Stop asking already! Mutual Fund Investing is a leap of faith!

Published: May 3, 2015 at 9:15 am

Last Updated on

Stop asking for fund suggestions already! Learn how to shortlist funds and have the confidence to pick one! Free lunches will cause serious injuries to your financial health.

It is so frustrating and disappointing to see people ask for mutual funds suggestions publicly.  It has finally dawned on me that responding to such questions in forums is a huge mistake. I have no idea about their understanding of mutual funds, the nature of the goal they have in mind etc.

Of course one could say, please learn how to choose, have a goal, DIY or get professional help and other blah blah but I would bet that 9 times out of 10  such comments would be ignored.

Simply because most people don’t want to pay for financial advice.

There are those who have made a short-list. They want the forum members to pick one for them! Bad idea. Very bad idea.

Let us face it. Most people want product names offered on a platter. They either want an ‘experienced’ member to ratify their choices or want to see many people invested in the same fund.

Go to any personal finance forum and declare that you have been investing in mutual funds and/or stocks for last couple of decades.

In time, you will receive comments and personal messages asking for your mutual fund or stock portfolio!

Knowing others people’s choices. Knowing that the other man has invested in the same fund that you have in mind! What a feeling of comfort! What an informed decision!

Most investors lack confidence. Most investors dot no understand equity as an asset class.

There is no aim. Even if there was, there is no methodology. All they want to know is what the other guy is doing or how they did it.

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Well, that is not too bad as long as they stick to one borrowed methodology. All it takes for the next ‘expert’ to comment and the framework built is wiped clean. Yes, let us have as many opinions as possible. Confusion is a good thing.

If you want to dismiss this as a rant, be my guest.

I write this because we, the truly DIY investor community must try and do something about this:

  1. Not answering any questions asking for a 8-course free lunch: “this is my fund portfolio ….please guide”.
  2. Urging people to learn methods or pay for financial advice.
  3. Promote fee-only financial planning. Not specific planners but the vocation.

Considering how small the truly DIY community is, the above might sound like a drop in Millers planet (Interstellar reference), but it is a small  step. They will make a difference with time.

“I can short-list, but I am scared to choose!”

At the end of the day, every piece of analysis is based on past performance and the future is unknown.

If you believe in the method, pick any fund from your short-list. Take a leap of faith. That is all that anyone can do.

People email and message me asking for fund suggestions from a short-list. Typically I say, ‘choose any either this or that’. Rarely I suggest specific funds. I am taking the leap of faith in both cases!

Why trust me? Take your own leap of faith. Chances are, you will land much more safely than you ever imagined.

no-free-lunch-2

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Pattabiraman editor freefincalM. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. since Aug 2006. Connect with him via Twitter or Linkedin Pattabiraman has co-authored two print-books, You can be rich too with goal-based investing (CNBC TV18) and Gamechanger and seven other free e-books on various topics of money management. He is a patron and co-founder of “Fee-only India” an organisation to promote unbiased, commission-free investment advice.
He conducts free money management sessions for corporates and associations on the basis of money management. Previous engagements include World Bank, RBI, BHEL, Asian Paints, Cognizant, Madras Atomic Power Station, Honeywell, Tamil Nadu Investors Association. For speaking engagements write to pattu [at] freefincal [dot] com

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31 Comments

        1. Dear Pattu,
          I was referring to Ashal. He was/is really helpful to many by providing milion answers on this as well as other blogs.
          Sometimes, as you mention in current post, ppl simply ignored if Ashal start asking about goal, risk , and other finance planning related ques. :):)

          @ Ashal, keep it up dude..

          Regards,
          JD

  1. You are absolutely right SIR.We indians are tuned to be spoonfed in many walks & issues of life.Let us do this,why? because my friend, my mentor,my neighbour,or usa or china or europe has followed it.
    It is so silly,better to admit that I do not understand this so I will stay away.Even WARREN BUFFETT does not invest in fields where he does not understand.There is no altenative to hard work of being literate in field where you want to go ahead.
    Continue to remain honestly blunt as YOU are.
    Wish you all, all the best

  2. You are absolutely right SIR.We indians are tuned to be spoonfed in many walks & issues of life.Let us do this,why? because my friend, my mentor,my neighbour,or usa or china or europe has followed it.
    It is so silly,better to admit that I do not understand this so I will stay away.Even WARREN BUFFETT does not invest in fields where he does not understand.There is no altenative to hard work of being literate in field where you want to go ahead.
    Continue to remain honestly blunt as YOU are.
    Wish you all, all the best

  3. Good one. Have thought on similar lines about the leap of faith. All investing is a leap of faith, whether one realizes it or not. Not many people are aware that bank deposits are re-insured (guaranteed) up to Rs. 100000 only per person. In fact, people love such guaranteed products so much that they are willing to take negative yields for sovereign bonds, and even for some corporate bonds these days in the euro-zone countries !

    Thank you, sir, it’s indeed very useful to see this.

  4. Good one. Have thought on similar lines about the leap of faith. All investing is a leap of faith, whether one realizes it or not. Not many people are aware that bank deposits are re-insured (guaranteed) up to Rs. 100000 only per person. In fact, people love such guaranteed products so much that they are willing to take negative yields for sovereign bonds, and even for some corporate bonds these days in the euro-zone countries !

    Thank you, sir, it’s indeed very useful to see this.

  5. Precisely this — Knowing others people’s choices. Knowing that the other man has invested in the same fund that you have in mind! What a feeling of comfort!

    2 more cents:
    It is more of a desi behavioral issue than anything. desi junta exhibit textbook “madness of crowds” behaviour.

    all these ppl want is a simple confirmation to their thinking or decision. If they get an affirmation from a forum (group) / a person (like a blogger, religious head, cricket player) they have an affiliation to, it adds to their sense of well-being of being in a group of intelligentsia.

    Hence, their sole decision making rationale is “Dr. Murari has advocated this fund or Subra told put all money in equity etc, Warren buffett gave all his $ to charity etc” . If you present any facts or opinion to the contrary, these ppl will react violently as their very faith and existence is questioned!

    That’s the reason you see most of the dumb insurance products are bought by ppl from their “friends / relatives / office colleagues”.

    You cannot CHANGE this. it is part of being a desi 🙂

  6. Precisely this — Knowing others people’s choices. Knowing that the other man has invested in the same fund that you have in mind! What a feeling of comfort!

    2 more cents:
    It is more of a desi behavioral issue than anything. desi junta exhibit textbook “madness of crowds” behaviour.

    all these ppl want is a simple confirmation to their thinking or decision. If they get an affirmation from a forum (group) / a person (like a blogger, religious head, cricket player) they have an affiliation to, it adds to their sense of well-being of being in a group of intelligentsia.

    Hence, their sole decision making rationale is “Dr. Murari has advocated this fund or Subra told put all money in equity etc, Warren buffett gave all his $ to charity etc” . If you present any facts or opinion to the contrary, these ppl will react violently as their very faith and existence is questioned!

    That’s the reason you see most of the dumb insurance products are bought by ppl from their “friends / relatives / office colleagues”.

    You cannot CHANGE this. it is part of being a desi 🙂

  7. Great post. Absolutely agree.

    On a side note Pattu sir, you should do a post on interstellar. I’m sure that will be equally exciting to read 🙂

  8. Loved the Miller’s planet ref.
    More confirmation that I’m learning from the right professor 😛

    Also really love the way you keep driving at self reliance through your posts!

    I only pray that enough people listen and learn, like you wish them too.

  9. Pattu,
    Agree with u.We must do our own analysis.You have provided a lot of tools to do this. unfortunately some of them do not work.May be the reason could be our own ignorance to implement the tools properly.So I suggest why dont you charge your consultation fee for any specific advise from you?Nothing wrong in this? Your comments please.

  10. Nice post Pattu. But do keep in mind the level of awareness the retail investor has. There are minority few who have knowledge and access to good blogs/sources as yours and others. The vast majority do not have the know how. It is always better to ask in public forums rather than approach a relationship manager where they are sure to be taken for a ride. As for different details needed (goals, risk appetite etc.) I prefer to give them some suggestion which is easy to follow. Reader discretion is to be advised though for selective absorption of information.

  11. Nice post Pattu. But do keep in mind the level of awareness the retail investor has. There are minority few who have knowledge and access to good blogs/sources as yours and others. The vast majority do not have the know how. It is always better to ask in public forums rather than approach a relationship manager where they are sure to be taken for a ride. As for different details needed (goals, risk appetite etc.) I prefer to give them some suggestion which is easy to follow. Reader discretion is to be advised though for selective absorption of information.

  12. I used your mutual fund screener (2016 version) to short-list the large-cap/mid-cap mutual fund I wanted. To be honest I had my sights on funds from a specific AUM and your shortlist vindicated it. I must say there is an element of leap of faith. I didn’t delve too much into fund manager, I read a bunch of their interviews and I liked what I read.

    Thanks for your MF screener, immensely helpful.

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