Now that entry loads have been abolished the media will want to don the role of an investment advisor. Not that it is bad for the media, it is disastarous for the investor. This column will try to demolish some of the media perpetuated myths. Today let us look at the top most media myth.
“When looking for a fund look for a fund with ‘consistent’ out-performance – especially over long periods of time”.
This myth is so popular, that people who recognise may even lynch me. What is wrong with this is not too many investment advisors know how to compare funds over long periods of time. It is convenient to take a calendar period – quarter, half year or even annual. It could be sheer calendar trick! Just a luck of the fall of the dice as Taleb would have called it (Ok, ok he hates dice as an example). The skill is to compare funds with various dates – say 14th Jan 08 to 13th Jan 09. Picking some random dates and running your screens can stun you from your illusion of saying “I have invested in ABC fund which has been an outperformer for the past 5 years…or some such s*^%t comment that people make. Consistency in a company performance or a fund performance is almost impossible to achieve. I have sat on companies over long periods of ‘underperformance’ – still with an amazing index beating, inflation beating performance including the dividends paid out. Top of mind are Hero Honda, ITC, Colgate…Surely there are long – pretty long periods – when these shares have under performed the index. However their absolute performance along with the split, bonus and dividends over say 20 years + is heart warming!
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