An investor’s biggest enemy is the investor himself.

How Does Your Behavior Affects Your Returns on Your Investments?

It is a known fact that the returns of an investment instruments (say mutual fund) and the actual return of an investor vary significantly.

Why is that?

Before we take it up, let’s look at this question.

Is it advisable to continue SIP for ICICI Prudential Dividend Yield Equity Fund Growth Direct Plan (return of -3%) and ICICI Prudential Multi cap Fund Growth Direct Plan (return of 2.1%), Started SIP from May month (this year). Present performance of the funds is too low, Can you provide me a solution to switch with other funds or redeem at this moment.

I get such questions often. You can ignore the amount. I can add a few zeroes and easily it can be a question from another investor. I see it all around including with people I know and care about.

To a large extent, the question also contains the reason for the difference between investment returns and investor returns.

The investor behaviour is in stark contrast to what is required to get market returns. This difference is known as the behaviour gap.

Okay! What should be the ideal investor behaviour? ……….. A systematic approach where the investor would

1. Identify his goals
2. Define his own risk appetite
3. Assess his current financial situation (income, expenses, assets, liabilities)
4. Identify his asset allocation or how you will diversify your portfolio
5. Select the investment instruments in line with asset allocation and risk profile.
6. Review periodically and rebalance investments to derisk the portfolio and maintain asset allocation

But what does the investor actually do:

• Invests a tiny portion of his investment into mutual funds or stocks.
• Invests a disproportionate amount of time on this tiny investment portion.
• Becomes obsessed about the highest returns.
• Acts on hot tips promising 15% returns instantly.
• Churns frequently from one fund or stock to another.

Goals, risk, asset allocation are all thought of some hi-funda concepts with no role in this investor’s life. Consequently, his own behavior neutralizes the returns which his investment could have generated.

With zero focus on risk, asset allocation, diversification, rebalancing and the goals, the investor keeps running around like a plucked chicken.

Most investors lose money as well as confidence. They give up any hope of building a sensible and smart portfolio.

An investor’s biggest enemy is the investor himself.

And it is so difficult to beat this enemy.

It is not impossible though.

How to Change Your Behaviour?

This is how it can be done.

• Figure out your goals and the requirements and how will you diversify your portfolio. Then go after it like it is the only thing that matters.
• Save more and invest more – Specially, in the initial years of your life. More than changing funds, this will help you build the big number to let compounding magic work for you.
• Have patience. Stop expecting a mutual fund/stock to deliver immediately.
• You can do without generalised advice from friends, colleagues, family, blogs, portals, magazines to build their own portfolio (yes, it applies to this blog too). You have to put your own context to your investment decisions. An FD can be good for one and a debt fund for another.
• Don’t just try to ‘do it yourself‘. Also invest time to learn how to ‘do it yourself‘. Getting some help and advice doesn’t hurt.

Easier said than done.

What is your own behaviour with your investments? Are you working on changing it? Do share with us in the comments.

Rajiv Kapoor

9839034761

Why investors do not listen to good advice?

Many investors say they can't take risk but still go ahead and invest randomly for short-term gains  

Of late, in my sessions, I have been getting a lot of queries about bitcoins and cryptocurrencies.

I recently addressed a group of middle-aged college teachers who were averse to investing in equities but were keen to start investing in bitcoins as the next best investment after real estate.

When I informed them about the risks and tried to advise them against cryptocurrencies, I was met with disbelieving looks and the general attitude was of ‘we know it all’.

One of my co-worker’s 75-year-old uncle, who had invested in traditional investments all his life, called her to ask her to check if he had shortlisted the right funds for investment. All the funds being considered were the best performers of the past 1 year and included small-cap and sector funds.

To make matters worse, he was planning to hold these investments only for 2-3 years. Despite her warning him about the pitfalls of this strategy, he invested in these funds saying they had given 30% returns in the past 1 year and even if there is some volatility, he would still make 15% returns.

What amazes me is that time and again people continue to make the same mistakes. They say they can’t take risks but buy at high and sell at low, driven by short-term returns on instruments simply because they feel they have lost out on past returns.

As a financial educator, I find people to be very defensive about their investment choices. The same individuals would be buying stocks based on advice from relatives or co-workers or based on stock tips on TV channels and websites. In these cases, good advice is not believed, as people want to justify that they have done the right thing.

The same is true for traditional insurance investments. People don’t like hearing that they have invested in sub-optimal instruments, which had been the ‘go to’ investment for many decades. Generally, if the advice is in line with a person’s thinking, it is accepted; if it is not, then most would not believe it.

The issue is also that people like to hear about complex things. When they hear simple and good advice, they feel it is too basic. In my sessions, one of the most common questions is what is the right time to invest. And I am met with stares when I talk about remaining invested for the long term in simple instruments like mutual funds.

Many investors are also looking at different products to invest into each time and find the thought of investing in the same product regularly, boring.

Sometimes, individuals feel overwhelmed by matters of finance and are likely to do what they want to, despite getting good advice. With so much information on the internet and from other sources, people get confused, which leads to wrong decisions even though they may be getting the right advice, as is the case with my co-worker’s uncle.

Essentially, people don’t listen to good advice because: 

• they feel they know better, even though they have no experience,
• they don’t like hearing negative things about what they have invested in,
• they think complex-sounding investments are exotic, and
• they are confused.

Unfortunately, most investors learn the hard way and only a few actually make any change. Investors are happy to blame product manufacturers for losses, rather than their own behaviour.

Most investors seldom think of a financial plan or goal-based investing. In the case of college teachers, when asked about their goal for investing in cryptocurrencies, the common response was: ‘to get good returns’.

And this is the way most people invest in India, without a goal in mind.

Unfortunately, the number of financial planners is low and investors are not willing to pay for financial advice.

Government and the regulator needs to ensure that the critical subject of personal finance is included as part of the curriculum during college studies.

In the meantime, financial advisers and educators should take heart from this Agatha Christie quote: “Good advice is always certain to be ignored, but that’s no reason not to give it.”

Rajiv Kapoor

9839034761

KEEP PACE WITH TIME - INVEST IN MUTUAL FUNDS

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आपने कभी ध्यान दिया है..?

आजकल बाज़ार में हर तीसरी दूकान आजकल मोबाइल फोन की है।
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दुनिया बहुत तेज़ी से बदल रही है.. आँख कान नाक खुले रखिये वरना आप पीछे छूट जायेंगे..।

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चौथी औद्योगिक क्रान्ति में आपका स्वागत है...

Uber सिर्फ एक software है। उनकी अपनी खुद की एक भी Car नहीं इसके बावजूद वो दुनिया की सबसे बड़ी Taxi Company है।

Airbnb दुनिया की सबसे बड़ी Hotel Company है, जब कि उनके पास अपना खुद का एक भी होटल नहीं है।

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*समय के साथ बदलने की तैयारी करो।*


HMT *(घडी)*
BAJAJ *(स्कूटर)*
DYNORA *(टीवी)*
MURPHY *(रेडियो)*
NOKIA *(मोबाइल)*
RAJDOOT *(बाईक)*
AMBASDOR *( कार)*

 मित्रों..इन सभी की गुणवक्ता में कोई कमी नहीं थी फिर भी बाजार से बाहर हो गए.!!
कारण...
*समयके साथ बदलाव*
*नहीं किया.!!*

इसलिए...
व्यक्तिको समयानुसार अपने व्यापार एवं अपने
*स्वभावमें भी बदलाव*
करते रहना चाहिएँ.!!

👉 *Update & Upgrade*
*Time to Time.!!*

समयके साथ चलिये और सफल रहिये

म्यूच्यूअल फण्ड अपनायें और समय के साथ चलें

Rajiv Kapoor
9839034761