May 21, 2017

No pizza today

I wrote the following note to my subscribers in response to two questions which are frequently asked by new prospects

a.     Please share your past performance
b.     How many stocks can I buy if I join your advisory today

The note below, seeks to answer the second question

Pizza versus investment advice
If you walk into a store or restaurant, you are handed the item or service as soon as you make the payment. Any delay or refusal to offer the said service is considered a breach of faith or fraud.

The above standard mode of exchange breaks down when we come to investment advice. The job of an investment advisor is to ensure that his or her clients make decisions which helps them in the long run (in achieving their financial goals). This can mean that the most sensible course of action often is do nothing and wait for the right opportunity to invest.

This is however not understood by the vast majority of investors who behave like a customer in a restaurant. A typical investor likes to be handed a menu card of stocks and would like to buy as many as possible even before the ink has dried on the cheque (metaphorically speaking). This expectation works if you order a pizza, but not when you are investing for the long run (5+ years).

The investment industry panders to this behavior and even encourages it. As much as one would like to blame the industry (and they have much to blame), the investor community is equally responsible for it. Stock markets are seen as a place to pat your ego (for recent high returns), indulge your gambling instinct or just entertain yourself.

In all my years, I have found very few who look at the stock market for what it really is – A place to invest your capital for the long term to earn returns above the rate of inflation and thus achieve your long term financial goals.

If you are in for the long haul, it makes sense to invest your hard earned money in the right company at the right price (price being very important). Often this happens, when everyone is running for the exit.

Walking the talk
It is easy to talk, but not easy to do the same thing unless your own money is on the line. My own funds, that of my partner kedar and our families is invested in the same fashion. Nothing focusses you on the risk, when your own money is on the line.

I get turned off when I read about fund managers and analysts who recommend a stock, but do not have skin in the game. It clearly means that they do not believe in what they say.

I made a conscious decision several years back that I will eat my own cooking and as a result, any loss in the portfolio is borne equally by me. In addition to this point, both me and kedar have made it a point to under-promise and hopefully deliver more. As result, inspite of a 100%+ rise in 2014, we decided to go low key as I knew that future results could be subdued for a period of time. I did not want to attract subscribers based on recent performance and disappoint them when I failed to meet their un-realistic expectations.

We continue to follow the same approach today. We will get excited when the market drops and go into hibernation when the market gets euphoric. The hibernation is limited only to activity and not to the effort of finding new ideas. We continue to build the pipeline, but the pizza will be served only when the time is right.


Anonymous said...

Dear Rohit,
I'am one the many who might have asked the same question about when can I buy if I join your advisory today. Must admit this was due to my ignorance & how i saw the market, a quick place to make money like a gambler rather than looking at it as an investment. Over the years I've realized this & view your blog & service authentic & have handsomely been rewarded.

Thank you

Dhirendra said...

Dear Rohit,
I am sorry to disagree with your idea on investment that it is "A place to invest your capital for the long term to earn returns above the rate of inflation and thus achieve your long term financial goals"

Investment is not to earn above inflation which guarantee one can achieve long term financial goals. It is like treating every patient with same medicine.

Sometimes we get out of our vehicle and walk to achieve our goals. Similarly selecting stocks from your menu card would not help one to achieve goals, it has to be specific for every investor.

I hope you would not delete my comment. Pizza example is out of test here.
Hope my comment would only help you improving.

Rohit Chauhan said...

Hi dhirendra
the analogy with medicine does not really work for investing (atleast in my case). i have defined long term investing as a means to an end. my end is achieveing financial goals which is part of large life goals.

an investment advisor who claims that he can solve all problems for everyone is just lying. do you visit a cardiac surgeon for ENT issues ? the same logic applies to investment advisor too. they can be generalist to a small extent, but beyond that if you want something personalized, you need to find the right advisor who can meet your specific requirements


Mahesh said...

Dear Rohit,
I have mailed you enquiring about the investment advisory services. Not received any response as it's been over a month now.

Rohit Chauhan said...

Hi mahesh
my apologies for lack of response. can you please write to me on ?