The advantage of being in the market for a very long time is you can see really long back. Some of my mistakes include not keeping enough data on a year to year basis of my performance. I just will not be able to say how much return I got in say 1984-5 for example. Recently Pattu of the famous Free Fin cal asked me for some data, and I did not have it. So I really do not know the ‘opportunity cost’ of NOT having made changes in my portfolio. I could (should) have done much better data capture and retention.

However, here are some mistakes which I do, and I guess will continue to do:

1. Once I make up my mind, I do not let too many facts disturb me: a.k.a. Anchoring. Hdfc mutual fund, Templeton, and Naren Sankaran are good fund managers. I thought so in 2001 and think so in 2014. Tata group, Murugappa group, Eicher, TVS, MNCs, are the best companies in India. Again a belief held for a very long time.

My investment portfolio SURELY suffers from Anchoring bias. Since overall i have done well, I have not bothered about it too much.

2. Overconfidence: In my ability to pick stocks, in assuming that asset allocation works ONLY in asset classes which give a return of low standard deviation, of building a dividend flow to meet my Retirement needs, of thinking that one asset class will NOT go into a tailspin like Japan. I love Markowitz theories and that has helped in creating my dad’s portfolio. Hopefully I will use the same theories for my portfolio too.

3. Overconfidence in assuming that standard deviation can be understood – and the assumption that Gsecs will not fail in India. If Gsecs, PPF and equities fail in the SAME period, I will be doomed.

4. Hindsight bias: thinking of the 3 fund houses mentioned above MAY look like hindsight bias to many of you, but I have been an investor / a person recommending them since 2001 for Templeton and Hdfc and Naren’s funds since he joined I Pru. However it is not hindsight bias, I can assure you. I liked their processes.

5. Point no. 1 – not keeping good records meant I have no clue about what happened to those scores of shares that I DID NOT BUY – I only know what happened to shares that I bought. I still have some shit like Shaan Interval which went bust. However I have no clue about the MISSED OPPORTUNITIES of considering but not buying enough (Bharti Airtel), not holding long enough (Infosys), being location biased (missed Aurobindo, Dr. Reddy’s lab), of being biased because I knew the struggle at the IPO (Avanti Feeds), of not buying because of bias (Indiainfoline, Edelweiss), etc.

6. Representativeness: Very strong feelings towards some groups and crowd behavior. I got lucky that I bought Ken Fisher’s book in 2007 – and hence got rid of the infra in my portfolio (I wish I had sold more, much more) – NOT BECAUSE the market was at a peak, but because these infra stocks did not deserve the PE. In retrospect, i realize that 2007 was not really a boom, it was an INFRA BOOM and I got lucky. Hey I do not argue with luck!!

If I were to run a finance class today, I would run long sessions on Understanding biases, prejudices, psychology, philosophies of investing, reading authors on money, greed, human behavior – as much as I would want them to learn economics, accounting, and business laws. Ha, hindsight !!

http://www.subramoney.com/2010/01/my-investment-mistakes-part-3/

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  1. Sir,
    Every one in this World makes mistakes but a very few accept the fact. You are descent enough to accept the mistakes and also trying to let others learn from those mistakes, nice attempt.
    Also, nobody is perfect and all of us are marching towards perfection and we will do so till the end !!

  2. Terrific posts again SUbra..

    Just to counter the MNC bias, other then the recent run ups due to buy back by HUL (past performance is mediocre).. Can you please help with 2-3 poorly performing MNCs in 8-10 years range?

  3. On point 1, I have been using the same fund houses. There is one issue I’d like to point out. There are many funds which become popular like HDFC Top 200, HDFC Prudence, ICICI Discovery etc. But, then they become so large that its not possible for them to outperform as they essentially become the market. At that point, they start underperforming despite the good process. That causes fund outflows until they are back to a reasonable size where they can be back to supporting only good ideas. What do you think about this? Can someone look at AUM of a fund to see if it is getting too popular and rebalance based on that? Have you looked at AUM of a fund to see if it is getting too popular for its own good?

  4. Checking what one sold and what one held on to in 1999-2104 is an extremely humbling, somewhat painful process, Subrabhai. Still wincing at SKF bearings, ABB. What were we thinking!

  5. Hi Subra,

    I am thinking of Invetsing for long term in Quantum Equity funds.What are your views on the Quantum funds

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