Conversation between an Investor and his Investment Advisor

 

Investor: What happening in market?

 

Advisor: Market is always good, in long-term

 

Investor: That is fine, but our portfolio is down more than 20% in last 10 months, whereas Sensex is going up.

 

Advisor: Hardly 6-7 companies out of 30 in Sensex are rising because of which it is going up. Broadly, the markets are down.

 

Investor: Why don’t we have those companies in our portfolio?

 

Advisor: Because they are Bluechip companies which are not expected to give good returns in the long run, as these companies are almost saturated. Exceptions can be there, but they are rare.

 

Investor: But as an Advisor, you should have known that these stocks would go up and we could have invested in them.

Advisor ( smiling ): As an Advisor, I am not supposed to know that. No one can predict the market.

 

Investor: Then how would you generate returns in the portfolio?

 

Advisor: Well, by sticking to fundamentals while picking stocks and investing for long term (5 years plus).

 

Investor: Don’t you think anyone can do that?

 

Advisor: Absolutely..!! But Stock Market/Mutual Fund research is a full-time job. If one does that and invests for long-term, anyone can succeed. Still hardly 6% of India’s population invests in Stocks and hardly 10% of these would be long-term investor. My role is not just to manage the portfolio but to manage the temperament of the investor as well, especially in volatile markets. As Warren Buffet says, “Success in investing doesn’t correlate with I.Q… Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing.”

 

Investor: Point taken. But when you are following fundamentals, why are our stocks going down?

 

Advisor: Stocks never rise in linear fashion. No matter how sound the company is, its stock would always rise in a zigzag manner. That’s where the long-term advise kicks in.

 

If good returns were possible every year, why would hardly 6% of India’s population invest in Stock Market and Mutual Funds? It is the volatility of the market which the investors are not able to bear.

 

Investor: I see. So shall we invest more in these times, when the portfolio is down?

 

Advisor: You can but do not regret if our portfolio goes further down from here. As I said, we cannot predict the market. And investing at the lowest point is a matter of chance, not research & analysis.

 

Investor: I get your point. But what if we see a 2008-09 kind of downturn? Quite a few experts are predicting that. What is your opinion?

 

Advisor: I have no opinion on this. It is like anybody’s guess. As Peter Lynch says, “Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.”

 

Investor ( smiling ): You seem have an answer to almost everything.

 

Advisor ( smiling ): Well, I became an investor first before turning into an Advisor. It is the experience, knowledge and the temperament which keeps me going.

 

Investor: What is the bottom line? What should I do?

 

Advisor: Keep investing as per your goals, stop predicting the market, do not look at your portfolio more than thrice in a year, liquidate when the goal arrives, invest more when you have more for long-term else stick to your systematic investments.

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