With a 20% fall in the indices we briefly touched bear territory. You can now be sure that many large cap funds will claim that in the last quarter they have generated alpha. For all I know they may have beaten the index. If you were over weight say Bharti airtel and did not have too many shares that fell 15% or more, hey presto you would have your alpha. Congratulations.

For me the risk in the Investment business are many fold – one is the impatient investor, the cacuphony of the media, and the far more dangerous one is of course the “socialistic” regulator.

If all of us want to eliminate risk and invest in an index fund, honestly why should there be a reward? why should we not get the same return as a G-sec? I mean where is the risk (media tells you there is no risk in Indexing – India’s Ex-top most fund house tells you in an ad – if you don’t know, invest in an index fund). I am convinced this fund house has no intention of reaching the top again.

Every strategy will be met by a copycat and a counter strategy. Even LTCM had this problem. So when a fund house performs well, I don’t need to poach its fund manager, the research analyst coming for an interview tells me what happened. This is assuming that my research team is so dumb that they can’t analyze the fact sheet (available with a lag on a 2/3 day basis). Of course for the smaller investor it is available on a monthly basis. And yes, available in full detail on the regulator’s website for the SMART investor like Mutual funds Guide (on Twitter) and mfcritic (on the web). And about 50 others who know where the data is available and how to use them smartly. No, I don’t know any Journalist who uses that data, happy to be corrected.

The tragedy lies elsewhere. All fund houses pick kids from the same schools, expect them to work miracles, incentivize terrible short term behavior, pat them on the back for performing well in each quarter. This is asking Usain Bolt to run the Full Marathon at the same pace at which he runs his 100m dash. Oops there is no GST on idiotic dreams, is there?

If you were a shareholder of SBI I agree they do not need to respect you at all. So the regulator asks you to bail out YesBank. Great. Public property, public loot. However if you are a Bandhan bank or even a Kotak bank – who have to respect their shareholder, the regulator can still pick up the phone and arm twist you. Caveat. Understand the risk? What if the regulator is now emboldened to give this solution to say Indian bank which may have another Rs. 50,000 crore NPA? Oh Social Justice did you say? Will you be shocked by another regulator saying “You went to IIT and IIM 2015 and 2019 batches why not ask each of your classmates to pay US $ 200,000 to bail out your private equity investors? Just asking, not suggesting.

I am worried about another thing – the distance between the investor and the guys running the company. You own 100 shares of Xyz bank. The bank promotes a life insurance company. It sells insurance to Arabs in Dubai and the Chinese in China. Honestly, do you care if they settle the claim in Dubai or not? No. You are far far removed. Such a system throws wrong incentives and tremendous scope for corruption. Honestly the CEO of the life insurance or mutual fund company is far more keen to please his boss (the bank CEO) – and has very little of “accountability” to the unit holder or the shareholder. He may worry a little about the regulator, but less said about the regulator the better. That’s a pandora’s box on risk.

This may sound more like a rant. My take is simple. In a world with completely wrong incentives in the corporate sector – whether it is pharma, banking or food – the only thing that will keep you alive is complete distrust. This has to make you alert, not panic. However between panic and indifference I would choose panic. Sadly when I tell investors you “need not panic” they think they need not be alert.

Sorry for the rant, but all a Sunday morning – when I just saw the Regulator “solve” a problem which they created. Now they want credit for solving the problem.

Remember we had some amazingly smart Governors during this picnic by RK? and now they will say “how can we give an extension to Aditya Puri” obviously you can’t. You need a pliable younger guy – so what if runs amock with the borrowings.