree of self-restraint to forego.”
Good financial habits include more than living within your paycheck. Of course, the first thing is to ensure that you’re productive and effective enough that you increase your income.”
First of all, you should ensure that you make sufficient so you can meet your basic needs. All of this is academic if you do not make enough to meet your basic needs. A large percentage of our population doesn't make enough money so there’s not much use of speaking about savings since they have an income problem. Income is insufficient to have even an average quality of life.
For those who are in urban areas, who are still living with parents and have family support, their consumption is more discretionary in nature.
It’s about not ordering the most expensive drink. About having smaller portion sizes. The choices are increasing. It’s about being a little bit more intelligent in having 80% of what you want but spending 50%.
Any Final Thoughts/Advice to our young fans?
First thing is that investing and saving cannot be neglected. Most people, even the wealthy have what you call benign neglect. It’s a serious business which requires serious time.
If you are being very passive about it, you can simply put the money in a bank deposit and forget about it.
However, if you want to take more risk, and generates a higher return, it requires work.
It requires you first of all to educate yourself. Your financial literacy level has to be higher. And it requires a continuous update. You have to regularly update how you are doing.
You need to have a basis of measurement – what was I doing 1 year ago, 2,3 years ago etc.
There are a lot of tools and personal packages that you can use for it like Microsoft Money and Quicken that help you keep a track record. It’s like a scorecard of how much you’re earning and how much you’re spending.
I would tell you that if you cannot measure, you cannot manage.
Therefore, the one piece of advice that I would give a person is either to use a personal financial package like MS Money or simply have a notebook where you note down how much you earn and how you spend it. That itself is a very powerful savings and investment tool because it allows you to calculate how you’re doing.
Then when you have decided I’m going to save x amount, it’s also important to quantify how your investment is doing. That is fully in your control and you have an account of how you are doing.
In that, it’s also good to have some kind of an investment journal which you probably can update every month.
Once you’ve been measuring your scorecard with a small commentary on what you did and the reason you did it, over a period of time you have a written record to reflect on.
The greatest learning tool is for us to learn what we have been doing ourselves and seeing how we are doing. In a formal company you have an annual report, you have a review and you have a large number of finance people to do this for them, but at a personal level, a very few people do it.
That itself is a low hanging fruit.”
On that note, our conversation ended. It is important to note that saving money to invest at a young age is not easy. However, you simply can’t afford to wait to invest when it is convenient.
Don’t shy away from investing because you don’t have enough, simply start with making small investments and give them time to mature. Investing while you are young is one of the best decisions one can ever make!
Head over to CFA Sri Lanka - a global association of investment professionals, in the mission to advance the investment profession in Sri Lanka by introducing global best practices in ethics, education and professional excellence.
The prompt for the interview was spreading awareness of good investment habits for young people, however, our conversation ranged widely in the areas of learning, understanding, and practicing good financial habits in general.
Was finance something that you were always passionate about?
“I basically got in 23 years ago”, he said. Going on to describing how he started up in the field of finance by overlooking a brokering company which was a part of his family business.
“I studied engineering and computer science at the university.” Therefore knowing very little about both the practical and theoretical aspects of finance in the beginning of his career.
“So I had to learn it on the go. Most of its technical knowledge came from CFA. I started back in 1994 and finished in 1997.”
Without further ado, we dived into the area of savings and investments.
We see many people mistaking saving money for investment. Can you tell us how to differentiate between saving and investment?
“If you look at the formal theory, there are a few fundamental motives why people save. One is called the precautionary motive, which means that you quite literally put away money for a rainy day.”
He explained how the savings did with a precautionary motive is not sensitive to the return that one gets. Despite the return, these savings are done with the intention of using during a time of need or trouble.
“Another motive of saving is the need for retirement.”
When one starts saving for retirement, which is a long-term savings plan, how much he or she gets by the end of that period depends on the real interest that they get.
**(Note- Real interest is when we take the nominal interest rate and subtract the inflation rate.)
“If your real interest rate is high, that means your money has a higher purchasing power at a later date!
According to the theory, it is about delaying gratification.
So higher the real interest rate, the higher the incentive in delayed gratification.”
Then he shed some light on the correlation between the return of investment and the risk factor.
“If you are looking for a higher return, it always comes with a higher risk and volatility. Owing to the period of time the investment is done, during some periods you will be up, and some periods you will be down. However, in the course of time those ups and downs cancel out, you will end up with a higher return!”
Savings are low-risk funds that must be liquid when you need them. The purpose of saving money is so you can have it for a specific purpose within a short time frame.
Investments, on the other hand, are for wealth building, and will not be needed for many years. Yes, investments do involve greater risk, but, investments also yield much greater returns when left alone long enough to ride out the turbulence of the market.
“As long as you diversify yourself with your investments, take out unsystematic risk – with any industry or country, over time you should be rewarded. That Is really the summation of what it takes to save and what it takes to invest.”
Why is investing at a young age is important?
“I will start with one of the famous quotes by Albert Einstein, ‘Compound Interest is one of the man’s greatest inventions’.
If you start saving at the age of 18 as opposed to age 30, by age 55 the differential probably will be 20-30% better off in your retirement.
The reason is that although at a young age you will not have a large amount of income to save whatever the small amount money you save compounds over time – you get interest on interest.”
Quite frankly if you begin investing at a young age you will end up with far more than those who invest later in life. Having time on your side means having a longer time period of being able to save money to invest and a longer time period of being able to find investments that can increase in value.
He further explained, “The interest that you earn when in your late teens and early twenties, during each year, an additional amount rupees start generating thereafter. Then you can reinvest that amount and get a better return.”
If you start early you can save less later on. You also have the option of ending up with a larger sum of funds in the end.
“Another important factor is that, from a young age, you go through a learning process when you invest, since it is also about discipline in consumption – foregoing something. The earlier you start the more experience you have about foregoing. So it’s a self-discipline that you have to build early on in life.”
“So, many spiritual teachings talk about complete restrict - foregoing materialism”, he said. “That’s a very extreme philosophy that not everybody will be able to adhere to. However, some element of restricting in this materialistic world is necessary – that is why when you start saving at a young age, you basically attune your mind of foregoing.”
Then we moved on to discuss how does one actually makes it work when finally savings are in place.
“Putting your savings passively in a bank account is a lot easier, as opposed to making investments. The more complex and riskier an asset class gets, there is a lot of information elements to those investments. To distill and navigate all of that takes a lot more skill. Therefore, for an average person, it might be better to partner with an investment manager who is being paid to do that!”
With all that information, we could not wait to dig into the practicalities of actually starting investments as a young person.
If someone is passionate and capable of investing their savings, where should they start?
“I would think that first of all, without you trying to do it, it is always good to try and learn from another. The most obvious option in Sri Lanka is to try a unitrust.”
**(Note – A trust which in the distribution of benefits from time to time to the beneficiary, pools capital and income, and does not otherwise distinguish between the capital of the trust and the income of the trust for the purposes of establishing interim payments to a beneficiary. By using a “Unitrust,” sometimes called a “Total Return Trust,” everybody gains.)
Instead of you trying to do it all by yourself first, through a unitrust you can get the experience of an asset trust. That is how you understand what equity is. Once you have perhaps invested for 4-5 years and you have had an experience of equity as an asset trust, then you can try to venture on to either taking in more risk or do something else according to your experience.
We see many young people hesitating when it comes to committing themselves to long-term investments. Can you break down the differences and advantages of short term and long term investments for us?
“Different people have different goals”, he said. Then continued to break down the theoretical and practical aspects of long-term and short-term investments.
“A really long-term goal would be a retirement plan – what you call the end of the life care. It is shown in the health care system that a 70% of the healthcare expenditure is in the last six months of a person’s life. Therefore, that’s your really long-term objective that you have a comfortable retirement - the latter years of your life, your sunset years – when you become less able, you need care and you need to have enough funds to take care of yourself.”
Nevertheless, short-term could also mean more.
“For most people who are young, their primary goals are very much short term - to buy a vehicle, to travel, to buy a specific gadget, or even a house. We don’t have the so-called property ladder in Sri Lanka where people can get a small place and move up over a period of time. The savings-investment continuum is quite wide. So that’s how you trade off.
This is why the government set up mandatory savings. People, when left to their own devices aren’t very good at making their long-term choices. That is where the state comes in and makes that decision for you so that you act in your best interest. That you keep something for the future!”
What are the common mistakes young investors make?
“The first common mistake is trying to make quick money. There is this perception of making quick money and generally, they are chasing a fad.”
With too many financial fads out in the society, he elaborated on how these fads work and harm the gullible investors.
“There is a significant amount of speculation element to these quick money fads. For most of these, if you get in early, invariably, you stand to make a lot of money. However the average person never gets in early – they get in once there had been a significant run, and they may falsely believe that the run will continue for a significantly longer period of time. So everybody participates – and obviously, the run accelerates till the people who started early deciding to leave the party! They are the most sophisticated and experienced people, who then leave the whole gravy train to the new people and then invariably it collapses. So chasing a fad, chasing quick money is the number 1 mistake people do.”
“Number 2 mistake is that they bet the whole house on a few ideas, which is very risky. So for an example, in a unitrust investment trust deal, we say that there should be no more than 15% in any stock which is a fairly conservative rule to also adhere to in.
Unless you have an extreme market situation, or that you have very insightful information about the product or a company in greater detail than anybody else has which allow you to have a high level of conviction to make that kind of an investment, you shouldn’t put all your eggs in one basket!
What are some of the good financial habits a young investor should have?
“Coming back to what I’ve already said – self-restrict. We live in a very consumer focused and materialistic society. The majority of this country is religious – who practice resisting materialism. If they live according to what has been preached, then most of the financial problems would be solved.”
“Resisting materialism is an age-old problem, which was why even back at 600BC, it was still taught when it was a far less consumer-oriented society. You can equally bring it to 2017, to a country like Sri Lanka where you have splashing billboards, social media, and television continuously promoting people to spend. In this age, you need even a greater degree of self-restraint to forego.”
Good financial habits include more than living within your paycheck. Of course, the first thing is to ensure that you’re productive and effective enough that you increase your income.”
First of all, you should ensure that you make sufficient so you can meet your basic needs. All of this is academic if you do not make enough to meet your basic needs. A large percentage of our population doesn't make enough money so there’s not much use of speaking about savings since they have an income problem. Income is insufficient to have even an average quality of life.
For those who are in urban areas, who are still living with parents and have family support, their consumption is more discretionary in nature.
It’s about not ordering the most expensive drink. About having smaller portion sizes. The choices are increasing. It’s about being a little bit more intelligent in having 80% of what you want but spending 50%.
Any Final Thoughts/Advice to our young fans?
First thing is that investing and saving cannot be neglected. Most people, even the wealthy have what you call benign neglect. It’s a serious business which requires serious time.
If you are being very passive about it, you can simply put the money in a bank deposit and forget about it.
However, if you want to take more risk, and generates a higher return, it requires work.
It requires you first of all to educate yourself. Your financial literacy level has to be higher. And it requires a continuous update. You have to regularly update how you are doing.
You need to have a basis of measurement – what was I doing 1 year ago, 2,3 years ago etc.
There are a lot of tools and personal packages that you can use for it like Microsoft Money and Quicken that help you keep a track record. It’s like a scorecard of how much you’re earning and how much you’re spending.
I would tell you that if you cannot measure, you cannot manage.
Therefore, the one piece of advice that I would give a person is either to use a personal financial package like MS Money or simply have a notebook where you note down how much you earn and how you spend it. That itself is a very powerful savings and investment tool because it allows you to calculate how you’re doing.
Then when you have decided I’m going to save x amount, it’s also important to quantify how your investment is doing. That is fully in your control and you have an account of how you are doing.
In that, it’s also good to have some kind of an investment journal which you probably can update every month.
Once you’ve been measuring your scorecard with a small commentary on what you did and the reason you did it, over a period of time you have a written record to reflect on.
The greatest learning tool is for us to learn what we have been doing ourselves and seeing how we are doing. In a formal company you have an annual report, you have a review and you have a large number of finance people to do this for them, but at a personal level, a very few people do it.
That itself is a low hanging fruit.”
On that note, our conversation ended. It is important to note that saving money to invest at a young age is not easy. However, you simply can’t afford to wait to invest when it is convenient.
Don’t shy away from investing because you don’t have enough, simply start with making small investments and give them time to mature. Investing while you are young is one of the best decisions one can ever make!
Head over to CFA Sri Lanka - a global association of investment professionals, in the mission to advance the investment profession in Sri Lanka by introducing global best practices in ethics, education and professional excellence.
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