Equity Advising? it is tough, very tough
I do equity advising for a few people – frankly just 5 people other than immediate family. And being able to do it for a fee is far far more difficult than what people think. I wonder how so many big companies do PMS for piddly amounts. To me it is not worth the time, effort, and reputation risk.
– the share that I recommend could fall AS SOON AS I ask you to buy. Last year I recommended EiD Parry at 145. After people bought it, it fell to 130, then 120 and I think it went even to 109. I bought at 119 ALSO.
Now for a new client (new to me and to equities) this experience would have been traumatic. I had bought at 150, 128, and 119.
Now such a scenario played out in Ashok Leyland, and Force Motors too. Even Tata Motors fell from 125 to 95 – I am talking about the DVR. Most of these shares have doubled (eid and FM) or tripled (AL, Sona and Ta Mo). Not bad over a 30 month period – or a little lesser.
The typical client reaction would have been to say:
– you also do not know the top and the bottom (I surely did not when I sold Wheels India for 750, 820 and 855) – it went to 869).
-you are taking a chance with our money also – I switched from Coro International to EiD parry, and then at an appropriate time I will switch back. This is a difficult to explain arbitrage.
– for me Value investing works, but requires patience. Clients, especially new ones have no way of judging me.
– look at the play in Wheels India, Wendt, Ricoh, – it is not easy playing these violent movements. I cannot risk client money, but the returns (for me) have been awesome. There is brilliant financial logic to what happened, but I do not expect clients to understand or think about that. Afterall they have given me the money, why should they get into the nitty gritty..?
If I were a broker, at least I would have earned brokerage…in an advisory, the next year’s cheque would be impossible to get.
And one disgruntled client going to the Regulator would have s….d my sleep. Hey I eat well and sleep well.
I will not give that up. So exactly why I cannot, will not and should not do equity advising.
Mutual fund advising – I suggest simplicity – and yes I charge a fee 🙂
Sanjay Singhaniya
I wonder, why don’t you follow two rules to ease things on your side.
1. Say that client can terminate the service contract anytime. But the portfolio is designed to give good returns considering 5 years duration. I think the people depositing money with you are rich and intelligent enough to know that markets gyrate a lot and market may take 5 years to recognize value of share.
2. Keep a balanced portfolio for client’s money. 60% in equities and 40% in debt. It helps so that client does not feel bad when price of equity falls by 25%. I understand that upside also becomes less. But it is a good compromise.
I wonder why portfolio for different clients has to be different? It can be same if you are considering positive real returns “after 5 years of management”. Does each client put different requirements for time duration of asset management?
Also, I wonder why you don’t create a model portfolio each year with 5 year lockin. I mean you can create a newsletter which will target investors ready to invest in year 2014 and withdraw in year 2019. You can simply give them investment/churning instructions at regular intervals. I understand it is a lot similar to some mutual funds which are open to invest/withdraw for some interval only. Also, brokerage, in case of retail investors like me, is around 0.50 % for each transaction. But if there is not too much churn then there is no reason to worry.
subra
Maybe I can Sanjay, it is too much of a headache, and I will not. Just clarifying why I will not. Not really trying to find a solution. Thanks for the suggestion.
Wilfred
Hello Sir
I got this site by chance and I find your articles very honest and brilliant
Are you a Portfolio manager
And what would be your fees sir
thanks