Credo Capital

The inspiration for this note from Swanand Kelkars article in Mint :How will the markets fare?

This is the most asked question by investors to advisors, truth be told, this is also the most hated question as  the correct answer is ‘ we don’t know’,  but this is seldom the answer. The market expert will say something like “3rd quarter GDP was up but the CAD came down which made the inflation outlook hazy increasing the chances of a …” etc while this sounds as if the person knows what he is talking about, in reality he is saying i-have-no-idea in as many words as possible throwing jargons all over the way.

Why does this happen, in any other industry, say you are  in banking or IT and are senior enough to be considered an expert, you would be telling if asked by a friend how is your industry, you can say this is where the industry is and these are the positives and negatives and this is how the industry can fare in future.Now this is itself tough in industries with clear data, growth projections etc. as things change fast. IT was supposed to grow at a healthy space but now many entry level jobs are being automated leading to slower growth.

In stocks markets however it is almost impossible to predict short term movements, as there are too many factors which are never clear in short term. However in the long term ( 7-10 years at least) equity markets are clear as sky, Companies sell products and make profits, the economy grows, and equity prices of these companies grow, the NAV of your fund which has these stocks grow, that is all.  While the returns can be higher or lower, one is likely to get a good return compared to other options.

But if you are investing for short term, say a year or two, it can turn out to be good or disastrous, we will know which after a year or two !

So, instead of focusing on how will markets move, which no one can predict, Focus on things you can control, your own finances, how much you can save and invest. Invest for the long term,  Check the portfolio once a year and think of how to earn more money in your profession and save more money in your expenses rather  than how will markets move. You are likely to be in a good place if you do that.

Merry Christmas and Happy holidays

Being a financial advisor is a fascinating profession, many new investors think that our job is to find the best investments and we think that our job is to get the asset allocation ( between various assets such as equity, debt, real estate etc) right. For investors who have been our clients for long the conversations are always about upcoming financial goals, surplus available to be deployed, past real returns and likely future returns,  never about the best fund or investment. Less time chasing the best fund and even lesser time discussing direction of markets.

There is no point in getting 30% return in equity in 2017 when you have 10% of your assets in equity.

So, firstly i feel that  an advisors real job is asset allocation, not bringing you the “best” investment option. No one can with any accuracy say which asset / fund will do the best year on year.

Secondly and even most importantly the advisors job is to stand between the investor and his worst financial mistake. Some one i know ( im sure you know many like him too!)  had bought a large flat in suburb few years back, Now after almost 5 years he is paying the large EMI but receiving a small rent if he is lucky as most of the time the flat is empty. He can neither sell this now as there are at few hundred unsold apartments in the complex. So, he is stuck paying large EMIs for next 15 years or so and get small rents in the meantime and hope for some good time to sell it off.

A retired librarian who went to bank to renew FDs was sold pension plans and other policies instead with lock in ranging from 5-20 years ! Many of these investors though affluent lack a financial advisor and do piecemeal investing, they have a broker for real estate, some agent for PPF, banker for investments etc with the result that after some time, they don’t have a clear picture. They dont have an advisor but a salesman for each product.

Imagine if both  had taken some good financial advise, A real financial advisors job is to get your asset allocation right and stop you from making bad financial decisions that can not be undone for decades !

Yes we are all biased in one way or another but at least the bias of a financial advisor / planner is lower as client interest comes first and product sales is after that. And, no advisor / planner will suggest things with 20 year lock ins unless it was absolutely necessary ( annuity for retirement etc and even then only after explaining the lock in involved).A good advisor / planner will actively dissuade a client from bad investments.

Have a good advisor to get your asset allocation right, more importantly to stop you from bad financial decisions. If some one says he can get you the best investment year on year or makes some tall claims be rest assured that he is not likely to be a good advisor !