Where does risk come from? It comes from beliefs. When an elephant is very small it is tied to a chain. It tries to break the chain, but it is not able to break it. As time goes by it stops trying…and it believes that it cannot break the chain. End of trying.

Exactly how risk comes into your portfolio. Your beliefs. Some of them right, some of them wrong.

I meet people from various walks of life and people of various ages. So I find a 55 year old policeman who says “Mutual funds are subject to market risk, so there is no risk in PPF”. Now in 2 minutes I cannot teach him whole of risk. Far easier to say “Yes, of course” and I tell him “but there is risk of underperforming in ‘real’ terms. He says “but still all my money will not go away”. He also told the class “if these people put sip for 43 years…what if it becomes zero when they need it after 43 years”. I had to close the discussion due to lack of time 🙂 and patience (perhaps).

We all carry some very strong beliefs and any amount of new data will not make us change our minds. We are just wedded to that. Many IFA and equity lovers believe that equity (immaterial of quality) will ALWAYS give better return than equity immaterial of whether it is 3, 5, 10 or 20 year sip. Show them American data of bonds out performing debt especially after a huge recession like 1929…or even Japan…they will brush it off as “one-time” and “cannot happen in India” brush.

In 2013 Warren Buffett allowed a person who used to sell short shares of Berkshire Hathaway to be on his panel to handle investor queries and answer them. Takes guts. Not many of us are happy to meet people who will laugh at our portfolios or those who will point out big glaring mistakes caused by bias.

If you are a Namo supporter every word which Pappu aka RaGa says is proof that “Namo will win 2019”. Even results to the contrary in the bye-elections or elsewhere does not allow us to re caliberate our thinking. We also believe that if RaGa becomes the PM in 2019 it will be a huge disaster for India. I do not know the facts, but go to the USA and see what happened. Nobody from Hillary’s campaign thought Trump could win. And Trump’s win was not at all bad for the US share market.

So if Namo wins, great, but you need to keep your mind ready for a BJP led government with no Namo in the cabinet or a non BJP government. No the market will not crash. Or it might.

When we make assumptions we should also be ready for it going wrong. We assume that if NaMo spent money on infra, infra funds should do well. Right? so you bought infra funds? did they do well?

You expected Namo to turnaround psu banks? So you bought SBI and PNB. What happened? did it meet your expectations?

So it is not only difficult, but almost impossible to predict markets. Forget markets it is difficult to predict even a sector or a single company’s share movement over a short period.

The world expected the US markets to crash when Trump came in. However nothing so drastic happened.

The world was full of governments with low and even negative interest rates – so we all knew that if interest rates moved up, the market would come down. However, we did not want to believe that. We thought that ‘growth’ will take care of that.

When we get new conflicting data, we should check our assumptions. Instead we rubbish the facts.

So go and meet some enemies and ask them to criticize your portfolios. Yes, it takes guts, but it is worth it.


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  1. “So go and meet some enemies and ask them to criticize your portfolios. Yes, it takes guts, but it is worth it.”

    But if he is an ‘enemy’, he might want to see me ruined. So he might praise a stupid portfolio or vice-versa !!

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