I have 2 friends – aged about 57 years. They were classmates and are very close to retirement. Their investing philosophies are so different that I could not believe that the accumulated amounts could be so far away from each other. One of them did his MBA and joined ITC – and stayed there for 10 years before he went off on his own. The other person did not study beyond his graduation and held many jobs – currently he heads the sales function of a paper mill.

The person who did his MBA entered the equity market – and called himself an investor. However, he was just a incorrigible trader and traded every day. He was lucky to be a shareholder in ITC for a very long period of time and his portfolio other than ITC is a mess. He loses money every year in the markets and has no corpus to write home about. He would lapse into debt ocassionally and then settle it from his professional income.

The other friend realised that he was no hare. He chose the traditional Indian way of saving (instead of investing) – ppf, lic, nsc, were his mainstay. However he also was bitten by the equity bug and would put small amounts of money into some Fera dilution issue, picked up an odd L&T, Reliance, etc. – but the amounts invested could not have exceeded Rs. 150,000 over a period of 10-15 years. I introduced him to ELSS – and he has been at it for the past I guess about 10 years and with a vengance!

Today the tortoise has a much larger portfolio. The hare and the tortoise story plays itself over in many ways, we close our eyes and refuse to learn. I do not know why.

Lessons:

Equity is a good asset class – but it needs far, far, far greater discipline and knowledge to build a portfolio than what a common man has. If in doubt Index or choose a decent fund manager. The gap between a debt product (with no fund management charges like Ppf) and an index fund (with low charges) is about 2-3% p.a. over a long period of time. However if you pick stocks keep measuring what you are doing. At some stage you need to accept that you cannot screw your own portfolio beyond a poing – of course there is no law against hurting yourself.