Lies, lies and Statistics…
Well there is a very old saying ‘Figures do not lie, but liars figure’. NO clue who said it, but it is a line that has been in my training material (on Mathematics) for the past 11 years at least.
Lies can take many forms. One is suppressing the truth and one is suggesting a false statement. How you present the data is also very important – at least as far as the presenter knows human psychology, it is.
Today I was going through a website where a person had asked ‘I have x amt to invest…where can I do a SIP’. The answering media company also has a rating business. Now if you give a person a list of 4-5 options, the chances are he / she will pick up the first two. The probability of picking up 4 and 5 are well, remote.
Lists have to arranged by some particular order – alphabetical, ranking or returns (over some sensible period). Fair enough? Can any of my readers (please) explain the following ranking:
D **** 15%
F **** 14%
F **** 14%
T **** 18%
H ***** 20%
I did not understand. I know Ritu Kant Ojha (an ex journalist) can explain this to me. Come on Ritu kuch to batha…
Raghav
In fact i observed the same thing. More over, the first 4 funds are just 4 STAR rated and the last one was 5 STAR rated..How do you justify? Blame on oneself relying on these websites planning their retirement.
pattu
questions like these are quite common at value research and the list resembles their 4-* and 5-* funds with annualized returns. I dint like giving star ratings to MFs since they seem to take performance in the immediate past only and not lat 10-years or since launch. Such a thing may not work with funds like magnum contra. Money control also seem to doing the same thing.
subra
rating is always BACKWARD looking. One MD of a wealth management company came on ET TV and said “ELSS have given a 30% return over the past 5 years…so for your 80C you should put the whole thing in ELSS”. Of course we all say ‘the past is not an indicator of the future”. Aw bull.
What ‘experts’ say is not important. How people use it is imp. Which means Rating helps only the salesman to churn. Not the investor. Especially if the revenue source is advertising.
Selva
Hi,
I also read the article you are referring to in their website. After following their fund recommendations for last few years, I get a feeling that even though their vision is to be neutral (as they state in their print magazine..in Editorial section), they also attempt to keep their advertisers in good humor. I am not sure whether they recommend funds that are in 3 star and above in some order so as to cover all the funds or just specific picks so as to please their advertisers. Of late, I use their recommendations and ratings with a pinch of salt as they kept recommending the funds that are average performers (like HSBC Equity, Magnum Global, Franklin Prima, etc,etc) till they reached their worst performance and they abandoned them once for all after that. Now I see that they keep recommending funds like Magnum contra(with statements like it is a contrarian pick and its time will come again…), even though it not consistent and not different from other diversified funds. I feel it will also become part of history in their recommendations very soon but by that time lot of people who blindly follow their recommendations would have bought that. Having said this, I find their portfolio manager and the fund information to be very handy for my analysis. So I still read their magazine as well as their site to get all the ‘data’, and then derive meaningful ‘information’ using my little knowledge that I have built over the past few years. With this, I hope that my portfolio will have better picks than blindly following their recommendations.
– Selva
bharat shah
any way i am a fan of the site, which is analysing all indian mutual funds very nicely. i think that the answer does not lie any way you suspect. it is clearly mentioned ‘It would be wise to opt for a large-cap fund and a large- and mid-cap fund.’. In the list first two are large cap and the rest are large, mid cap. so where is any indication to favour a particular fund? for rating methodology if i am not misteking, it is based on 3 years/ 5 years performance on particular month, and it is always insisted that the star rating is only to indicate the direction of the performance and not buy/sale recommendation. kindly don’t misunderstand me- i am also fond of subra , pattu, manish chauhan ,for educating the investors like me through your sites, blogs! thank you.
subra
nowhere have i have said I suspect. I just think ranking sites cannot afford to be funded by advertising that is all. Also when a person says ‘I wish to do a SIP’ why not take a SIP return after considering the entry load into account? These are the questions that ‘investors’ should ask….that is all. I hope people are asking. For myself I do my own fund analysis….
raag
Subra Sir,
You didn’t answer the question that you had posed in http://www.subramoney.com/2010/08/typical-but-stupid-advice/. Please provide your thoughts on that blog post.
raag
Subra Sir,
Pardon me if i am asking something stupid but you said “why not take a SIP return after considering the entry load into account?”. I thought entry load has been abolished. If you meant expense ratio, won’t that reflect in the NAV itself and hence, the return itself. I mean NAV would be calculated after expenses of the AMC into account. I think returns should be calculated after taking exit load (if any) into account. But, most funds don’t even have exit loads if held for a decent length of time.
BTW, what are your thoughts on Quantum Long Term Equity fund? Looks to be a decent fund to me although their expense ratio is > 2%.
Ritu Kant
Subra, I cannot name and directly say anything. My simple answer is that these allegations cannot be denied. It is a pure business for everybody. I think the onus is on the retail investor/individual. People do not want to take out money for advice. They spend hours and hours to scout free financial planning software, seek some random advice from bloggers (who may or may not be reputed), copy paste same question to all blogs/websites. The number of queries media houses get is mind boggling. I remember my Fund Ka Funda days in Star News. It used to be crazy with so many questions. Anyways what I feel that too much cannot be explained in a 2 line reply or 20 second chat in a show. What I can say for sure is that most of the ratings by ValueResearch is correct. And Dhirendra for one has maintained that past performance is not an indicator of future returns. Even Moneycontrol ratings are more or less decent; or for that matter Morningstar ratings too.
subra
first of all there is no allegation. Ratings are a joke – everybody in the business knows that. If you cannot look forward, you should not. “I cannot look forward, so I will look backward – AND HOPE the future will be the same” is a joke. MOST people use rating as a FORWARD looking statement – FORGET WHAT PEOPLE SAY – can send u clippings on what people say. Funds who advertise stand a better chance with words like ‘do not worry about underperformance for 3 quarters…it is a long term player’. THERE CANNOT be independence UNLESS the client is paying you and THAT IS YOUR ONLY income. See what Mercer does – they charge a fee from the client ONLY even for doing a due diligence on their back office.
Avi
Hi Subra
Your point about ratings is valid. But that apart, do you think the funds suggested in the article are not worth investing in? I mean, if a casual person reading that article were to pick any two random funds from that list (maybe the 5* one and any of the other 4* ones or even the first two 4* funds in that list), are you saying that his fund selection would be poor? As per my limited understanding, the funds suggested in that list are overall good funds with good track record. I believe the website you referred to is definitely a reasonably good guiding beacon for an average joe investor who seeks better returns than a fixed deposit. There are ofcourse more sophisticated (paid) solutions available for the slightly more sophisticated investor.
Please let me know your thoughts on this.
Thanks
Avi
subra
I am not saying anything about the funds. I am saying anybody saying ‘see last year we got 94%, therefore we will get 94% is a joke’. Ratings mislead and mislead bad.
Psychologically people pick the FIRST fund in any list. The probability of picking a fund is enhanced. A good editor should ensure a fair list – alphabetically, 3 year rating (why not 5 years? or 2 years?), based on aum,..based on standard deviation,…????
Far more importantly if people substitute blogs for financial planners, I think they will be sorry. Very sorry. What is generic and what is specific is not clear – blogs are generic, planner is specific. Mixing will create pain. Lots of it.
subra
this title is actually a statement made by Disareli – when he said
Lies, Damned lies and statistics!! – so that is the origin, not the article. This is my last post on this subject.
amol
subra,
little confused. In one of the reply you said “why not take a SIP return after considering the entry load into account?”
As per my little knowledge the entry load is removed on mutual fund purchase. Do you mean expense ratio or related ?
btw, article is good.
Srinivasan M
Hi Subra,
I don’t understand why you are making such a big deal out of such a small and simple issue. Anybody who doesn’t know English, or who is not a Financial expert like you, can easily see the numbers(by the way only assumption is they understand numerals) and select from the list. And for stars, even an LKG will know five star is better than four stars. So let us stop sarcasm in small things. And subra please write on serious stuff, which made you a millionaire, if at all you want to disclose. Please open up, and say how you’ve selected stocks, how to pick a fair value for a stock and buy it etc…Thanks, Srinivasan M
sai
Hi Sir
I am follower of your blog.
I cant afford a financial planner.so i have to depend on analysis of the sites mentioned in the discussion.please help us in picking the right mutual fund by telling method only.No need to recommend any specific fund.
Asoke
Taking a cue from what Mr. Srinivasan M is saying..all I have to do is buy a 5* fund, and relax. Of course 3 months later if this fund is down graded to say 4*, I should sell this fund and buy another scheme. I hope this is right Mr. Srinivasan?
Such a simple thing – does it deserve a post? I would also like to ask that question. And please write on serious stuff (and give it to us free – after all why should we pay for a free website?). We are here to learn..but we do not like to pay fees that is an issue..LOL