The investor mistakes are just too many and to me everything looks major. Let me tell you the few that bother and bug me. Not because it hurts my portfolio, but I am at the receiving end if the person is known to me:

1. Going for a walk with the wrong person: People start a small SIP and they go for a walk with the wrong person! this person tells them how they can ‘create’ a HUF, how they can invest in their father in laws name, their children’s names, and how the whole amount will be tax free. God, why do they have my phone number? and why do they consider it IMMORAL to invest in equities and let me know about it? Look do what you want, you do not owe me an explanation for investing or not investing in an equity fund. Please choose your poison.

2. Focusing on immediate past results: almost everybody is convinced that Liquid funds will give about 8% return and if a liquid fund gives lesser returns than that, it is a bad fund. Well, well. You can only tell people that the past performance is not a good indicator of what to expect in the next few months or quarters. You look at history only to see the style – like why a Yuvraj is a better batsman than Rahul Dravid in a T 20 scenario. On that day how much he will score is just not known. Concentrating on the immediate past results also has another problem. In a match where say Virat Kohli scores a zero and Ashwin scores 30, you might conclude that Ashwin is a better batsman. This is obviously dangerous.

3. Asking too many WRONG questions: “If instead of investing in Wipro, if I had invested in Silverline I would have lost money, no?”. Sure you would have lost money. Why do you not invest in a mutual fund? ‘But Subra I did invest in ILFS E commerce fund and lost Rs. 5000. From then on I have stuck to bank fixed deposits. Now tell me ‘I cannot lose money in a bank fixed deposit, right?’

Honestly I have no clue how to handle this question, at least for free. If he were attending a paid lecture I could take some trouble – for a free guy the answer has to be “yes sir, you SHOULD keep all your money in a bank fixed deposit”.

4. Not knowing the difference between Real returns, and absolute returns: Most of them do not comprehend the 80% return that equities give once in 5 years and then the negative returns for say 5 years. This is so difficult for them to comprehend that they keep saying ‘this will not happen again’. This could be innumeracy, but then not understanding ‘Real returns’ and goal oriented investing is pretty stunning. ‘Goal Based Investing’ has to be the one and only focus of a retail investor. For this he/ she has to write down her/his goals and make sure that all the investments are headed in the right direction. There can be no investing if the investing is not GOAL BASED.

5. Loving simple instruments out of sheer laziness: they love fixed income products. It goes up EVERY DAY. Keep a fixed deposit with a bank with daily accrual. You get an awesome feeling that your net worth is going up EVERY DAY. Imagine if your annual income from Interest is Rs. 36, 50,000. It means your income is Rs. 10,000 every day!! This is so impressive. Everyday your income is going up and you can feel great. This can be encashed, it can be spent…and it will ALWAYS be there for you. It is easy to fall in love with such nonsense especially if you do not understand that after 20 years too it will remain the same. Such people are fixated not only about debt instruments but also the fact that it has to be in a bank. For these people even a mutual fund debt scheme looks risky (sir Investments are subject to market risk no sir, why should I invest in mutual funds). I love them. They help Jaitely to reduce the deficit.

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  1. Your last point is a bit cryptic – “They help Jaitley to reduce the deficit”, I think you meant “finance the deficit”, still I beg to differ on the basic premise:

    At the level of RBI or Finance Minister, what matters is aggregates, not in individual or even large group behavior. At an aggregate, it makes no difference whatsoever as to what percentage of the population invests in equity vs bank deposits.
    The reasoning is this…if I invest in equity, I dislodge some other investor out by buying his shares in the company. That person, in turn can either buy other equity shares or put the money in a bank. This can continue…of course, but ultimately at an aggregate level, the money MUST end up in a bank account, whether an SB or an FD.
    And hence, government is assured of a percentage of that (cough, SLR, cough) which goes towards deficit financing. The only way to prevent money from deficit financing the government is to encash it (thereby taking out of the Banking SYSTEM), and keep it under the mattress! But of course, in that case it is subject to inflationary erosion in value.

    There will of course be more questions and their answers will lead to even more questions! But this is, of course, outside the scope of personal finance.

  2. @LuckyOye

    @subra : please correct me or delete the post if i am wrong.

    “..They help Jaitely to reduce the deficit.”

    macroeconomic deficit is usually addressed via fiscal or monetary policy.
    you can borrow from world bank or pledge gold or raise debt internally through bonds. preferred is the third option as it is internal debt not external foreign debt

    hence bonds, govt securities, treasury bills are termed debt instruments? no?

    more and more public park their trillions of $ in these instruments, debt obligation is transferred from govt to the public.
    and the inflation adjusted returns are basically zero.

    on the other hand, moving to 100% equity is a pipe dream.

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