Let us look at some of the common errors that I have seen:

  • Lack of understanding of risk, standard deviation etc. – IFAs are just as guilty
  • Confusing Long term investing with risk tolerance
  • believing CEOs saying “if you invest in equities take a 3 year view”
  • not liking CIOs who say “Equity makes sense only if you have a 10 year view”
  • Not enough clarity on short term strategy and long term strategy
  • Thinking aggressive investing means more mid cap
  • Confusing need to take risk vs Ability to take risk
  • Reading Jeremy Siegel’s book like a time pass book. For heaven’s sake it is a text book, not a novel.
  • Thinking of 18% p.a. return in equities is their BIRTHRIGHT.
  • Thinking that in the long run STOCKS will surely make money
  • Not understanding the difference between what a good fund manager can do and what time can do to your portfolio
  • Not understanding how time can ravage a poor fund manager
  • Not understanding how the ‘Bucket’ theory works for a retired person

I am constantly asked ‘But Subra what returns should one expect from Equity?’ and i have tried answering this from various points of view. I told one audience ‘forget 19% that you seem to have got from 1979 till today..see what Prof. Zvi says

“It matters, of course, what I think the expected return is, but after all, if a respected scholar like Jeremy Siegel can say he thinks the expected real return is 5 percent, the editor of the Financial Analyst Journal, Rob Arnott swears that it’s zero right now. And one of Jeremy’s best friends, Bob Schiller, what is Bob saying it is these days? One percent or zero? So who am I to render a judgment as to which of these people is right? ”

I rest my case. I also known some celebrated asset gatherers (aka Fund managers, IFAs, …) who swear by 18% – and they tell you ‘long term’ without putting an EXCEL sheet to it. God bless them. I can assure you, it will be much further south..and that ON THE INDEX..pre fund manager’s LION CLAIM 🙂

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  1. And sir none of them talk about asset allocation and the merits of the same. they try to match the clients time horizon with the products and suggest, simply suggest equity funds if the client’s time horizon is 5 years plus. they dont check his existing portfolio and then recommend.

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