Many people send me their portfolio and ask me to review it. These are the tell tale signs of a losing portfolio:
1. People who brag about their ‘success’ : One person who was so proud of his investment in one particular scheme. He said it had given him a 32% CAGR over the past 5 years. I thought he would have a significant amount in it. On a CTC of about Rs. 14 lakhs, he had done a SIP of Rs. 1000 (repeat Rs. 1000) that it did not matter. His other investments were much bigger and were performing poorly – and fairly obvious he had a lot of investments in debt instruments!
2. Extremely long portfolio: To me portfolios in excess of 12-15 direct equity stocks, and 4-7 mutual fund schemes are both too long. By definition such people under-perform the index over long periods of time. Of course if they had picked one Wipro, Hdfc, Tata Motors…their average still looks good, but again it is a size issue. Many people would have sold their winners along the way….and hold on to their under-performers. This again skews the portfolio…
3. Lopsided: Too much of one asset class – equity, debt, gold, real estate – using some past data they feel happy but on a realistic basis their performance is poor.
4. Not maintaining portfolio / accounts in WRITING: Mental accounting, heuristics, …other behavioral issues, not enumerating here.
5. Having their broker’s telephone number on speed dial. Need I say something?
6. Watching too much of business channel (financial porn addiction), subscribing to many newsletters, and not knowing the total brokerage paid for a month or a quarter (if you are in this category ask your broker for a consolidated statement…for your family. This statement has been a behavior changing statement for many friends.
7. Fair weather friends: Asking people which years were they investing is a revealing question. If they were investing in 2005, 06, 07 BUT NOT in 2008, 2009 but started in 2010…you know why they are bleeding.
8. People with a net worth less than Rs. 2-3 crores (other than house and office being used) falling to pitches of PMS in equities, real estate, venture funds,….well less said the better.
there are more….will write about it
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