Posted On Thursday, Sep 17, 2009
While greed and fear are psychological factors which affect the investor’s minds, there is another important aspect to investing – ethics.
How far are you willing to go to get a higher return?
Will you turn a blind eye to some dubious dealings as long as you get a higher return?
Are you willing to fool yourself into believing that investing in a speculative stock with suspicious management is okay as long as your money is growing - and the culprits don’t get caught?
If these question are asked to anyone in a relaxed state of mind, the answers would most likely be “Of course not”.
Yet a lot people get lured by the promise of unrealistic returns on their investment.
A person investing money in a Fixed Deposit for 3 years is happy to get returns of 8% p.a. but that same person investing in stock markets wants to double his money in 1 year. That’s behavioral finance at play!
When the markets go up by 20%, they expect their mutual funds portfolio to move up by 50%. They start yearning for unrealistically high returns and they want it NOW.
When greed sets in, you could take irrational decisions. If you are lucky, these irrational decisions may also make you a good deal of money initially. But sooner or later, the story will end in despair.
No risk model predicted the fall of India's largest IT companies. Quantum Mutual Fund has not owned shares of that company and that had “hurt” our return numbers and our rankings in the mutual fund league tables.
But there was something about that company that we did not like. To this day, we cannot tell you what exactly it was. Was it the fact that we had met them in the dot com days and felt that their sify.com venture sounded strange? Or that they were a bit ga-ga over what they paid to buy other dot com companies? Or the fact that there were rumours of them buying large tracts of land in Hyderabad?
From the “sniff test”, it seemed less risky to buy an Infosys or a TCS - and we did just that.
Similarly, when India felt the impact of the global financial crises, there was one private bank that was the only bank in India that made it to "Breaking News" for all the wrong reasons. Not owning stocks of that bank "hurt" our performance for a long time. But we don’t want to take unwanted risk with our investors’ money. We liked the fact that Private Bank had built a vast branch network and multiple businesses – but at what risk? Was there a balance of growth, profitability, and risk? Maybe buying stocks of what is India's safest "Private Bank" was “less risky?
At Quantum Mutual Funds, we are neither chasing any AUM targets (how large we are) nor do we have any star fund managers who are allowed to take decisions at will. All our actions are geared towards building strong processes for managing investments with a long-term investment horizon and giving reasonable returns to our investors.
Ethics is the person you are when no one is there to judge you.
The choice is always yours, be true to yourself and aim at steady gains or take the quick and sometimes crooked path to 'easy come, easy go' money.
The next time you invest in a mutual fund, try to understand the philosophy and the investment processes that determine how a portfolio is built.
Look for those mutual fund houses that focus on giving you what you have hired them for: a risk-return reward that you are comfortable with.
Looking at a “return” number in isolation is dangerous. If you focus on investing in a mutual fund that gives you highest returns, your portfolio may own shares in speculative/unstable companies.
If you decide to stay invested in the stock market for the long term – without taking any unnecessary risks - and are not troubled by day to day fluctuations in the market, then the Quantum Long Term Equity Fund is the right investment for you.
Click Here to read more about the Quantum Long Term Equity Fund.
Please do let us know what you think by adding comments to this blog post!
Disclaimer, Statutory Details & Risk Factors:
The views expressed here in this article / video are for general information and reading purpose only and do not constitute any guidelines and recommendations on any course of action to be followed by the reader. Quantum AMC / Quantum Mutual Fund is not guaranteeing / offering / communicating any indicative yield on investments made in the scheme(s). The views are not meant to serve as a professional guide / investment advice / intended to be an offer or solicitation for the purchase or sale of any financial product or instrument or mutual fund units for the reader. The article has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Whilst no action has been solicited based upon the information provided herein, due care has been taken to ensure that the facts are accurate and views given are fair and reasonable as on date. Readers of this article should rely on information/data arising out of their own investigations and advised to seek independent professional advice and arrive at an informed decision before making any investments. Please visit – www.quantumamc.com/disclaimer to read scheme specific risk factors.
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