Till Taleb came along and said ‘Do not discount the role of luck in your life’ all of us considered ourselves smart. Very smart.  Warren Buffett, Bill Gates, etc. also have to consider themselves lucky with regard to their date (and place) of birth. If they were born as women in a backward district, at age 11 they would have been busy warding off the men, or looking after their younger siblings.

In my case too I consider it my luck that I was in Ghatkopar (Mumbai suburb) and not in Matunga (where my dad grew up). THAT is what brought me to the stock market. I now respect the stock market unlike many of my cousins who think of the stock market as a gambling den. So have been in the market since I was in class 12 and now can say that I have been in the markets since the 1970s! (how funny it was in 1979 that I did my first ‘sauda’ (trade)).

I must consider my self very, very lucky. During the Harshad Mehta Boom, I bought an office space for personal usage. When the index reached 21000 I had no reason to sell. However just luckily I decided to get out of some very high price earning stocks like Tata Power, L&T, Hdfc, and invest in lower p/e stocks.

Then Tata Motors, Cholamandalam, Hindustan Oil exploration, Tata Investment corporation, Hindalco, announced their rights issues. Just to be liquid for these right issues, I sold again. When the issue actually came, I was sitting on cash, but had no desire to fill the rights form. So again was sitting on cash. I think God protects people who do not know what they are doing.

Other than God I should also thank Ken Fisher for his book – “Only 3 things that Count”.

This book MADE me learn 2 things –

1) it is all right to be in equities during slow downs, but in fmcg and pharma rather than infrastructure and banking

2) Even if you do not believe in ‘timing’ if a portion of your portfolio can be save from the blood bath, your overall returns over long periods of time can be better than blind ‘time in the market game’.

However for all the readers I have a few lessons from 2008:

1. Like me, if you get lucky, do not argue against luck, protect your money.

2. Know the difference between skill and luck. I had luck so I sold enough shares to pay for the rights (and additional shares too!). If I had skill I would have sold much more, sold Kotak Bank, bought puts on Icici bank, sold Tata Steel and Hindalco.

3. Stock picking is tough – Bear Sterns, Lehman, Citibank, Morgan Stanley. Closer home Satyam, Cholamandalam, Dlf, etc.  have all shown us that

4. Diversification did not help! – Debt in Nagarjuna group was wiped out. If you put money in a real estate pms, you lost. In 2008 there was just no place to hide. Only a ‘put only’ portfolio would have been in the green.

5. Liquidity: when you need your money, if you do not get it, it is not there!

6. Leveraging which made you look smart in a bull run, can wipe you out in a bear phase.

7. Indexing works, indexing works, indexing works. Especially for people who do not think of investing as something scientific. It works best for long term investing by indifferent investors who are disciplined in investing.

Believing in ULIPs for wealth creation or Mutual fund investing based on Advisor’s skills and hoping to out performing the index is a nice fantasy like Santa Claus.

8. If your Advisor or fund manager has no transparency or you do not understand equity trading – you are better off in ppf.

9. Past performance is as useful as last year’s weather pattern on a particular day to carry an umbrella. If you get wet, do not blame the forecast. –

See more at: http://www.subramoney.com

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  1. Confused by this post and the previous one on indexing. If its easy to beat the current sort of index, why is indexing recommended in this post ?

  2. Subra,

    I really like the point 9.
    Past performance is as useful as last year’s weather pattern

    Nice one !!!

  3. Subra, I think the book’s name is “The Only Three Questions That Count” and not “Only 3 things that Count” unless he has written one more book with this title.

  4. Great post!

    Agree with point 7, but then in point 8 why do you favor ppf over index funds especially for people who do not understand equities and are looking at a very long term investment horizon?

  5. Yes Abhi you must be right, this is what happens when one writes from memory and does not use a Copy Editor…I am missing my copy editors…

    ppf or index fund I am indifferent for a person who does not KNOW trading or investing.

  6. sir, recently i come across NSE’s strategy index NI15.I like its methodology , comparatively easy to replicable by investor ,and seems better than any diversified mutual fund on long term. i like your post on NI15 Index.

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