Many of us have sudden attack of brain fade and we start asking questions about area in which fund managers do not have any expertise.
Going by recent cricket controversy made infamous by visiting Australian Cricket captain Steve Smith, brain fade happens when one looks for help from a direction one is not supposed to look. Or doing or not doing things which were too obvious.
How is this connected with the business of investment? Well many investors and people in media keep asking fund managers following questions:
Directions of markets and market levels
Outcome of political situation and election results
Direction of Indian and global economy
MF schemes to invest
What is the job of a fund manager? A fund manager spends significant time of his working life in understanding and analysing companies. He builds expertise in identifying stocks. The best amongst the lot get 60-70% calls right. Even after years of experience fund manager may get lemons once in a while.
Ask fund managers questions about a stock and you will not get an answer. Please note fund managers are the best in identifying the stocks. You won’t get an answer because they know if they tell one stock, they are not sure whether it will be part of those wining 60-70% stocks or 30-40% stocks that did not deliver. Secondly the regulations do not allow them to discuss individual stocks.
If you really like a fund manager for his track record then you should follow him through his fact sheet and invest in his/her funds. Because his/her best ideas are in his schemes. In the area in which they are experts you will not get an answer.
Now many of us have sudden attack of brain fade and start asking questions about area in which they do not have any expertise. Most fund managers are not very comfortable talking about market levels, direction of economy or election outcome but after years spent in this business they have perfected the art of giving palatable answers. They are neither intellectually dishonest nor being facetious about it but they have figured out how to buy peace with ever pressing and poking aam janta.
One more attack of brain fade happens when aam janta asks questions about asset allocation from fund managers. Again the most palatable answer is 100 minus your age. This is a quick fix and like most quick fixes it is not a very optimal answer. Every investors’ asset allocation will differ on the basis of not only age but also income levels, predictability of continuity of income levels, future cash flow projections, dependency of family on investors, experience of investing etc and should be handled by investor’s financial advisor.
Now the most interesting question asked is which fund to invest. It would have been funny had it not being so ironic! What do you expect in a reply? If a fund manager has a good track record than the most honest answer would be the fund I am managing but investors will not like this. Interestingly by giving this very upright answer in his most honest moment he loses the trust and confidence of investor and for many investors he may sound as a very clever product pusher! If track record is not good than should you even be asking this question?
To avoid this trap the fund manager again comes out with very clever answer like invest in few schemes with good and long term track record etc. How helpful!
If you have brain fade moments which many investors do have in their journey of investments and feel like asking fund managers about levels of markets, direction of economy, asset allocations, election results, fund selections etc then you are asking right questions but perhaps to a wrong guy! Even worse you may be asking wrong questions to the right guy!
So what should you do in the given situation? Well like in cricket, if you are on strike than ask your non-striking partner and if your team is fielding than ask the close in fielder or wicket keeper. Similarly in the investment business you should ask these questions from your financial advisor. If you do not trust your non-striking partner or close in fielder then you are in wrong team. Similarity if you cannot trust your financial advisor than it is better you change your financial advisor and figure out right one for you but looking at dressing room (fund manager) is not the right answers.
Similarly never ever ask your tax experts about investments. If you are to do so than you should ask your financial advisor to file your tax returns also!The writer is Chief Mentor and Co-Founder of Buckfast investment Advisory Services.