Let me do a very text bookish kinda post. What are the big broad steps and the small steps in the Investment consulting process?

I am sure if you have / had a good adviser you would have gone through the whole process..or the IFA may have done away with some steps thinking you do not need it..However if you get a feeling that you have missed some of these IMPORTANT steps, you should talk to your IFA again. If you are a DIY you need to do it yourself.

A. Talking about your Goals and Objectives: fairly obvious a starting point. If your IFA did not talk, he would have assumed..so relax.

•  Find out the Investment Parameters –
•  cash flow requirements
• risk tolerance – what they say in the form and what the body language exhibits
• performance objectives
• investment restrictions – for e.g. ‘I am a jain so no business in which you invest should be in fish, meat, tobacco or alcohol biz’
• clear time horizon for each goal with tolerance limit – ‘my daughter’s marriage is 10 years hence’ clearly non negotiable dates
• cost of failure – what happens if a goal is not met.

B. Define Investment Strategy :

• Write down policy statement (like this http://www.subramoney.com/2008/02/secret-of-successful-investing-philosophy-statement/ )
• Decide on risk-reward trade off
• do strategic and tactical asset allocation now itself.
• preferably discuss the strategy with somebody senior in the profession

C. Implement Strategy:

• Portfolio construction (could write a book on this subject and some great investors have avoided this!!)
• Evaluation of ‘own’ implementation vs fund manager
• Consider Portfolio Management services as a solution
• Manager selection
• depending on managers vs PMS especially when the money that you can allocate to PMS is more than Rs. 25 million
• Reducing fund manager risk by visiting their office and checking past track record
• Encourage the client to maintain a nice investment diary

D. Easy to do but difficult to implement

• Determine Evaluation Benchmarks
• Evaluate Relative and Absolute Performance

Actual Implementation

• On going review of performance, strategies, and objectives
• Take corrective action
• Track changing objectives, tactical asset allocation changes
• See whether changing Economic conditions need to be incorporated

All these things have to be done – and only a few people have the discipline to do it themselves. Believe me, it does not matter whether you do it so scientifically if you can meet your objectives. However, anything done scientifically improves the chances of success.

However, it is the outlier who does not know many of these steps who will turn out to be a Sachin Ramesh Tendulkar.

This post is for the Rahul Dravids.