It is a nice question to ask – how do people invest? what is investing a function of?

Fairly obviously investing by an individual happens based on many things –

a. Own past life experience: a person is influenced by his parents, friends, real life experiences, etc. For example a person who was caught in Mumbai downpour and heard horror stories of how people who were stuck in cars even today carry a hammer in their cars. However people like me who only HEARD those stories do not bother too much. So past experience, how the narrative has been told at home “you know your grandfather lost all the money in a scam” or “as a family we created a lot of wealth in the equity markets” – the NARRATIVE is very important.

b. “I do not know” so I will not learn syndrome – there are people who will tell me “I don’t understand equity markets, I think it is a den of thieves”. Yes such people will remain in debt instruments only, and suddenly wonder “how people buy a house in Mumbai” or create any wealth at all.

c. Those who do not know, will not learn and make all the mistakes. I met a guy who is CONSTANTLY borrowed on his credit card and does his SIP also. Logic? “the emi of the card keeps the pressure on my money”. Eeks. But yes this character exists.

Another funny part of investing that I see is what journalists see as “how people should invest” and write accordingly. That is fine as long as you are a journalist, but there are people who do this as a business model. It is scary. Many IFA do not understand the need for doing a regular portfolio review. Many clients too do not understand the need to do a regular review. Sadly there is not enough evidence about the benefits of doing an annual review. What happens if a fund performs brilliantly for 4 years, poorly for 2 years, decently for 4 years and then has an average run for 4 more years. This is the 14 year journey and the client decides to remove the money. He has done no portfolio review and he finds that the money has grown at 15% cagr at a time when the TRI has given him 15.1% cagr. Should he cry or laugh? Should he be upset that he did not redeem before the under-performance started? Hey that has been his style for 10 years – why should he have changed it in the 10th year? No, to him this does not make sense.

However there are certain funds which never come back. How do you handle such funds – fund houses and fund schemes? What if you know of a great equity fund, but know that the debt fund manager of that fund house is corrupt? What if you are looking at great fund performance by a fund house and find that in their sister concern a big chunk of people have been sacked on integrity issues? Will you remain calm? composed?

We invest in a dynamic environment. People like me have a over diversified portfolio comprising of direct equity, day trading portfolio, delivery based trading, equity mutual funds, index funds, unit linked endowment plans, classic endowment plans, bank (no clue why I have so much lying in the banks, but welcome to it), liquid funds, ultra short, gilt, ppf, – and I am sure it is “mathematically and clinically” inefficient. Hey, but it is the reality. I have 2 different portfolios even in my investments – one large cap and one midcap. Seriously, the return does not matter because I have a current income and my income from dividends is enough to run the family.

Will my portfolio become like a ‘model’ portfolio? i doubt it. I know I can carry the slack of cash, the risk of underperformance, the risk of corporate governance (Apollo Hospital, Indigo – the worry is in public domain), LAZINESS to review, etc.

HEY THAT IS HOW MY PORTFOLIO has been shaped. People forget that my portfolio is a function of my tastes, habits, reaction to risk, personal experience, personal learning, the NEED TO EARN MONEY, the need to take risk vs the ability to take risk..etc.

Suddenly I speak to a kid who handles say banking sector. He tells me “South indian bank looks interesting at 14”. I do nothing, but then suddenly when nobody is looking I go and buy this share at Rs. 11 and sell it off at Rs 15. Great? not sure, but things could have gone wrong, and the journey is addicting!!

One day I may ask for a pro to assess my portfolio. Perhaps.

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