First of all, there are too many ‘experts’ today. Most of the readers of blogs or watchers of Youtube videos cannot distinguish between real experts with real knowledge and chauffer knowledge. Also some people use words like ‘back-testing’, value-investing, etc. without knowing what it means.

Let me give you one example. In the year 2017 and 2018 a couple of banks sold balanced fund as a great product. I am fine till now. Then they said “you WILL get 1% dividend on this for the rest of your life”.

I have 2 problems here – the usage of the word dividend itself was wrong, and such aggressive withdrawal could never ever happen over longish periods of time. In a bull market MAYBE you could do it for a couple of years but to use this strategy for 30 years was at best a JOKE. However it was done by big banks, and at least 2 CXOs of mutual funds told me “Subra I did not know about this”. I chuckeled of course.

I then met an EQUITY expert who said “such aggressive returns are not sustainable”. I said yes. I asked him “what is sustainable” – he said about 9% is sustainable. I said “wow” are you sure. He said “Of course, I have done back testing over 30 years and I find that 9% is SURELY sustainable.

If you did not understand what is wrong with the story, never mind.

The second part of this article is for all of us, and surely very imp for those who did not find the flaw in the above story.

The human mind works well till it meets an expert! When you are asked to invest in a company your mind evaluates it perfectly. It compares the gains, the price that you pay and the potential loss. Thus it is Gain vs Fear. Exactly how you think in theory it should work. However, when you meet an expert the brain just stops working or thinking about the problem.

When I want to buy some equipment I do that. If I want to buy a laptop I have a tech friend and I ask him “which laptop to buy”. If I want to buy a sports watch I have another friend. If I get a medical report I ask a friend who is a cardiologist and ask him what it means. I realize that I am completely at ease, not tense at all, and my brain is completely in “receiving mode”. I just don’t wonder whether it is right. I completely outsource the thinking. However, I know these experts for decades and completely trust them to do what is right for me. Mostly, they do not have any interest in any transaction that happens after that. If my friend tells me “Garmin 920xt’ is the best watch for you, I just go and buy it. Obviously he is head of IT in a bank and not a watch vendor.

Now when you listen to a self proclaimed expert, you are likely to do EXACTLY that. The mind thinks “He is a good fund manager, he has 40k twitter followers, his/her videos are popular, he writes a blog,…..etc. and “therefore he/she is ALWAYS right, and is saying if for my good, does not have a vested interest and is trained in the markets to give me advice”.

Wrong. Most of these experts are not trained in financial markets, have not done any academic credits in markets (or human psychology), do not know you personally. Even worse you have no clue whether they have any interest that you cannot see. Even more importantly they are giving generic advice – and not specific advice applicable to you. I am willing to say “IN normal conditions, equity will give you better returns than debt markets, especially over say 15 years, HOWEVER you will be able to find at least one stretch of 15 years when this was not true”. Or I can say the same thing and then add “remember past performance is not an indicator of future performance”. THIS IS GENERIC advice.

Specific advice is needed for things like asset allocation, large cap vs mid cap, whether to have equity at all, – this is NOT GENERIC. One man walked into my house and wanted me to give him advice. I said “I am not a practising CA, not an IFA, not a PMS manager, …and not approved by Sebi to do advisory work”. He said “Just review my portfolio”. For this man it was a 5 hour to and fro journey, so I had some pity for the travel effort.

However I ended up saying “what you have is a very complicated portfolio, far beyond your comprehension capabilities”. This man’s family had a net worth in 3 digit crores…and one 39 year old was messing it up with the active help of a friend IFA.

If you cannot comprehend why an expert is saying something, stay away. You can do a lot of damage by suspending your thinking. Be careful.