Whenever I share my investment portfolio in annual audits or other articles, readers ask about my investment strategy. See, for example, “17 Years of Mutual Fund Investing: My Journey and Lessons Learned.”
“How did you select the funds you hold?”, “How do you decide when to exit a fund?” and so on. Others are angry that I hold active funds in my portfolio while recommending index funds.
I have addressed holding active funds in detail before: Why are you recommending index funds when your portfolio has beaten the market? I am glad that when readers see how often my portfolio has underperformed the index in the past, they are convinced that indexing is the way forward for them.
I have a huge portfolio and cannot switch from active funds to index funds on principle, as that would involve tax and exit loads. Even if I start investing anew in index funds, it will take more than a decade to gain considerable weight compared to my active funds. So, I will only be cluttering my portfolio.
I recommend index funds to others so that they avoid repeating my mistakes. And that is what my portfolio is – a sum of all my mistakes made over the years. As I look back, I cannot think of a single intelligent, well-analysed choice.
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My first fund was the Sundaram ELSS Fund Dividend Option! I was not aware of the distinction between a growth option and a dividend option at that time. I just started with what my insurance agent (who also sold MFs) asked me to do.
When I started to DIY (this was before the advent of direct plans; I still had to buy regular plans “directly” from the AMC), as far as I can remember, all my investment choices were based on star ratings – I was yet to appreciate the most important rules of capital market investing – (1) past performance has little to do with future performance and (2) What’s past is prologue (Shakespeare in The Tempest).
When I started learning more about risk, I learnt about the importance of balanced funds (now called aggressive hybrid funds) and started leaning towards them.
When Parag Parikh Flexicap Fund was in the NFO stage, I remember my friend (whose opinion I valued a lot) write on Reddit about how unique it was with respect to its investment strategy. So I took a chance with it. The most important element I valued in the fund was its low volatility.
From 2013-14 onwards, I started consolidating my portfolio. The aim was simple. Do not buy new funds unless you have a good reason. So my portfolio is the residue of past mistakes. And if I have a “strategy”, it is simply to do nothing and not fix anything that is not broken.
My portfolio was never well-designed or well-diversified. It was and is cluttered. I have learnt to live with it and realised the importance of inaction once your basics are in place during the accumulation phase.
Instead of worrying about performance and returns, I focused all my energies on how much I can invest and how much I can increase this investment month by month. That has been the key driver of portfolio growth. See: Increasing investments each year is essential for financial freedom.
I want to think that after hours and hours of staring at data, I have attained some semblance of wisdom – “stop tinkering with your portfolio. Leave it alone to grow in peace. Even sub-optimal portfolios do well if left alone (with the basics like asset allocation and goal-based investing in place)”. Also see: Eight investment truths hours of number crunching have taught me.
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Dr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over 13 years of experience publishing news analysis, research and financial product development. Connect with him via Twitter(X), Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free aum independent investment advice.Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! ⇐ More than 3,500 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter the market condition is!! Watch the first lecture for free! One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
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