The Kharghoshs were leading a comfortable, lifestyle. Typical Alpha male knew everything about investing by reading brokerage websites! He knew that equity gives best returns, so he had a leveraged life style! His house, car, vacations, were all from borrowings. He had ALWAYS earned far greater than the interest rates that he was paying. He had removed money from his provident fund to make the down payment on his house – debt is for sissies he said. However during the third quarter of 2008 he discovered one of the harsh truths of investing: It is a very sharp double-edged sword that cuts mercilessly. Markets gave him a lecture on Investments and Statistics 101. Suddenly he remembered ‘Reversion to the Mean’, Standard Deviation, ‘how to lose money in IPO’, ‘floating rates floats both ways’ , ‘never ask a barber whether you need a hair cut’ ‘The Future has no Option’ etc.

Sadly the lecture series cost him more than 55% of his peak net worth. His wife was downsized from her company after 12 years service. All that could go wrong happened. His own bonus disappeared. He had given a bank guarantee for his family business – his brother’s business to be more precise and the bank sent him a notice regarding the same. His equity portfolio even today consists of very high price paid DLF, Satyam, Jindal Power and Steel, Larsen & Toubro, Gujarat Heavy Chemical, Bharati Airtel, Reliance Infocom. Mr. Kharghosh’s choice of stocks was stunning. Of course his biggest loss came from playing around in Nifty options. Largely a momentum investor his portfolio at various points consisted of the equity stocks with the highest sound bytes on television!

As for me, I am a former advisor turned passive investing champion and a domain trainer. Recently I went through the training done by one of the top financial companies in the world. This is considered the best training program in the life insurance industry. The training included things everything on “Selling Skills”—not, the “Make Money for Your Clients” nor the “Understanding the Financial Markets.”  The emphasis was totally and completely on prospecting and sales. They need to study every day, five days a week for three weeks and learn about how to create a prospect list, how to cold call, how to open, and how to close. There is no training on concepts like asset allocation, risk, alpha, beta nor any other topic which may save clients from the devastation waiting to happen because of a sovereign default in one of the rich European countries!

Risk tends to be a voracious consumer of cash when one is caught unprepared! True, it may have been hard for Mr. and Mrs. Kachua to be at the same social party with the Kharghoshs because they were riding the wave of huge returns from their concentrated investments. Their success, it turned out was caused by a cyclical economic tide than to the stock-picking ability of their “broker turned financial advisor”. The most recent age of foolishness in investing had ended in 2007. However 2009 has hurt the investor in a far worse way! Well we may have started another bubble – let us see where it ends.

The Kharghoshs learned a painful lesson at the hands of an unregistered ‘Portfolio adviser’ they proceeded to lose over 55%of their portfolio’s value. Soon after, they come knocking on my door, somewhat shell-shocked and looking for answers. The impact of the media was visible even in the way they spoke!  The Kharghoshs were obviously looking for my personal version of the alpha-seeking, magic formula to restore their lost wealth – quickly. Waiting for 25 days was fine, but you could not take 25 years to create wealth. After all if ‘n’ or the number of years was the only value add that I could offer, it was of no use for them. They were hoping that ‘r’ – and I a passive investment zealot had to ensure that!

“Can we make up our ‘Real Estate stock losses in Power stocks’ was one of the innocent questions. They had invested in some stocks which were about to list – it was sold as a fantastic 3 year story about 5 years ago. Of course they were still waiting. “Am I okay”?- this was their first question. Then it got more ambitious!

As you think of the shades of this question, you do not understand that this question is ‘present continuous’ in its grammar! Clients aren’t just asking, “Am I okay today?”

No, what they mean is,

–    Am I okay forever?
–    Am I saving enough?
–    Am I converting my saving to investment?
–    Am I spending too much?
–    Am I using the correct strategy?
–    Will this strategy work for the next 17 years of my working life?
–    Once I retire I will not invest, correct?
–    Since I do not invest after 60, I do not require a strategy, correct?
–    Am I sacrificing my lifestyle by over saving?
–    Are my kids okay? – Right from career selection to boy friend selection!
–    Will I have enough money to support my parents, grand father, my favorite charity, my…..?”

You get the point don’t you?