As a person moves from age 22 to age 62…his portfolio too keeps changing. He/she gets some knowledge, some IFA advice, some Citibank’s help, some help from Motilal Oswal, some Hdfc bank RM, some broker, some classmate, blogs…and suddenly thrusts a ‘portfolio’ which he has created over time.
Now if he has earned well, his wife has earned well, and he has not messed around too much, there is a good chance that he will have Rs. 15-25 crores – perhaps largely funded by nice Esop in IT or banks. Mind you Rs. 19 crores out of 25 may have come from his ESOP which he just held. Actually it clearly shows that there was no great strategy. A concentrated portfolio makes sense ONLY if you are the owner of the business. So whether it is the ESOP of Infosys, Hdfc bank, TCS, Hdfc Ltd, – not selling looks brilliant, but it is not so. It always makes sense to sell some portion of the esop shares and spend on oneself or in diversifying the portfolio.
I know one lady whose money is just in one mutual fund scheme – Hdfc Prudence – for the past 14 years and she has NO regrets about the returns.
Let us see what happened to most ‘investors’ in their investing lives. I guess it is common for most of us, even though we pretend that we are different from the crowd. We have learnt on the way that ‘Time spent in the market is more important than timing the market’, Buy and Hold, we ran out of patience AND changed our ‘unwritten’ strategy. We did learn that we can have a trading portfolio, but when we lost money we did not know what to do. We learnt (from good authority) that fund management cost is the ONLY factor to consider. We also meet/see/ hear/read Fund Managers who talk about everything else except fund management costs. I even see investment advisors try to keep their model portfolios secret, as though theirs are magically better than anyone else’s.
We are thoroughly confused, are we not?
The truth is that no one knows which portfolio is going to outperform in the future. Not even brilliant journalists who can tell you “5 funds which will double your money in 3 weeks”. No, not even India’s largest selling pink paper, or the most watched business channel. The people working there are watching a TV screen, not a crystal ball. You can change all the factors you want- more or less diversification, more small cap, some micro cap, additional risks/factors, lower costs vs additional risk or diversification, international diversification, foreign stocks, more of this and less of that. Does it matter? It doesn’t matter that much. No well diversified portfolio can do much better than a similar risky portfolio over a 15 year period. Maybe 1-2% here and there. No I am not saying that 1-2% does not matter, especially over long periods of time, but keep in mind the edge that a very complex portfolio might provide over a very simple one can easily be lost to fees, behavioral errors, and poor tax management. As simple as that.
Even worse there are many people who have NEVER measured what returns they have got. They have stuck to some portfolio of a good name and created wealth by earning well, saving well, and investing it in sub optimal portfolios. Frankly, it does not matter. Most of the wealth creation has happened in the direct shares portfolio, not so much in the mutual fund portfolio.
Choose a portfolio you like and stick with for a few decades. Eventually, any given portfolio will have its day in the sun. Don’t change your portfolio in response to changes in the investment winds. This is the equivalent of driving while looking through the rear view mirror (Peter Lynch).
I went through the process like everyone else. I designed my own portfolio to fit my own need, ability, and desire to take risk. I have only one asset class and left out others because I thought doing so would give me a higher long-term, risk-adjusted return. But I dare not think I’ve got the best portfolio out there. In fact, I’m 100% sure that mine isn’t the very best one. Hey, but it works for me. I am done providing 50X for my retirement. My daughter’s education is funded for, and my day to day expenses can be easily met by the dividends – I have some rental income and interest income too. Neither I, nor anyone else knows what the very best portfolio is.
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