Risk and Return are very difficult to understand. When the market goes down or a sector goes down many people rush to say “I had told you” or “I never put my clients money in banking” or “I always stayed away from Pharma funds”.

This reminds me of 2 jokes. One friend boasts to another friend and says “whenever I go to a theatre and there is a beautiful girl sitting next to me, I just turn and give her a good kiss”. The friend is aghast and says “OMG you must have been slapped so many times” and the first guy says “Sure. However, do you know how many good kisses I have got”.

The second is in a commentary when a Sehwag or a Yuvraj gets out the greatest Indian commentator (SM) would say “he should not have played that risky shot. This greatest commentator was a strokeless wonder and does not even know that 80% of the runs that these batsmen made was with risky shots.

One needs to manage risk. One can’t avoid risk. I do think a lot of money can be made by investing in focus funds. At a time when there is almost a consensus on Pharma companies doing well over the next few years investing in a pharma fund (lumpsum or sip) over the next couple of years could make money. Hey, it is a high risk game. Don’t get after my back. I have recently built a pharma heavy portfolio. I was just plain lucky that I got to be a BFSI light portfolio from Sep 2019 and had even sold Hdfc bank – very unlike me. However, in retrospect I feel pretty smart, though I do think it was Freaking luck.

I believe that you need about 30x your annual expenses at age 60. So if you are 60 years of age and your annual expenses are say Rs. 6L, you need about Rs. 2 crores – and that has to be well managed. Assuming that you have already paid for your children’s education, marriage, etc. this means any amount of money over and above Rs. 2 crs is available for risk. Want to play it safe? Ok all money over and above Rs. 3 crores is available for risk. Say you have Rs. 10 crores, this means you can take risk on Rs 7 crores. This is a new way of arriving at your asset allocation – based on risk and not just on how much to put in debt and how much to put in equity. As you age, you MIGHT BE ABLE TO put more into the risk basket – remember you may be managing this for your grandchild and so have a 100 year view and not just a 20 year view even if you have turned 80 years of age.