When people talk to me about investments, I see the kind of damage that Google has done to the investor’s mind set! It is but obvious that when a person wants to invest he turns to Google and searches for ‘how to invest’ or something like that. He is nicely led by Alexa to dubious websites. He then does some selective reading, and more selective understanding and further filtered implementing !!

Let me tackle with a few such misconceptions:

  1. Long Term Good return = Series of Short Term Good Results: One of the biggest misconceptions in equity investing is that the shares that they have and the fund schemes that they have MUST give good long term returns which means it should give a series of short term good returns. This is not only difficult, but almost impossible. Take the case of Hdfc Equity Fund or Hdfc Top 200 fund. Both have exemplary long term track record and absolutely lousy 1, 2 and 3 year returns. Exactly in this background Morningstar.in has given them a ‘Gold’ rating. They have refused to downgrade it and in fact their article says ‘short term bad performance is not enough to reduce the rating. It is very difficult for a rational, retail investor or even his independent financial adviser to sit tight over long periods of time in a fund with sliding down performance. However, mathematically speaking, if a fund is beating its benchmark for a long period of time and meeting your objective it is a good fund. It is a call that you have to take. Knowing the track record of PJ I might stick around for about 6 more months to take a call. I might even withdraw systematically instead of withdrawing in bulk.
  2. Diversifying Eliminates risk: I have friends/clients who have gone by the book and invested in equity, debt, gold, and real estate in almost equal proportions, and have pathetic returns to show in their overall portfolio. Properties in Panvel, OMR, NCR, etc. have given real bad returns over the past few years – perhaps about 7% cagr if you have been lucky over the past say 5 years. However, if it was a leveraged deal (which is what it always is) the leverage MAY make this return look good. Similar stories in gold too. So the gold biscuits lying at home/ locker is no longer looking like a ‘bright’ idea anymore. ACTUALLY diversifying REDUCES risk of one asset class under performing in a particular period of time. However, if you are clear that you have a long term mentality and ability to weather the storm, equity returns are superior. Remember great wealth has been created by taking concentrated bets – whether it is a Ratan Tata, Bill Gates, or Azim Premji. Diversifying DOES NOT ELIMINATE risks, it protects profits already made (so actually reduces return too!)..
  3. High Risk, High Returns: People think it is their RIGHT that they SHOULD get higher returns because they are taking more risk. So they feel that they should get higher returns because their asset allocation is skewed towards equity. Well, this is true ONLY, in the very long run. Like say 15 years. ┬áIf you lose patience in the 5th year..and say ‘all this is hogwash’ you will be proved wrong. You can then go all over the world and keep cribbing. Please understand HIGH RISK may lead to HIGH RETURNS, it is not HIGH RISK must lead to HIGHER RETURNS! The chances of losing money is called risk…..

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  1. Sir , would like to know about your views on following data :
    Hdfc top 200 direct return :1wk :-3.65.1month :-2.14.3month:1.73.6month-1.82.1year:-8.20.& regular fund for 3year:12.34.5year:7.58.
    Fund performance in comparison to average large cap return over same period.-.8;.59;1.22;.89;-3.11;1.32;.73.
    Best fund in large cap are icici pru advisor very aggresive plan (4.56 crores) in 2 time period & religare invesco dynamic equity fund (61.54 crores) in 4 time period.
    Lets be optimistic about PJ calls.

  2. Great wealth is created by investing in your ideas your business!
    Ratan Tata, Bill Gates, or Azim Premji <- None of them bought shares to become wealthy they created Equity/Value from their business which brought them fortune.
    Equity investing by a layman is to satisfy his goals, it's not a path to become Rich like Uncle Scrooge!

  3. One of the experts on CNBC today said that the smart/HNI money is moving to Real Estate from Equities.

    Should we be worried? or it would be a good time to beef up our portfolio…

  4. What I have observed with people is, when one is *already pre-disposed* positively about an asset (RealEstate OR Mutual Funds/Equity or Gold), they tend to *selectively* pick-up that information (only) which suits them (confirmation bias).
    1) TV is not worth relying upon.
    2) TV has ALL kinds of experts saying, smart money moving to Gold or RE or Equity, depending upon who the expert is.
    Best is to have asset allocation properly done & invest for long-term.
    Ignore the media. You will be better-off without it.

  5. as i know, the notion about credit risk of long term debt funds v/s short/ultra short debt funds (both excluding gilts) that the former is riskier than latter, as former has longer term papers, and susceptible more period for getting defaulted. i think, that is misconception, because, as per my thinking, the same long term papers became short term/ ultra short term as time passes, and the same papers are transferred to short/ ultra short term debt funds, and as, such, the default mostly comes out, at time of redemption of the paper, and thus risk of holding such papers, short term and ultra short term debt fund is more.
    is there any omission in my thinking?

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