Teaching has its advantages. Huge advantages I should have said. One such event happened yesterday…I was told that I had missed one of the best fund managers by not investing in Mirae. I was also told that by not investing in a new FT scheme of ‘High Growth companies’ I had missed out on a lot of growth.

Let me put things in perspective. I had just told the class that I invested in Franklin India Bluechip, Franklin Prima, Hdfc Top 200, Prudence, I Pru Discovery, ….in 1999-2000 and have just left it there and done nothing.

My reaction: I am happy with the performance of all these funds from a 17 year perspective. Sure during this period they may or may not have given good returns during some weeks, months, quarters or even years, but overall I have no great regrets. I can go back and say ‘if i had sold Bluechip and invested in some mid cap fund I could have got better returns’. Sure, but that is POST MORTEM, not analysis.The four dangerous words in Investment consulting are “This study proves that”…..there is NOTHING to suggest that there is somebody who knows what will happen next. Actually there is NOBODY who knows that..

HOWEVER YOU CAN TEACH YOURSELF TO BE A BETTER INVESTOR FOR SURE.

  • Learn to notice the pattern seeking behavior of our brains.
  • Stop spending too much time on Macro events – you are wasting your time
  • By seeing your portfolio on a daily basis do not think you are in CONTROL of your portfolio
  • Delayed Gratification is one of the best things to learn about investing smartly

I would put the expense ratio (effective rate that I am paying) first for mutual funds. For example I could say that ” I will never consider a fund with expenses over X” After that I would worry about how high is the portfolio turnover. Fairly obviously an opportunity fund will have a higher turnover than a blue chip fund. I would assume that from a tax point of view all funds are the same – and the ELSS would get an edge for younger people who do not have own PF, home loan, children’s fees, etc to take advantage of 80C.

I would look at upward capture and downward protection ratios for a slightly longish period like say 5-6 years. To me that would almost be like looking at risk, because I am not a big believer in the ‘volatility’ as a risk measure. I am indifferent to medium term fluctuation and I can live with it. I would of course have started by looking at the fund house – and I have actual discomfort with a few fund houses – and it is obvious that I will not name them in a public or even private forum.

NOW I WOULD CONSIDER PERFORMANCE.

The problem in starting from performance is that your BRAIN (your investing enemy according to Jason Zewig) will start justifying everything ONCE you decide that the performance is good. Training your brain is more important than being able to create screens. I invested in Franklin Templeton because I liked the people with whom I interacted with in 1998-9, invested in Hdfc as a loyalty factor of being a shareholder of the parent in 1979, and in Icici Prudential because I knew that Nilesh+Naren was a good combination.

Now it cannot get worse than that for pattern seeking. However I like Bluechip, Flexicap etc. because they have seen 2 fund manager change – and they did handle it well.

I would also have a rule that I CANNOT / WILL NOT actually look at the performance of the fund at all until I have created a short-list of 5-6 funds (I am market cap, style, etc. agnostic) – and after that look at performance.

If you look at performance first, how will you fight your gut bias of saying “fudge the facts and make sure you buy the good schemes”. I actually do not know among the fund schemes I have which has done well and which has done badly in the last 2 quarters. If I knew that, I would THINK that I know how the next 2 months.

I am biased against bad promoters – so I will not consider a few fund houses. I am size biased in debt fund and will not consider funds below a particular size. I am biased against some geographies so will not consider investing in some companies originating from those cities. I know about corruption during share/debt product placements – I will not touch such fund houses….the list is endless. The question is do you KNOW YOUR BIASES?

Do not spend time and effort in Macro and comparative fund performance, spend that money in TRAINING YOUR INVESTING BRAIN. That is far more important.

 

 

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  1. Dear PV Subramanyam Sir,
    Thanks for the valuable advice yesterday and today through the above article. It surely has extended my paradigm of thought. Now I have to build on it.Now if Creativity is combined with Experience, the resultant is Wisdom.Shall keep in touch, for sure.
    Gaurav

  2. Thanks for the post Subra.

    The criteria like expense ratio, upside – downside ratios, turnover and other similar numerical parameters along with fund classification like large/mid/small cap are readily available with Valuresearch, Morningstar et al. The funds can be filtered/shortlisted/selected based on the same.
    However the most challenging aspect seems to be to select the fund house. Would you mind providing some practical recommendations for the same? Its quite challenging to find out insightful reviews of fund houses. Its more relevant for folks who day job is unrelated to financial industry in general.

  3. Seems sir you were yourself confused while writing this. Can’t make sense of what you are saying or trying to say. Anyways, we live in a democratic society & to each one it’s own.

  4. Can you share your biases about which promoters, AMCs etc so we too can be careful? your biases may equally be classified as knowledge!

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