In this edition of the reader story, Sanjoy shares his investment mistakes and lessons learned. In a previous article, he discussed the Financial Lessons Learned During and After a PhD
About this series: I am grateful to readers for sharing intimate details about their financial lives for the benefit of readers. Some of the previous editions are linked at the bottom of this article. You can also access the full reader story archive.
Opinions published in reader stories need not represent the views of freefincal or its editors. We must appreciate multiple solutions to the money management puzzle and empathise with diverse views. Articles are typically not checked for grammar unless necessary to convey the right meaning and preserve the tone and emotions of the writers.
If you would like to contribute to the DIY community in this manner, send your audits to freefincal AT Gmail dot com. They can be published anonymously if you so desire.
Please note: We welcome such articles from young earners who have just started investing. See, for example, this piece by a 29-year-old: How I track financial goals without worrying about returns. We have also started a new “mutual fund success stories” series. This is the first edition: How mutual funds helped me reach financial independence. Now, over to the reader.
Just 3 years ago, I was starting a new job in India after a short stay abroad, my first and only job ever, and I was set out to be a bombastic investor. In the USA, I heard the market jumping every day after COVID-19. I remember the famous ads for ‘money Chintamani’ from childhood and for a prominent mutual fund house, but I never understood what they were. I also saw ads for a swing with two adults showing a balanced advantage fund, but I had no idea what it was. While writing this, I realized I don’t know what ‘mutual’ in MFs is. Not knowing has no end, but there is always an opportunity to ask the right question.
In April of 2021, I knew everyone was making money, and I also had to get on the bandwagon. I was so stupid and did so many things that I doubt people will know they exist. However, being a coward too, I was always into well-regulated products and never touched forex trading, foreign currency investing or crypto. All my mistakes will forever stay in records, haunting and teaching me forever. The mistakes listed below didn’t happen sequentially. They happened in parallel and over some time.
Mistake 1 – Investment Services Account / Browsing NetBanking for Life Goals
Most current readers, YouTubers and finance experts will not know or wouldn’t have told you what an ISA (Investment Services Account) is. However, I found this easy investment option through my netbanking portal and found I can invest in any fund. Of course, I had to open an account and invest in the highest-return Healthcare fund. Nearly a year later, when I understood the standing 1000 INR yearly fees for the account (basically a tab in your netbanking portal) and regular funds sold to me, I was awakened. After a lot of stress, I got a PDF form from a bank email and signed on it and posted to the local branch as well as the main branch to close it and thankfully succeeded.
At least the ISA allowed me to invest in other AMCs funds. There are several banks offering MF investment through their bank app / netbanking only to their own AMC. In that case, not only they get your TER, they also enjoy being your MF distributor selling you a MF. Banks also sneakily insert ULIP and other ‘Life Goal’ or ‘Annuity’ products in their portal. Nothing is worse than a ‘Relationship Manager’ (RM) who can’t tolerate high bank balances in your account and shall call you with ‘ideas’ at no hesitation. However, when you need a small favor, your odds of praying to God is better than relying on a RM.
Mistake 2 – Absolute ignorance of the product
Before I knew what NIFTY or market or market-cap was, I had a direct AMC account with 7 funds in my portfolio among which 2 were debt funds and I didn’t know it. The choice of debt funds must have been due to the short burst of return amplified by rate-cuts which I understand (do I?) but I had no clue then. Other 5 funds also were all large-cap variations e.g., ESG, Equity hybrid, NIFTY index and Bluechip funds. Truth be told, I had no idea of their variations except names. It may sound like exaggeration, I had no clue of direct / regular investment and I remember choosing a regular fund once but couldn’t proceed as it asked some additional information before investing (ARN) which I had no clue about and then redirected myself to invest in only direct funds. What can I say, I wanted a regular life like everyone else.
Mistake 3 – The pandora of demat investing
How can I stay away from this fad? Can I? Of course not. AMC websites are lame, they give you access to only that AMC. Demat accounts with ‘Direct’ option allows you to invest in any and every MF. I doubt some of the hottest AMCs at this point of time would have gathered so much AUMs if not for the fintechs. If people had to make new accounts to invest in these AMCs, they would still have AUMs smaller than a nickel. Before I faced my first demat charges (3 months I mean to say), I had 12 funds including a FoF and 11 of small / midcap funds because large-caps were lame already.
Most people invest through fintechs, which are younger than the kids who find it suitable to call me uncle on the road. However, I have found peace and comfort with the AMC website. It is too many passwords to handle, but I can tolerate it. If I can’t manage a few passwords, what will I do in life? It is also a psychological barrier to hunt for new winners everyday. It really forces you to work so you really think about it. I doubt I can handle my retirement which I presume will be a significant sum to rely on fintechs whose regulation status is not yet decided, who are not making money in my transactions and taking a loss for market acquisition.
Mistake 4, 5 to Infinity – Tips
Listening to people, people who do this for adrenaline, gossip and timepass is the greatest trap. Listen to people, there is no wrong. Listen to all. Soon you shall discover people who have been investing in markets longer than Sensex / NIFTY existed, people who have seen all things. The wisdom of an older person can barely be beaten by ‘Top 3 Stocks’ videos. Listen to women who have sat in the advisory boards of SEBI have made this product as safe as it can be today and continuously trying to improve upon it. Listen to professors who bring data on the table, no sales pitch of AMC employees can match that. If you want to listen to war stories, listen to a soldier, and leaders of the time. Similarly, if you want to make it here, listen to the veterans who might differ in thinking but have made it.
The redemption through redemption–
Statistically, if you make a large number of decisions, some of them wouldn’t have your 100% conviction forever. Similarly, if you get irritated with some small thing, you sell a fund. That’s it, you have to file an ITR-2, you have awakened the inevitable. I think all stock market enthusiasts will cut down their enthusiasm once they face the wrath of ITR-2. It is not complex, or impossible, it just tests your patience. All your daily SIPs of 1000 INR will kill you by 1000 cuts when you open the Excel. Then there is 10%, 15%, 20% with indexation, slab etc.
Also, during the period during Oct 2021 to July 2022, all my greens were slowly and then rapidly turning to red. The scare of these 9 months froze me, but prompted me to read. Slowly, everyday I read some more, watched some more wise content coming out of trendy things and slowly I understood how common I am. Then I watched all the news channels videos of pre-covid era, some videos of Covid era and understood that all are wrong here and no one knows anything.
Although I can’t remember how, slowly I consolidated all MFs through the upcycle into only two schemes only through direct AMCs website, no SIPs, investing when I have money. I had to track a very complicated Excel sheet in one year, but it was worth it, it was worth every penny. I am aiming for fewer and fewer decisions in a year and hopefully improving on it. I understood the power is in t, not R. An average return over an unusual above average time will be sufficient for me.
What helped?
Early mistakes as a 32 year-old when life is not actually busy with human problems, gave me the time to think and reflect / learn. If these same mistakes happen to a 45-50 year old, it would be a tougher comeback. If this happens to a retiree who never handled a large amount of lump sum and wouldn’t earn again, it is irrecoverable.
The memoirs of my mistakes
Whenever I open CAMS, or MFCentral these zero balance folios never go away and they remind me. When I open an AMC site, the demat folios also pop-out showing historial 0 balance folios. These will never go away, I am an obsessive controller, I like a blank chalkboard, but I know these things can never be erased.
Learnings from me and my peers –
I like to think I am a smart man, professionally a scientist and I made all these mistakes. Without being arrogant, I fear most of us (maybe me too) are deemed to fail. I have felt it while talking to my juniors. No one is happy with a vanilla Aggressive Hybrid Fund, all want more returns. After 2 years of discussion, people are asking me the question of “Should I redeem when it comes down?”.
The question might be right or wrong, but the lack of conviction or interest to know on their own makes me hopeless for them. One of my colleague’s fathers is going to retire next year, and they had never invested in anything else but NSCs. I had shared some content related to lump sum handling on retirement to them. It has been a year, he didn’t yet find the time to click on the face of Mr. Dhirendra Kumar or Subramoney.
One of my seniors had asked me and I had started an SIP from his account for a housing goal which had accumulated some considerable value. His native friend told him to switch to an ELSS fund due to higher return and after switching he is unable to retrieve it now for buying his apartment. I explained the 3 years lock-in of ELSS and he was upset. He also didn’t know this transaction was taxable.
Most people who have an NPS account in our office, or relatives don’t know what they have, what they want or what is anything. They are all very successful in their career and have made it through the ladder, but have no idea of these things. The lack of interest in these things are prevalent and conviction is only relying on the surface level success of the last 4 years bull-run.
Sometimes I fear I am also deemed to fail, but I will work on improving myself.
If you think this was a good read, I want to disclose I am a majority direct stock investor (for now). That Pandora’s box we shall open another day! More action, more drama!
Reader stories published earlier:
As regular readers may know, we publish a personal financial audit each December – this is the 2022 edition: Portfolio Audit 2022: The Annual Review of My Goal-based Investments. We asked regular readers to share how they review their investments and track financial goals.
These published audits have had a compounding effect on readers. If you would like to contribute to the DIY community in this manner, send your audits to freefincal AT Gmail. They could be published anonymously if you so desire.
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