A National Level Distributor had suggested 13 funds for a doctor wanting to invest Rs. 17 lakhs. I was intrigued to see so many funds being suggested. He had a simple explanation.

4 of the funds suggested were large cap equity AS THE CLIENT UNDERSTOOD: Franklin India Bluechip, SBI Bluechip, Icici Focused Bluechip, and Kotak K 30.

So I asked him the OBVIOUS question. Is there not an overlap? He said “Sir there maybe an over lap but there are times when one does better than the other, and at that time it is easy to control client expectations.”

Not a bad explanation, but this was happening because the whole transaction was being done in electronic form. Imagine filling up 13 forms MANUALLY to invest Rs. 17L. Imagine receiving 13 hard copies every month to be filed away. The sheer hard work of doing these things manually would have put off the client and the adviser from doing this!

I am happy that technology has beaten down the costs – brokerage in equity buying and selling has come down from 2.5% to 0.25% – this could not have happened without Electronic trading and E settlements.

However technology has also meant that there are many, many, many websites and they have created a lot of noise. Sense is still at a discount, and that is not good. ‘Fight’ or ‘Flee’ has become second nature – so when you hear that Franklin India bluechip has not performed well for 6 months, the question is ‘should I shift to Hdfc Top 200’ – this is more likely to be met by NO. You should shift to Icici Prudential Focused Bluechip. If the investor did nothing, maybe in 6 months time, FIBC could have again got a good performance.

The amount of data (raw) at people masquerading it as information is so huge that it is IMPOSSIBLE for the investor not to react. And electronics makes it easier to act. Thus technology reach has increased the ‘ease’ of activity. Wealth creation does not require so much of activity.

Loss aversion tells us that losses hurt twice as much as gains feel good. Myopia deals with the fact that people have a tendency to evaluate outcomes on a frequent basis. Thus more frequent that the data is available and it is easy to do a transaction the more that the mind will seek ‘action’.

Put them together and these behavioral biases can wreak havoc on your portfolio because the more often you monitor your investment results the more likely it is that you’ll see a loss, and thus, suffer from loss aversion.

Fear is NOT panic. Fear is an emotional state EXPECTING something bad to happen. Fearful people see many risks. Panic is YOUR reaction to fear, and it is characterized by an urgent pressure to act immediately. So you sell, to pacify your Loss aversion. How you tell this to your client is what distinguishes a good adviser from a not so good adviser!!

So if an adviser can fill your application form, ecs form, kyc…and leave you alone for 20 years he is NOT being wrong, he is being sensible.

So technology has reduced activity costs, and activity is the enemy of wealth creation.

What a dichotomy!!




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