When a fund performs well, investors perform well – fair assumption? Well no. When a fund tells you about its fantastic track record over 20 years, what they are telling you is the time-weighted return. Of course it is true.

However (other than clients who have died) investors do not behave in that manner. They normally notice a fund AFTER a strong bull run and withdraw after a bad bear run. That is exactly how we are wired. So if you have behaved like a typical investor you may have performed very differently from how you SHOULD have performed.

It is sad that India which has a budget for advertising how to use astrology for investing does not have any budget for calculating investor returns. Even schemes like Hdfc Equity or Top 100 (earlier 200) have performed over long periods of time FOR THE UNIT HOLDER. I remember many unit holders who bought at 10 held on for a long time when the NAV went below 10, and then sold as soon as it reached Rs. 10!! Obviously such investors have lost money even in schemes which claim that they have a long amazing CAGR run.

I was inspired to write this when I saw the fund returns (18% from 1999 to 2009) of an American fund where the AVERAGE TYPICAL INVESTOR lost 11% during the same period. Which means a dollar weighted return of this fund would not be too great. Currently in the Indian market if a Naren or a Prashant Jain were to launch a fund they would surely get more (far far more) money than if a fund were launched by say Invesco. However, that is not proof that the performance of Icici or Hdfc will be better than Invesco. Far from it. However once Invesco’s fund manager builds a track record (say 4 years) you will find money flowing in. So the fund manager who knew how to manage Rs. 800 crores very well will start getting Rs. 100 crores a month! Will he be able to manage that kinda money is difficult to answer. Our regulator should ask for Rupee weighted return apart from time weighted return and some of our big funds may not look to great. This kind of data is useful for training IFA – and showing them the importance of Behavioral finance. Our regulator should worry about these things far more. No clue who will do such work – remember it is not easy to do it, and it takes a lot of money and data. Only a regulator can force the Registrar to calculate such returns. AMC may not have calculated or may not be willing to share – unless legislated.

Of course this is an extreme example – the fund started in 2007, people put in the money, and in 2008 – people panicked and removed the money. From 2009 it had an amazing bull run – which the typical investor OBVIOUSLY missed!

It is fairly OBVIOUS that the fund industry (and their paid media) will concentrate on the next ‘big’ opportunity! They know that most of us will use short cuts (Naren has performed well in the past) – backed by a huge ad budget it is easy to sell an NFO. Imagine me writing an article on ‘how to improve as an investor’ – who wants to read 500 words of gyaan with no take away at the end of the article? It is much easier to read an article titled “20 shares to double your money in 2019”.

All the best, please Google it. You may find it. But it will not be written by me.

Who knows? I just may!

Happy new year.