Investments’ blunders

7 deadly indiscretions

P. V. Subramanyam

P. V. Subramanyam, financial trainer, Iris

Having been in the money business for 20 years, I have interacted with brokers, bankers, owners of brokerage houses, life insurance salesmen and relationship managers. Many a times their financial temperaments and investment advice have left me bewildered. But the person who surprises me all the time is the one whose money is doing the rounds—the investor. Other people do illogical things because self-interest is involved. But why does an investor behave so irrationally when it is his own money at stake? The answer could be laziness or ignorance. Here are seven behaviour traits that an investor should steer clear of:

1. Trading in the name of investing: People buy and sell shares or mutual funds at a frenzied pace. It is a fantastic way to make money—for your broker. If there was a calculator to determine the commissions that they end up paying, I am sure people wouldn’t “churn” portfolios so actively.

2. Maintaining an extreme view, too conservative or too aggressive: Some people can’t think beyond RBI bonds, PPF and bank fixed deposits. As a result, their portfolio grows at an average of 8% a year, which is not even above the headline inflation rate, as is the case in the present times. Then there are investors who have read somewhere that “in the long term, equities give best returns”. So they keep pumping money into direct equity without understanding portfolio construction, regression to the mean, etc.

3. Refusing course correction: I know a friend who pounds the treadmill. At least 10 trainers have told him to run slow, but he does not listen. People can be as bull-headed about their investments. An acquaintance bought shares of Patheja Forging, Shaan Interval and Silverline. He refused to sell because “equities are the best bet”. Today, the promoters of these companies are absconding. I am still unable to convince him.

4. Trying to time the market: I have no clue why smart, intelligent people believe they can time the market. The probability that you will get it right is very, very low.

5. Following “uncle’s” advice: People buy shares because an aunt or an uncle told them to. They invest in some other stocks because a friend or a colleague recommended it. Slowly, they build a dhobi list that they call a portfolio. How do they overlook the crucial fact that friends and relatives are not market gurus?

6. Choosing the wrong adviser: Most investors ignore the conflict of interest with brokers, agents, even planners. These people always want more of your money invested in different places, even if it is not required. There is a famous saying, “Do not ask your barber whether you need a haircut.” The same holds true for finances.

7. Using one strategy for all investments: Investment strategies for short- and long-term goals are not the same. Similarly, there is no fixed pattern to investing in equities or debt. But investors seek refuge in the one strategy that gave great returns once upon a time. It is immaterial that since then it has done nothing significant for their money. No one formula is guaranteed to give good returns all the time

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2 Responses to “Investments’ blunders”

  1. Preetkamal Singh on December 15th, 2008 at 6:31 pm

    You are correct to the core. In my 7 years of experience I’ve seen enough educated derelicts.

  2. You have given Stress on the quality of two things Health and Education, thats exactly the problem most of heard faces. But to be Blue Chip company dedication, focus continuous evaluation of oneself are the keys.

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