Some thoughts on “Do it yourself Investing”
Mahesh had an interesting question he posed
The replies are interesting and many on the dot. But first let’s look at the performance (10 years I assume is a good start)
I am using the Nifty 100 Index not the TRI since even an index fund cannot match the TRI and there is no way to replicate that performance.
Standalone, the performance of the fund isn’t too bad. Yes, there are other funds that have done better, but could one have forecasted that in 2012? If not, the only alternative to consider is the Index since that constitutes the real opportunity cost.
But what if you looked at rolling returns, how does Quantum fare against the Index. Since anything less than 5 years could be random, I am using a 5 year rolling return chart.
For most of the time, the 5 year rolling returns were actually higher than the Index. It’s only if one had invested 5 years back would he see a pretty large divergence.
But despite the performance, the AUM did not pick up steam. 6 years back (the earliest data I could get), the AUM for the fund was 416 Crores. It has grown but not that much. Today new funds are able to raise multiples of that without even a track record.
But this underperformance may not be the new normal. Then again, who really knows how the future shall pan out.
Dev of Stable Investor had a poll running where he asked a simple question – Do you have a financial advisor
80% don’t have one with while 7% believe they require but are for now happy with doing things on their own.
The amount of information that is available to a new investor today is exponentially more than what was ever available and a lot of this is actually free. I for instance subscribe to 100+ substacks many of which have amazing depth of reasoning and yet are delivered free.
I also these days am buying a lot of books, maybe more than what I should but when I look at the total spend, it’s actually less than what many a well known advisor would charge for a year’ subscription. In a way, I feel justified in the expense.
Then there is twitter. The amount of information shared freely is just unimaginable. There are biases of course, but that is par for the course regardless of whether the advice was freely delivered or paid. Look at this tread on Pitti Laminations
I don’t think there is at any point in the past an equivalent to this. During the dot com bubble time, Bangalore Stock Exchange was a hive of activity. One trend that caught the imagination of a lot of traders were pivot levels (Link if you are new to that).
These despite being so easy to calculate were sold for humongous prices. The buyers once they purchased this would keep this in the pocket taking a peek once in a while like an exam student trying to cheat by looking at his chits he has carried from home.
The current craze for the Do-it-yourself investors are small cases which makes it easy to replicate a portfolio. With markets on a one way run, investors are lapping up new products introduced by well known advisors. But do the returns really justify the time and efforts involved.
Momentum portfolios have such a run that Mutual Funds are now getting into the game. Recently UTI came up with a NFO followed by Kotak and now Motilal Oswal. Then again, Momentum is in the hot seat as of now. Nifty Alpha 50 has risen nearly 200% since January 2020. The question whether replication is easy or not I best leave it to the experts.
One of the perks of being in the business of stock broking for a long time is the ability to interact with an enormous number of Do it yourself investors and traders – this even before DIY became as famous as it is now.
But it also provides a perspective. Most do it yourself investors and traders don’t make money, worse many lose multiple times what they came out to achieve. Yet, the spirit of adventure and the fact that the few who succeed make it seem like it’s within reach push even those who aren’t ready to invest themselves to try their hand.
When things don’t work out one can see the frustration in trying to pass the blame – from the stock broker to the exchange to SEBI, whoever one feels could have helped him realize his dream that is now long gone.
Doing it yourself is similar to the last voyage Henry Worsley took.
Even with his deep experience and knowledge, his final mission ended in a disaster. I have in my career come close to dropping into a crevice never to recover and have seen unpteen disasters of others (friends, acquaintances). The success stories get hyped up while the failures are brushed under the carpet.
It’s okay to do all by one-self but if you feel you need help, its okay to connect with a advisor – preferably a fee only advisor so that when you need his help, you can reach out to him and get a different view of the issue at hand and one you already have a view upon.
Henry Worsley called upon the world’s most expensive taxi maybe a bit too late, but that was still better than being stuck with no options to exit even at a price.
Let me leave you with a dialogue from one of my favorite movies
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