You’ve been our clients for many years. You know that we are completely against chasing performance. We don’t believe in churning portfolio. We make changes, only if it is extremely required. We look for long term performance, consistency, losing less in bear markets and ability to navigate multiple market cycles. We are very choosy about the fund houses and funds we work with.
Why I’m restating the obvious? I sincerely believe the kind of value addition we do with less tinkering of portfolio, preventing you from doing many wrong things and making you do the few right things needs to be shared once in a while so that more activities are not equated with good advice. In fact in investing, a good advisor would ensure minimal activities. More activities are harmful for the portfolio and lead to bad outcomes.
I was reading the current issue of ‘Mutual Fund Insight’. They have taken a period of last 10 years, January 2007 to December 2016. Let us assume that you believed in chasing performance and investing every year in the previous year leader (the best fund in large cap category). You would have invested Rs.1 lakh in Janaury 2007 in Reliance NRI Equity. In 2008, you would have moved to Sundaram Select Focus. Like that you would have invested in ten funds over last 10 years.
As on December 31’st 2016, by doing the above performance chasing, you would have ended up with Rs.1,47,704. An annualised return of 3.93%. You would not have earned even the SB A/C return by investing in equity mutual funds, that too all top performers of the previous years.
Let us assume you instead stayed invested with Reliance NRI Equity for the last 10+ years. As of yesterday, the last 10 year annualised return is 12.84%. This means, Rs.1 lakh invested 10 years ago is now worth Rs.3.35 lakhs.
Do you see the difference? Bad behaviour got you only 3.93% returns whereas good behaviour got you a decent 12.84%. Beware of the so called Wealth Managers of banks and share trading companies or the unscrupulous advisors who churn your portfolio. They are on the prowl. Stay away from them.
Never ever chase performance. Out of 10 years, a fund would have 3 or 4 bad years. This is applicable to all funds, including the ones you’re holding based on our recommendations. We have stringent yardstick for both selecting and removing the funds. We are not against portfolio changes. But we’ll do it only rarely, purely based on requirements. I promise that neither we would chase performance nor allow you to do so.
An advisor’s value comes not only from what he does but more so from what all he does not do. We would continue to be less active. We would also ensure that you remain less active. Adhering to this would ensure long term outcome of excellent wealth creation for your family.
I would like to end this with a Buffett quote: We will not equate activity with progress. We don’t get paid for activity, but is just for being right.
Happy Investing !!