Change in difficult

I am a sucker for quality writing and twitter has exposed me (and anyone interested) to a host of writers who are able to produce writing of a quality that is seldom available (and much of this is actually free, think about that).

Just this morning, one of the bloggers I never miss to read tweeted this

People in the investment industry spend far too much time trying to convince others about things they’ll never change their mind about

— Ben Carlson (@awealthofcs) September 24, 2015

Reading the above tweet made a lot of sense of why despite tons of data and articles, investors rarely make the right choices. Changing one’s view requires one to first accept that the current view maybe wrong and who in the right mind can accept that challenge.

Writing in his novel “Unwind”, there is a dialogue between two characters and I quote

You can’t change laws without first changing human nature.’
-Nurse Greta

You can’t change human nature without first changing the law.’
-Nurse Yvonne”

The finance industry is one where investors are taken for a ride and most of the time its despite the investor not being as clueless as he is supposed to be.

Take for instance the huge industry of advisory, specifically stock advisory. Just a simple google search for “Nifty Tips” gives me 3,38,000 results. Adding more options will (Commodities, Stocks, Forex) will needless mean a even bigger number. While there would be some amount of overlapping, I am sure we can hypothesize the size of the Industry.

With a intention to regulate the Tip Community, SEBI came out with new laws making it mandatory for Advisers to register with SEBI. When I checked the list yesterday, I could find 313 (not all of whom are Advisers who advice on what stock to Buy / Sell) which IMO is too minuscule a number. I am pretty sure that if you were to watch all business channels for a week, you will find more advisers than that number.

But leaving aside that, while in a previous post, I welcomed this attempt to regulate by SEBI, I had my worry on what exactly it would mean other than the fact that you had to put in a registration form and pay a fee to SEBI.

In a age where most of us stumble on managing our own finances, advising others isn’t easy and yet, there is nothing to say that a adviser needs to have some professional qualification (and am not speaking about MBA either).

Earning any degree requires one to master the art by studying for years and then passing the exams which try to determine how good your concepts are. But what if I was given a degree for just registering and paying a fee? You would straight away tell me that all I have is a “fake” degree.

Just today morning, a financial adviser writing in a Financial paper wrote and I quote

“Have a mix of around five asset management companies (AMCs) for a portfolio; and a choice of two-three schemes within each AMC”

With 15 schemes are you really better off than having say 2 schemes? Is there any data backed evidence to say buying more funds (which have plenty of overlap of portfolio given the fact that the whole Mutual Fund Industry has very few stocks which it can easily pick) will provide one with a lower volatility of return?

I have in the past written about why Direct is the way to go for the Investor (if he is inclined towards mutual funds) and yet, the whole business of distributors passing themselves as advisers is a never ending saga. Is your distributor really providing you with information worth paying for?

These days, its all about investing in SIP for long time with the anticipation that thanks to compounding, you will be able to reach your goals?

The other day, I tweeted this picture

This is based on test I did on Sensex (n = 417). How many advisers have preached that, there is this possibility of the fact that the market value of your investment after 10 years of constant Sipping month after month could still be in negative territory?

I have not used MF data for above test since I do not have access to Survivor Free Mutual Fund databases. Using data from websites shall give you wrong results since they don’t include funds that failed and got merged in between. All you see are the winners.

To me, Advisory is one of the easiest way to earn a living in markets. No one has a clue other than the fact that maybe he is a better salesman than you. Yet, people pay good money to listen / invest on recommendations by folks who are able to talk their way through bullshit if need be.

A ex mutual fund manager who has a terrible record as a Portfolio Manager is now a SEBI registered analyst and comes on Television advising one and all. Do you really want to listen to guys such as these whose own history is strewn with losses (and that too in bull markets no less).

To conclude, I am not surprised to find reports suggesting that the average investor severely under-performs the market (based on US data). After all, he has made up his mind on the fact that Passive is bad and Active is good and no amount of good advise is going to change that.

Post Script: The pic had wrong data for Best Gain and Worst Loss. Thanks to Karan for pointing it out