Wealth-Forum e-zine

Are we making Abhimanyus out of our investors?

Sunil (Mister Bond) Jhaveri, MSJ Capital, Gurgaon

We ask investors to enter markets bravely and weather extreme bouts of volatility without an exit strategy in place. Many get singed by volatility and redeem at a loss, and then we blame their irrational behavior for their losses. Are mantras like “buy-and-hold” and “SIP-karo-aur-bhool-jaao” making Abhimanyus out of our investors – perfecting their entry strategies without equipping them with exit strategies, asks Mister Bond. Is it not time that we recognize the need to provide them with strategies to proactively deal with volatility rather than just telling them to be brave?

Let me ask this question to the MF Industry participants; especially AMCs employees and Advisors: did you or did you not panic as Investors (in your individual capacity) when markets corrected by more than 60% in 2008-2009? Did you follow the advice imparted by you to your Investors viz: Did you stay invested? Did you add more investments? Or, did you also panic and exit during this market carnage? If you are really truthful, answer would be in the negative i.e. you did not follow your own advice (meant for Investor ears and consumption) and you also panicked and exited during this carnage.

If that be the case, then how do you expect your Investors to follow these Mantras like Buy and Hold, SIP Karo Bhool Jao? Are these not counterproductive? Are we not being complacent by giving such advice and saying that we told you to hold but you did not heed our advice and hence there is loss in your portfolios? So, don’t blame us for your “IRRATIONAL BAHAVIOR”.

According to me due to these Mantras; Investors in Equity as an asset class stay invested only for 2-3 years rather than long term. Just the opposite of what we are trying to communicate. Either we do not have the answer to manage volatility and hence giving these Mantras or we are passing the onus onto Investors after giving these Mantras and blaming them for not following them.

For quite some time I have been mrgB30 that every day we are creating Abhimanyus (of Mahabharat fame) out of our Investors – stuck in Chakravyuha of Equity investing. No one gives him answer to his query: “When should I exit or do profit booking?” Naturally, when he cannot stomach volatility, he will exit at first given opportunity, never to come back to this asset class or even to Mutual Fund as an investment vehicle.

Also, we have been concentrating more on “Upside Participation” rather than “Downside Protection”. According to me Downside Protection is more important than Upside Participation. If markets correct by 20%; markets will have to recover 25% to break even. If markets correct by 50%; markets will have to recover 100% to break even. Then why not concentrate on protecting in built profits and create Downside Protection strategies?

Ideally, as I have been saying for a long time (seems to the only lone voice in the Industry); even before onboarding any Investor in any of the asset classes in Mutual Fund space; one should have an Exit strategy in place and that should be properly communicated to the Investor.

I have spoken, written and created videos on Exit Strategy from SIPs and at the same time conducting Webinars on my Smart Investing Strategy which takes into account following three elements to any Equity Investing strategy:

  • Buy and Hold
  • Investing Disinvesting at right valuations and moving between different asset classes like Dynamic/BAF v/s pure Equity and vice versa and,
  • Downside Protection

Another mistake our Industry makes is not correlating market fundamentals to Equity investing. At 7,000 NIFTY we said invest for long term, at 8,000 NIFTY we said invest for long term and same advice was repeated at 11,000 NIFTY. Based on when this call was given, long term stretches from 3 years to 10 years and beyond. If long term is say 10 years then why has NIFTY delivered only 5.22% CAGR from January 2008 to June 2018? Should we not give investment calls after considering market fundamentals as well?

Hopefully, we as an Industry will take note of this big anomaly in our Industry of giving these Mantras and making them counterproductive. Let us not make Abhimanyus out of our Investors and let us guide them on the right path like what Krishna did with Arjuna.

Finally, remember that Investors have an option to go DIRECT. If you have given these Mantras of Buy and Hold and SIP Karo Bhool Jao; then sometime in near future they may just follow them on their own and not require us at all. We as Advisors have to show our value add, manage Investor emotions during volatile times by giving right Exit/Entry strategies. That is what my Smart Investing Strategy does. If you wish to know more on my Smart Investing Strategy, please write to me at sunil@misterbond.in.

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