These are stories about a few friends.

I have 2 friends – aged about 57 years. They were classmates and are now very close to retirement. Their investing philosophies are so different that I could not believe that the accumulated amounts could be so far away from each other. One of them did his MBA and joined ITC – and stayed there for 10 years before he went off on his own.He never married and so had no ‘house’ kind of expenses. Almost all his money (at least theoretically) could be saved.

The other person did not study beyond his graduation and held many jobs – currently he heads the sales function of a small company.

The person who did his MBA entered the equity market – and called himself an investor. However, he was just a incorrigible trader and traded every day. He was lucky to be a shareholder in ITC for a very long period of time and his portfolio other than ITC is a mess. He loses money every year in the markets and has no corpus to write home about. He would lapse into debt ocassionally (a.k.a trading losses) and then settle it from his professional income.

The other friend realised that he was no hare. He chose the traditional Indian way of saving (instead of investing) – ppf, lic, nsc, were his mainstay. Luckily I met him in the early 1990s and introduced him to some small equity portfolio. However he also was bitten by the equity bug and would put small amounts of money into some Fera dilution issue, picked up an odd L&T, Reliance, etc. – but the amounts invested could not have exceeded Rs. 500,000 over a period of 10-15 years. I introduced him to ELSS – and he has been at it for the past I guess about 10 years and with a vengance! He now has a portfolio of about Rs. 68 lakhs in equities.

I know another guy who was largely in debt for most of his life (say till 35, now he is 42) – but now seeks equity related ‘information’ from wherever he can get. In a train journey from Mulund to Mumbai VT if he overhears a share being discussed, he visits every site trying to do some research about it. However the buy or sell decision is mostly made on the group of people who travel with him. The research is some kind of ratification. As he is my neighbor’s friend ocassionally he calls me over telephone for a portfolio review. Of course his portfolio includes a lot of “i have no clue why I bought list” of shares – in fact it is dominated by such shares. Spoke to him last Sunday – he has shares in 44 companies totalling an investment of Rs. 13 lakhs – it is worth only Rs. 19 lakhs – over a period of 6-7 years. Do not know the IRR, but surely under performing ppf if I am not wrong. Quite a numbing experience.

Today the tortoise has a much larger portfolio. The hare and the tortoise story plays itself over in many ways, we close our eyes and refuse to learn. I do not know why.


Equity is a good asset class – but it needs far, far, far greater discipline and knowledge to build a portfolio than what a common man has. If in doubt Index or choose a decent fund manager. The gap between a debt product (with no fund management charges like Ppf) and an index fund (with low charges) is about 2-3% p.a. over a long period of time. However if you pick stocks keep measuring what you are doing. At some stage you need to accept that you cannot screw your own portfolio beyond a poing – of course there is no law against hurting yourself.

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  1. Dr Mohammed Ali Khan

    The train guy’s IRR or Componded annual growth rate is 6.529% if we assume 13 became 19 in 6 years.. Lower than PPF which is 8 % Tax free ( For now ).. & almost equal to a Bank FD.. And of course bank FD is hassle free..
    As for Index funds I feel that ETFs are better.. for they track the Index better and have less Asset management charges 0f around 0.6%

  2. @Subra

    Nice one .. People are not patient with Equity , and hence do not reap the kind of benefit it can provide. They still use Equity for short term big gains , which is just “luck by chance” for most of them .

    @Mohammed Ali Khan

    I am not sure if that 13 lac was invested in one go or distributed across those 6 years at different intervals , in which case the CAGR return would be much lesser , You might want to look at XIRR to calculate this , but we dont have information on how the investment was distributed .


  3. Dr Mohammed Ali Khan

    True Manish
    I just took the best case scenario
    ( But thinking about it, would this train guy invest 13 lakh at one go and WAIT FOR 6 YEARS — NO WAY )
    So like you said the CAGR would be much much lower

  4. I think I read a similar post sometime before on your blog! Is this re-posted? Sorry if I’m confusing this with somethin else.

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