a few days ago I wrote some 4-5 points on deadly investment mistakes that have ruined wealth…here are a few more…

1. Investing in a high flyer company: when things go wrong all his businesses are impacted. So if say Vijay Mallaya had an Nbfc do you think the airline failure would not have impacted that? Suzlon was a darling of the press when he took over a company in Germany (remember the name?), Sun Pharma took over Taro (long bloody battle). So suddenly if something goes wrong with one part of the high flying business, the PE for the group changes and changes dramatically. Having all your shares in Tech stocks, or sugar or….does not matter. If it is a high profile entrepreneur with a pe of 34, you know YOU run the risk. Here your high profile risk, concentration risk, liquidity risk will all play a role in decimating your portfolio. We have seen it so often!
2. Investing in companies which are high profile and stay like that for a real long time. Take ILFS. Many of us used to wonder what entitles the top management to such high salaries. Then you did not know whether it was your own subtle jealousy or you were completely out of touch with the salaries market. When I did my CA the salary limit was Rs. 1.35L PER ANNUM in the Companies Act. So I could not ever reconcile myself to Rs. 25 crores salary + Rs.360 crores of stock options. I did audits of companies which had this kinda turnover!! So when I heard of those kinda salaries I just balked…but had no clue how to react. I stayed away from ILFS due to personal reasons – though I kept flirting professionally – I never owned any of their shares. In fact I have had arguments with one Value fund manager about Noida Toll bridge. Ha that was a famous fight, and I am not getting into those details here.
3. Style Risk: Just like concentration risk some fund managers chase one particular style. Dividend yield, or mnc or …and this means you will end up chasing some companies immaterial of pe. For example PnG, Colgate, Gillette, even Apollo Hospitals – have always got very high PE. At what stage do you choose to get out of the value trap or style trap? difficult if you run a concentrated small portfolio – but remember they made you a lot of money in the past. Keeping emotions in control is tough for a small / retail investor. At least a fund manage works with some rules..and supervision. They still err…
4. Fraud: almost impossible to detect till the end. Vakrange. High flier, now reduced to a rubble. From Rs. 400 to Rs. 40. Has been a painful journey. Looks like the end. Suzlon. Kwality Foods. I am just picking up the recent and clear examples. Remember I do a lot of work with a lot of Nbfc – so I am not in a hurry to name them all. (I had Varange, have Suzlon, was lucky to sell KF at 150+).

more to follow…