In 1947 the average expectancy for a man in India was 28 years. The British had destroyed our medical system – Ayurveda – and had not created any medical infra. Now IF i HAD met a 25 year old man and told him that he would live to age 100, would he have believed it? No. That is the problem. I can list 10 people who crossed 90 – all these people were around 20 in 1947. These 10 are related to me. I can list 10 not related to me – Devanand, AK Hangal, Dilip Kumar, Pran, Naushad, Lata – just picked a few names that many of you would know.

I get into a class in IIM (or IIT, or the passing out of the ICAI) and ask them “how many of you are above average” – and I can be sure that ALL HANDS will go up.

Let me use some American stats. Surely the percentage that gets into IIM or IIT or gets a rank in CA – is less than 1% of the country’s population. Let us assume that 20% of the fund managers beat the Index funds (US stats). It is fair enough for an IIT grad or IIM grad to assume “I am in the top 1% of the country’s population, will I not be in the top 20% of the fund management industry” – fair assumption, COMPLETELY WRONG.

This is the problem with average, and standard deviation. It is also about Mind and Intellect. The wanting to believe that you will die at 72 (average) and believe that you will earn much, much, much more than US $ 1500 per month – is seductive thinking! Which IIM grad thinks he is ‘average’ in earning ability in India? NONE. How many 22 year old think that they will die at 72 -BECAUSE THAT IS THE INDIAN average? well it is almost always 100%. Amusing fact.

I can list reason after reason as to why I am well-equipped to be a great active manager. I started early, trained as an accountant, lawyer, auditor and tax consultant. I have done a few years of equity research, created research reports, and yes did pick up some stocks, which luckily have done well. Over the last 5 years I have hardly picked any share which is new. Buying Carborundum Universal or Cholamandalam – which I already had, may not count. And deep inside I believe I am a good fund manager, because I have done something in that direction. I tell (con) myself that if I just had the interest (which I have/had) and if I worked hard enough (which I can’t), I could learn to beat the market. REGULARLY, Year on year, every year over the next 2 decades at least.   But, this is where the DREAM occurs.  I start FANTASISING into thinking that I am special.  I start to assume that because I am intelligent I will be good at all intellectually-based activities such as stock picking, training, writing, publishing,….This is my MIND telling me “how great I am”. I need my INTELLECT to hold me back.

I was recently FORCED TO do a portfolio review. Net worth about Rs. 20 crores (you need the numbers, not the name of the friend) and HE HAD BEATEN the market over the past 20 odd years, and by a reasonable distance.

So he has done a good job with his portfolio you would presume?

No. Not at all. He was lucky enough to be employed in a bank – I don’t need to name it. He had got esop. He had kept it all – well almost. He sold some in the beginning of the millennium and bought a house. Sure the house has appreciated (2002 was a good time to buy ANY asset).

However it is an extremely concentrated portfolio WHERE HE GOT DAMN, DAMN lucky that his bank was not Satyam, Yes Bank, Icici, ….He also got lucky that he did not reduce the concentration risk (i.e. he did not come to me in 2004, say) and listen to me.

I know I am not intellectually capable of beating the market…..hey what about luck? Lol.

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  1. I had a similar experience recently with my client, took exposure to real estate through his salary and bank borrowing and today is worth 15 crores plus with 10 crores invested in real estate alone and other 3 crores in AIF and 2 in PPF .

    He took a high concentrated bet in tier 2 city real estate since last 6/8 yrs and has made a fortune .

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