“It was all-important. When a woman thinks that her house is one fire, her instinct is at once to rush to the thing which she values most. It is perfectly overpowering impulse, and I have more than once taken advantage of it. A married woman grabs at her baby; an unmarried one reaches for her jewel-box.“
The above understanding of human behavior by Sherlock Holmes is hugely important. After all human behavior gets determined and shaped by incentives. Incentives, both consciously and unconsciously, play a huge role in determining the action of individuals and investors.
Skin in the Game
This is where Nicholas Taleb in his seminal book, “Skin in the Game” suggests brings about a very interesting point: Don’t tell me what you “think,” just tell me what’s in your portfolio.
How to make my Profit and Loss statement look great?
The recent upswing in the market has brought about so many stock and market experts at the helm, wherein most of them have started to rattle about the next 5 – 10 hottest Pharma and Tech companies or Tech and/or Pharma sectoral funds to be invested in, which will become multi-baggers!! Some of these companies were not even heard of or were looked at in disdain just a couple of months back.
A quick check at Money Control’s webpage on sector-specific Mutual Fund page gives some interesting results. Out of 109 Sectoral/Thematic Mutual Funds with cumulative AUM of INR 706.85 billion as of September 2020, average YTD for all the MFs have been 0%, yes, unfortunately no returns. The below table indicates the dismal average returns generated on a YTD, 1-year, 2-year, 3-year, 5-year and a 10-year basis:
| Time Period | YTD | 1Y | 2Y | 3Y | 5Y | 10Y |
| Average Return (Annualized per year) | 0.05% | 7.68% | 0.01% | 1.76% | 6.27% | 7.29% |
To check out the granular Money Control’s sectoral/thematic table, click here:
Often, it sounds amusing that most of the people who are asking you to buy do not own a single sector-specific MF which they preach. Reminds me of Madonna’s song, Papa, don’t preach!!
2 Tips for Investing in Stock Market:
- Invest gradually. Gradual is the key word here. After all, no one can time the market.
- Don’t invest in sector-specific funds/stocks right now!! Usually ends up getting messy after a couple of quarters – almost a given!! However, if you believe you have the skills to ride the wave and know exactly when to flip over (you may have better skills than Cinderella after all!!) – surely go for it – at least your P&L will look great momentarily!!
Disclaimer: Please note that these are my personal views. While I am NOT a registered Research Analyst as per SEBI (Research Analyst) Regulations, 2014, all investors are advised to conduct their own independent research into individual stocks or industries before making any decision. In addition, investors are advised that past stock performance is not indicative of future price action.
Hi Vikas
I broadly agree with your thought. But there are thematic funds which have been consistently outperformed. For example, MNC funds have outperformed maybe because of better corporate governance and/or technology/branding. Similarly, FMCG funds have also outperformed the Index and the broader market. What are your thoughts on them?
Hi Vivek, totally agree with what you refer to; FMCG has been a consistent compounder; however the problem arises when because of the short-term upward wave, advisors/MFs/Investors extrapolate it build a long-term structural story, often leading to disaster!! This especially arises when the fundamentals of the industry have usually been dismal historically!!