Is this the right investment?

Once again, I came across this question from an investor, “I have invested in such and such avenue. Is it the right decision?

On probing further, one gets the answers, which have by now become highly predictable for me.

In almost all cases, the investment avenue has a lock-in provision, which means the investor cannot get out of the investment even if one realizes that it is not a right instrument. Why, then, this question keeps surfacing after one has locked-in the money? Is it ok to assume that one did not ask this question before signing the cheque?

Doesn’t it make sense to ask questions BEFORE signing the cheque?

We learn from the story of Abhimanyu that it was easy to get into the chakravyuh, but without knowledge, it was difficult (sometimes impossible) to get out of it. Same applies to an investment with lock-in. Buying is easy, getting out is not.

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Forecast gone wrong – once again!

Today P V Subramanyam posted on Facebook a comment on something he had posted last year.

Here are the two posts:

On 7th September 2015:

Shankar Sharma has called this a bear market..this means market has to drop 25% from here. So the sensex target should be 19000. Take care. 

PS: I am learning to write humor…

On 7th September 2016:

posted this a year back..no clue where is Shankar Sharma…but the sensex is not at 19000 for sure….

Just for records, Sensex closed at 28,978.02 points yesterday. It was at 24,893.81 points on 7th September 2015. So in the last year, it has risen by 16.41%. Does not look like a bear 😉

This is another case of a forecast going wrong. Why do the forecasters keep trying? Why do people keep listening and believing in these forecasts?

Well, there is a human tendency. There is an urge to know the future before it happens. However, it isn’t going to happen to anyone. Here is an excerpt from my book “Riding The Roller Coaster – Lessons from financial market cycles we repeatedly forget”:

There are many small stories in the epic Mahabharata. In one such story, a beggar comes to the Pandavas asking for some help. They are in the midst of a discussion, and Yudhisthir, the elder brother, asks the person to come the next day. Hearing this, his younger sibling, Bheema reminds Yudhisthir of the audacity of assuming that he would be alive tomorrow. This story highlights the importance of understanding uncertainty associated with the future.

Humans have always wanted to know the future. Astrologers and weather forecasters are among the most popular ones who make a living from this need. Someone who can see the future is called a “visionary”. This need to know the future is present in the world of business and finance, too. There are large numbers of analysts and forecasters, who make a living – in fact, many make a killing. However, the track record of such forecasts is not as impressive as one would like.

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Knowledge and expertise are not fungible

“All of them were clearly intelligent and knowledgeable about a great many things – as long as those things had nothing to do with their money.


Most of them simply didn’t understand the principles of investing.”

Liz Davidson, Founder and CEO of Financial Finesse writes in the book “What Your Financial Advisor Isn’t Telling You – The 10 essential truths you need to know about your money”

Financial Finesse is a sort of a helpline in the US for people to get guidance on their personal finance matters. The above lines talk about the behaviour and attitude of generally intelligent and successful people. These are educated and intelligent people, successful in their respective fields of work. However, that expertise and knowledge are not fungible. Expertise in one area may not mean expertise with money.

In the absence of proper knowledge one is unable to understand or see the risks properly. Half knowledge can sometimes be dangerous. As we know from the Mahabharata, it was half knowledge that actually killed Abhimanyu.

As with Abhimanyu, who could not get out of the seventh chakra of the chakravyuh due to insufficient knowledge, many investors have painfully found that it is easy to get in an investment, but it is most difficult to get out of it, if one does not know enough.

Be careful with your investment. If required, take professional help.

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Tomorrow never comes …

There are many small stories in the epic Mahabharata. In one such story, a beggar comes to the Pandavas asking for some help. They are in the midst of a discussion, and Yudhisthira, the elder brother, asks the person to come the next day. Hearing this, his younger sibling, Bheema reminds Yudhisthira of the audacity of assuming that he would be alive tomorrow. This story highlights the importance of understanding uncertainty associated with the future.

However, we have always wanted to know the future.

Often, the experts get swayed by the same emotions and get their forecasts wrong.

To read more “On Forecasting and Expertise”, see the book “Riding The Roller Coaster – Lessons from financial market cycles we repeatedly forget”

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Ignorance, illiquidity and leverage

When you combine ignorance, illiquidity and leverage (or borrowed money), it can create havoc.

Very often, the ignorance is about liquidity and sometimes about leverage. Ignorance may lead to making rash decisions.

Remember the story of Abhimanyu in chakravyuh? (You can read the story here Abhimanyu in Chakravyuh)

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Abhimanyu in Chakravyuh

In the battle of Kurukshetra in the epic Mahabharata, the young Abhimanyu dies while trying to fight the Kauravas in a master strategy called “Chakravyuh”.

There is a very powerful lesson in this story for investors. Abhimanyu got into something that he did not know how to get out of and paid a very heavy price. Very often, investors enter into an investment without really knowing how to get out of the same. The ability to liquidate the investment with ease is one thing that any investor should look for in any investment that carries any amount of risk.

In the words of Warren Buffett: “Invest within your circle of competence.”

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