Financial Harakiri Made Easy

My first stock market investment was in year 1992 when my dad gave me some 100 shares of indo gulf fertilizers and I remember it was a bad trade as I traded all my life savings of Rs 17000 in a savings account to the then market price of those 100 shares that was Rs 7600.

But laissez-faire prevailed and I got a share certificate with a green transfer form attached to it. I still felt nice and confident because I saw an opportunity to learn the nuances of stock markets at 17 and make sense of those 2 pieces of paper.

How those 100 shares panned out in life is a matter of another piece at a different point of time but for the record that and all additions of life earnings added to timely systemic investments as on date have returned 17.8% CAGR since 1992.

Someone tried hard to sell me the Portfolio Management Scheme of MotilalOswal 12 months ago claiming that they have consistently returned 38% to their investors since inception. Financial advisors and relationship managers have a unique ability to make muppets out of gullible investors for whom a marginal delta in comparison to the AAA rated securities means the world and 38% is as good as it can get.

More amusing was, that, my research revealed that Warren Buffet’s life to date CAGR has been close to 20% and Motilal and its agents claimed a CAGR of 38%. I closed my eyes and visualised Buffet serving tea to Mr. RaamDeo Agrawal and Mr. Motilal Oswal if they have consistently been able to beat the Buffet hurdle.

Of course I never invested in Motilal or any of its alleged schemes but did keep a track on their presumptions and in July 2016 when they came out with a public research report on a share called manpasand beverages and a follow up report reiterating their stand in May 2017 and eventually in Jan 2018, I bought some shares only to follow and keep track. Look at these reports and you would have wanted to sell your house and invest in their recommendation.

Cut to May 2018, Manpasand Beverages is down  72% from its price, has eroded an ocean of investor wealth and small gullible investors are left holding their MTM losses in the hopeless world of being treated as muppets.

Recently I was invited to join a concall addressed by the same Mr. Raamdeo Agarwal as he was opining on Crude Oil prices. I thought WTF….. How can anyone opine on crude prices when even the King of Saudi Arabia might be clueless on the same. In a VUCA world where a tweet by trump can make DOW rise or fall by 2% or take crude prices thru the roof, where a posturing by Kim where Kim fires a useless missile - roils the world markets – oh by the way I am talking of Kim Jong Un of Korea and not Kim Kardashian, here is an Indian commentator commenting on the crude oil prices.

So when I asked him whats his accountability on Manpasand, because I invested my entire bonus and savings on the basis of his company’s research report, he was flustered and advised me that the concall was on Crude, refused to take ownership of his company’s recommendation and gave me the contact of his head of research Gautam Duggad. (GD)

Pronto – I called Mr. Duggad for some insight as I wanted a word of solace and advice as to the way forward to an investment that eroded approx. 75% of my wealth entirely on his and his company’s recommendation.

GD was flustered and angrily asked me who my relationship manager was. I asked him – ‘how is that relevant. Did your research report mention as a disclaimer that Motilal is answerable to only those people who reveal the names of their relationship managers when the shit hits the roof'.

And Mr. Duggad banged the fone down on me. I became a complete full-circle muppet. Or at least was treated like one.

Whats the point…….

1. Any financial advisor claiming to outperform the Buffet hurdle is making a Charlie out of you.
2. If you are able to beat the returns offered by bonds issued by central banks of your respective countries – without taking a risk – you are doing fine.
3. Keep investing your surplus and believe in the power of compounding rather than relying on specious research reports by companies finding and feeding their army of muppets with erroneous asymmetric information.
4. Invest in the quality of management rather than the sweetness or sexiness of companies like manpasand.
5. Capital protection is far more important that elusive returns on investments.
6. Endeavouring to marginally beat the returns offered by robust central banks will hold you in far better stead than endeavouring to beat the inflation rates of Zimbabwe and Venezuela.
7. Be patient in markets – they can be irrational on either side for prolonged periods of time. If your holding period isn’t forever then you shouldn’t be in markets even for 10 minutes.
8. Don’t follow any stock advisor blindly – Do your research and it takes no rocket science to identify stable well managed companies.
9. A boring company that is debt free, out of market favour, consistently giving dividends and growing at about 10% YOY and definitely not recommended by analysts on CNBC on a daily basis, is likely to give you a far better return than the sexed up companies finding the favour of analysts on TV channels, who are themselves mostly doing the opposite of what they are recommending on the TV.
10. And lastly why should you pay 3-4% as management fees to your fund managers (who don’t even guarantee a prevailing bank rate for fixed deposits and who play the markets on your money) – only to lose your capital and then hear them blame the systemic issues of markets.

Human beings have short memory and people are afraid to acknowledge disastrous consequences of the bias of cognitive dissonance in the face of questionable advice on business channels.

Vakrangee, PC jewellers, Gitanjali Gems and Manpasand (these can be all googled and enough information can be found online about the dubious managements of these companies) have been recommended by some of the well known stalwarts of the market and just these 4 companies have eroded close to 35 billion UD Dollars of shareholders wealth in less than last 90 days.

Try doing exactly opposite to what the commentators recommend on the television. You are likely to make more money than by following their advice.

Someone needs to be eventually hanged for this. Whether it’s the fraudulent promoters or the overzealous self-serving analysts.

The decision entirely rests with the muppets.

Manu also writes for The Huffington Post and can be contacted on mrg45@hotmail.com