(This column was first published on Value Research Online.)
In life, there are a number of risky things you’ll do. Some will be planned, some ad hoc. Driving at a high speed is risky, quitting a job to start a business is risky, not having adequate insurance is risky, investing in equities is risky, not paying attention to what your wife is saying is risky. There are some acts of risk that you’ll do for the thrill, some you’ll for the lack of knowledge or awareness. I’m not someone who takes a lot of undue risk, but there are times when I feel like doing something just for the heck of it—no matter what risk is involved in it. For example, going to a new place for a haircut.
Don’t scoff; this is a legit risk. Too many of us are all too often plagued by bad-hair days even when we’ve had a decent haircut. Having a genuinely bad haircut, on the other hand, has the potential of easily ruining a week or two. The truth is that there is hardly anyone, apart from yourself, who notices your hair as much as you do. But even knowing that doesn’t stop us from thinking that the focus of the universe is entirely on our bad haircut. We think we look funny, maybe even stupid. It makes us conscious enough to welcome a sudden illness that’d allow us to stay home for a few days.
To avoid all of these problems, I don’t change the salon I visit or the hairdresser I sit down in front of. I’m fine if the chair is a different one from last time, but the dude wielding the scissor has to be the same. I’ve chosen my hairdresser as carefully as I choose my mutual funds. Experience, on both fronts, matters to me. I want a guy who has been a hairdresser for many years and a fund that has a decent track record for a long time. In both cases, I look for what I know is going to behave in an expected manner. The last thing I want is a surprise that can easily turn into a shock.
This is why it’s always best to go with what you’re aware about. Let’s say you’re a conservative investor, then it makes more sense to invest in a large-cap fund than a multi-cap fund. The former may not earn blockbuster returns, but you know that it won’t tumble horribly either. Similarly, investing in an older fund is better than a newbie because you know that the veteran has the experience of coming through all kinds of market conditions.
The risk-takers, the ones who live on the edge, might not adhere to this. They might invest in thematic funds or trending funds to earn more in a short period, they might even try a new place to get their hair cut every month. But for the conservative ones, it’s better to be safe than sorry, in both situations.