Your money, use your mind

New Delhi: That is one question with which I have been grappling.

I do not know anybody who says, "I have read up all about root canal surgery, so now I am going to do it myself" or "My brother told me all about heart surgery, now I am going to do it myself". But how come I hear the following very often? And believe me, these are real client statements.

• My father asked me to invest in a house. So I liquidated my mutual fund. My father is a mining engineer in Goa.
• I was reviewing my portfolio and since XYZ mutual fund was not performing well, I liquidated it. I am the operations manager in a BPO.
• I deal with MRF. I know it is a good company. I know it has a good market share. By the way I am applying for Reliance Petroleum shares. After all it is easier to apply in an IPO rather than buy MRF in the market. I am a tyre dealer of MRF.
• My mother told me not to invest in mutual funds or unit linked insurance. After all we have not done it in the past and are not worse off for the same. My mother is a history teacher.
• My father is a LIC agent. He told me mutual funds are risky, so I invested in a unit-linked insurance policy from LIC. After all it is a government guaranteed product.
• My father feels my money should only be in a government guaranteed, non- fluctuating, interest bearing instrument. After all only they are safe.
• My CA told me PPF is a good scheme, so I invested all my money in PPF and my daughters’ too.
• I have liquidated my portfolio. After all, I invested at an NAV of 37. When it reached 50, I sold. That was my target. Now I am using that money for day trading.

Initially when I heard these comments I used to get upset about it and looked at it as a factor to worry about. Now I realize that as a financial planner, you can only advise. It is of course the client’s prerogative whether to listen or ignore. When one hears these comments it is easy to feel self-righteous about being a fee charging financial planner. At least after taking your advice the client is paying you for it. After that if they dump the advice, it is their call.

The father/ mother/ brother/ friend/ boss/ colleague has a far, far greater credibility in our minds, than the financial advisor or agent because the other person has nothing to gain by my investing.

Sorry to say, but it may not really make sense to choose their path. Check them for insecurities, for frailties, for dogmas, for not walking the talk and then adapt their advice.

They may, sadly, not be the best financial guides. After all, many of you did not listen to them about your choice of career or life partner, so what the hell, one more time!

When it comes to money management, we do not use our own research capability at all. We love to hand over the research, suitability assessment, relevance of investment, and such other tasks to someone as remote as Aunt Martha’s brother, rather than do it ourselves.

I think this makes life easier and especially convenient when things go wrong. After all, if we make a loss, it’s easy to say, "Aunt Martha’s brother is such a fool. He asked me to buy HFCL at Rs 1,200. Now it is quoting at Rs 30".

This helps us in believing that this decision and its consequence was outside our bodies, so Aunt Martha’s brother is to be blamed, not we.

There are some questions that I run through with a client:

1. If your father-in-law/father were a dentist and you had a gynecology problem, would he treat you? 2. If your car broke down would your dentist treat it? 3. If you had as stomachache would you go to a chemist or a doctor? 4. When you have a toothache do you watch a TV program on dentistry and start treating yourself? 5. If you are so hard working, how come you do not care about money sleeping in a savings bank account?

Do all these look like a rhetoric question?

Also why is it that in a rising market every cobbler, dentist, heart surgeon, head of sales, head of operations, head of content, news reader, insurance agent, mutual fund agent becomes a fund manager and starts giving free advice?

It is what I call the ‘mike effect’. You thrust the mike in front of anybody and he has an opinion on the market.

As for me, please do not ask me for tomorrow’s index. I know not. I know that in the long run equities have given excellent returns in the past. What will happen in the future, I know not. And I agree with Mark Twain. It is difficult to predict. Especially if it is about the future. Let me look intelligent by keeping my mouth shut.

The author, PV Subramanyam is a financial domain trainer.