19.10.2018
दशम् हरति पापानि इति दशहरा।।
Heartiest
felicitations for “Dusshara” or Vijay Dashami”. This festival is celebrated as
symbol of win over sins. Ravana or Dashanana represents the ten sins of
Kama-Vasana or Lust, Krodha or Anger, Moha or Attachment, Lobha or Greed, Mada
or Over-Pride, Irshya or Matsara or Jealousy, Swartha or Selfishness, Anyaaya
or Injustice, Amanavta or Cruelty and Ahankara or Ego.
In
our lives we fall prey to these sins or evils, get a high for brief period before
suffering their consequences. Each year on this pious day we reaffirm our
resolve to try and win over these sins in our daily lives. Ever wonder we do
commit similar sins with our investments. Let’s us discuss ten investing sins
that we should resolve not to commit with our investment decisions.
Sin 1# - Investing without
understanding the product – We generally tend to invest on hearsay or
just looking at the past performance. Before making investment, understand the
product well as to – where it invests, how the returns will come, what is the
probability of failure, if there is any life cycle etc. If you don’t understand
the product, don’t invest into it, however attractive, high yielding it may
appeal. Warren Buffet says, “Never
invest in a business you can’t understand.”
Sin 2# - Following herd mentality – Most of the
investors who have burnt their hands in various investments are the ones who
follow herds. As long as an investment option is available to select people,
investors make good profits. But as soon as more and more people start chasing
it, profit margin declines and turns into losses for late entrants who are part
of masses. So avoid any investment opportunity which is chased by herd. “The herd tends to gather the most strength
right before the investment it is chasing goes off the cliff.”
Sin 3# - Seeing volatility as risk and
risk as volatility – Most investors fail to differentiate
between risk and volatility. Volatility refers to price movement on either side
of a product in the market because of a temporary phenomenon whereas risk
arises due to deterioration in business. For investors who are not well versed
with market dynamics and appreciate fundamental and technical analysis, should
connect volatility to markets and risk to individual stock or bond. For mutual
fund investors they shouldn’t worry much as long as they are invested in good
schemes as they face volatility and not the risk. It is vice versa for
investors who invest in direct equity or bond.
Sin 4# Making unplanned & complex
investments
– Every investor has some objectives to achieve in life that would require good
amount of money like sending children for higher education or buying a
house/car etc. They make investment based on the media reports or following
friend’s portfolio or mastering the art reading few articles on website. Kinniry says, “A lot of people build a
portfolio the way they collect things in their attic. This looks good, that
looks good and they end up hodgepodge that doesn’t make much sense.” Also it
is imperative for an investor to have a ‘Buy
Plan or Strategy’ and it is more important to have a ‘Sell Plan or Strategy’.
Sin 5# Being Fearful – Most people
become fearful when markets are doing badly because of any sentimental or
financial factors. Market rides cycles in which a market starts from a lower
values, achieves its highest value of that cycle before coming down. From there
it rides another cycle and makes new high before coming down again. Usually a
cycle takes around 3 months to 3 years to complete. So don’t fear if market is
moving downwards to complete the cycle. Complete the cycle and prepare for the
next one. Most successful investor of
the world says, “Be greedy when others are fearful.”
Sin 6# Being Greedy – Opposite to
being fearful is being greedy of a particular investment product. The same investment guru says, “Be fearful
when others are greedy.” Usually whenever an investor invests in
non-traditional investment product, s/he invests to earn some pre-determined
returns over or within specific period. Most of the investors are governed by their
representative heuristic psyche which do not let them sell the investment if it
had achieved its expected returns. They become greedy and hold onto the
investment unless that starts making good losses.
Sin 7# Not having a planned portfolio – All investment
theories lay a lot of emphasis on diversification. It is achieved by
constructing a portfolio. To construct a portfolio, first asset allocation is
ascertained and then individual products are chosen to achieve required
diversification within a particular asset class. Most investors do not do this.
Their portfolio is built over a period of time by including products that come
in their way and not planned to achieve their desired financial objectives. And
also who are little aware or cautious they tend to over or under diversify
their investments. There is famous proverb in Indian sub-continent, “Excess of everything is bad.”
Sin 8# Rebalancing the portfolio – Different
investments perform differently that causes deviation in the asset-allocation
from the desired one. Therefor a periodical review and rebalancing the
portfolio becomes important. It should be done at least once a year. Some
extraordinary events may warrant an early review and rebalancing of the
portfolio. Rebalancing involves pulling out investments from an asset that has
done better and put it into another asset that fared poorly in comparison. It
essentially involves selling your winners and putting money into losers to
bring back the skewed allocation to desired levels. Though very hard to
practice, it helps you earn the expected returns from the portfolio and achieve
your financial objectives. This never let you chase a hot product and gets you
optimum returns and not maximum returns (an illusion).
Sin 9# Not considering tax, inflation
and charges –
All these three eats into your returns. Many people plan their withdrawals to
be done over long term for example to meet expenses during retired life by
keeping money into so called safe bank deposits. They fail to consider
inflation and have tough times towards the fag end of their lives. Similarly
many people opt for high dividend payout or interest income than using
systematic withdrawal plans which are more tax efficient.
Sin 10# Depending on ‘Main Hoo Na’
advisor or friend – The worst sin probably. Never engage an
advisor who says, ‘ Main Hoo Na’. This person might be one of the best advisors
in the world. But s/he is an individual and may not be there when you need
him/her. Engage an advisor who explains you the product and its risk and return
prospect and who not merely says ‘Main Hoo Na’. Shun such advisor, even if he
represents InvestmentMitra. One who do not explain the investment product and
its significance in your portfolio and merely wants you to invest into on
his/her saying – we term such person a sales man and not an advisor.
Financial Nirvana or Elysium – should you
have made one or more such mistakes, don’t get disheartened. Everyone commit
one or the other or more of these sins, so you are not alone. Prudence lies in
the act that the moment you realize you have committed a sin, take a course
correction. Resolve to win over that sin.
Once again wish you and your beloved
ones a “Very Happy Duss-Hara” or win over ten sins from all of us at
InvestmentMitra.
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