This blog is inspired by an interesting twitter debate that got underway after a mutual fund floated a full page ad on National daily,cautioning the world that the markets are expensive and historically and empirically when you buy at these levels, you burn your hands.
Nothing wrong with the ad you say!! , almost appears spartan and selfless. What can be a vested interest of a mutual fund to tell the world please don’t give us your money.
Turns out we live in a twisted world, Mfs can get away with raising thematic funds for real estate companies in the peak of 2008, or IT companies in peak of 2000 (and I am talking about who’s who supposed blue chip ethically astute companies of our nation)
All those gullible people who bought onto those themes, got butchered so bad, that they developed life long aversion to equity.
Do these MF companies have any guilt whatsoever for this catastrophe, of course not it is functional equivalent of executives and employees of tobacco manufacturing company sleeping guilt free knowing fully well that they earn their livelihood by KILLING People. But a perfect rationalization that they are just part of a system helps them cleanse their sins.
Twisted our world is to such an extent, that not only these culprits go unharmed, a handful of ethical players get punished for their ethics.
80% investors buy equity when it is expensive: and if you happen to be an ethical seller who shuts shop in those times of euphoria, guess what will happen to your market share.
That is what Warren Buffet keeps mentioning in his Annual letter time and again. We back our managers to have a long term view, forego the short term gains. We do not judge them quarter on quarter. This ensures a great culture and good decision making.
And that one statement has a HUGE implication on how an organization works and in turn how an industry works and in turn how a character of a country is built.
All those crook Mfs who were launching the above mentioned thematic funds at the peak of its sector were being driven by quarter on quarter results. They were there for a quick buck at the expense of public. Just in case you are wondering that I am going too far by linking this to character and nation, bear in mind this quarter on quarter result thinking and greed taken too far is what led to Sub-Prime crises in US and we all know what happened after that.
You see, as Taleb says,
when the upside is yours and down side is somebody else’s (No skin in the game) you will be surprised to see how far a human can go to turn a profit.
In my next post, I will try and address a genuine problem of MF investing, they presume that average investor will hold on through thick and thin and if not increase, at least continue his SIP even in bad times. That I am afraid is a WRONG assumption.
You cannot expect above average decision making from average investors. In fact you cannot even expect average decision making from them. So this is a flawed expectation. If I am smart enough to do that, I am smart enough to go the full 9 yards and invest myself. The solution probably lies in customized ETFs. A customized advisory. A trend following system, which cuts the drawdowns to manageable levels. A portfolio of debt, gold, currency and equity rotation based on relative strength. But that is the job of an advisor and not necessarily of MF. A full Blog needed to explain that stay tuned…….
Originally published at www.mysticwealth.in on March 31, 2016.