When it comes to investing, you think bankers are smart? What about Chartered Accountants? What about IIT, IIM graduates?

Well, there is no holy grail. I can assure you.

There are some simple rules of investing – diversify, do not invest in direct equities unless you have a great broker, or are willing to learn the nuances yourself, don’t chase hot returns – manager or sector, don’t think you can outsmart the market. In fact if you just take care of these – and keep increasing your investments, you are done.

However I have seen bankers, professors of accounting and finance, senior executives in nbfc, etc. make a holy mess. They have worse compounded this by starting late, buying unwieldy properties, paying too much EMI and worried about holding jobs. Many of them need about Rs. 10 crores for retirement (given their Rs. 4L per month expenses) but will be able to generate that only by age 59!

So, do not aspire to invest like bankers – you are better off copying the share brokers (of old) and not current bankers.

Why does this happen?

a. Overconfidence: “Nobody can beat the market EXCEPT ME”. Many of them do direct equity and if they have done well in equity investing, it is just because they worked in a good company where they got Esop from time to time eg Hdfc, Hdfc bank, Infosys, Indusind bank, Axis,….In fact many of them sold off all the esop because they thought it was terribly over priced :-). So those among them who did not think it was over-priced are still holding on to the shares.

b. Avoiding equity: Under the careful tutelage of their ‘sarkari’ parents many of this gen avoided equities and they believed that ‘earning well was enough’ and money management was not necessary. Shocking as it might be, they did read about asset allocation, power of equity, they saw their friends prosper, but they still kept out of equity markets.

c. Trading and Futures and Options: I met one promoter of a business who has been doing FnO for the past 8 years. Not too much of big stakes but regularly, almost every month there is a position that he takes. Luckily he has kept track of what the earned – the figure is a – 39000. IN 8 years if you have just lost Rs. 40k – this is without considering his time costs, telephone costs, accounting, filling it in the IT return…etc. it is surely not worth it. However, he is much better off than another professional who has lost about Rs. 4 crores. However, he is a doctor not a finance professional! Then those who try to time the market – regularly and either make very little money or lose big money.

First, whenever anyone tells you that research “proves” a novel method of investing (reverse indexing, weighted indexing, indexing + buying put options on psu shares – are all not indexing, they are active management couched as indexing) is a market beater, remember it is a joke. Either the guy who is selling it has no clue about what he is talking, or he is representing a fund house whose managers have never ever back tested these theories! Bear in mind in India we do not get the portfolio of the board of directors, the Trustees, the fund manager, the Relationship managers of the fund houses and banks. Also in the real world we have trading costs, brokerage, asset management charges, taxes, and other expenses. So post all that the results could be, really different.

Even many of the people who know best may not be able to resist chasing hot stocks. Remember Yudhishtir in Mahabharata when he was invited to a game of dice! You, are a mere mortal, so you have to control your behavior in advance. Put 90% of your money in low-cost funds and do a SIP into some equity funds, balanced funds and debt funds. This will reduce the funds you have for fooling around in the market.

Speculate with just the remaining 10%! Clearly if cricket is not your career, you will play only in the weekend, right? On a Monday morning you will be in office not at the nets practicing. Exactly like that direct equity investing should be a weekend activity – small portion of your money, not a full fledged activity. Use very strong rules, use a checklist of buying criteria to make sure you never buy a share just because it has gone up (or going up). You can buy a share from a person who does not want it any more – and remember he has a solid reason to sell – just as YOU think you have a nice reason to buy!