Long ago, I was told how to use common sense to find out if a bull market is peaking. Yes beyond the PEs and PBVs. When the paanwala, rickshaw driver and the house maid, that is the low income group, start asking for stock tips to make money – you run with yours.
Now, I believe there is a new indicator in town.
A whole new set of people are willing to join in the great bull run. They want to sing in the chorus and have fun with the rising markets.
Remember: Never ask a barber if you need a hair cut.
I can invest my own time and effort to make my own investment choices. I understand what I am after. I have the plan in my mind. I have the discipline to follow it through. I might make a few mistakes now and then but better to fall an learn by oneself than burn fingers based on someone else’s advice. I don’t need investment advice.
I believe an advisor by the virtue of his specialisation, possesses more understanding and knowledge of the subject than I do. It is good to access and benefit from the same to compliment my own effort to build a solid investment portfolio. Plus the advisor helps me keep a control on my urges to act strange or invest in “fancy” products. I want this investment advice.
“Where will the markets go from here?” Ravi asked putting the coffee mug down.
“Why are you asking that?”
“You see Sensex has hit 30,000. The markets are overheated. Do you think I should book some profits?”
“Why? Do you need the money?”
“No, I am just… scared. What if the market falls, the gains made so far will be lost.”
“Don’t worry. Even if it falls, it is likely to come back in due course. And what is this all time high worry. If the markets don’t reach their all time highs, how will they move forward. It is just one step in the journey.”
“I understand that. But everyone is saying, there will be a correction for sure.”
I made my first investment in mutual funds on Nov 5, 2004. It was a tax saving mutual fund.
Before that, I was investing in stocks too. I invested in a few including an IPO. But stock investing was too much to handle for me. Given my laziness I could never make the effort to build a decent stock portfolio. (Yes, I believe it takes work.) I sold the IPO soon after pocketing some nice listing gains.
Now, the next best option was investing through equity mutual funds. I invested these ready made stock portfolios managed by some of the best minds, read, fund managers.
It has been so far, so good.
However, for the last few weeks I have been thinking, in fact rethinking, my decision.
I have been evaluating the other side of mutual funds. Yes, they have a lot of good features but then every coin has two sides. Here is what is going on in my mind.
“I made a couple of amazing investments today”, announced Nikhil. His voice was brimming with excitement.
Nikhil and I had recently become friends.
“OK. And what are those?” I was curious.
“I have applied to this new fund offer of Select micro cap series N. The fund house is known for its stock picking skills in this category. In this new fund too, they will pick the best of the micro sized companies. In fact, the past returns of such offers has been in the 30s.”
It looks like Nikhil was sold big time on this new fund. He himself was sounding like a fund salesman. “Is this a closed ended fund, I mean is there a lock in?” I queried.
“Yes, 5 year lock-in. But that is OK. Micro caps need that much time.” This was further proof. The AMC should actually consider hiring him.
“Who told you about this fund?”
“My bank relationship manager.”
“Oh! so you bought it from the bank.”
As a part of my advisory, I look at investor portfolios and discuss their investment decisions. Almost every time I am surprised.
I recently looked at a portfolio of an HNI investor.
My learnings – 10 ways to destroy an investment portfolio. Read it carefully.