Lessons to Learn from Mistakes of Experts

financial experts

(This article was first published in The Economic Times.)

We turn to them for financial advice. However, that does not mean experts cannot go wrong. ET Wealth spoke to eight financial experts about the errors they made early in their careers and the lessons they learnt from the outcome. The common investor could do well to imbibe these lessons.

Nilesh Shetty, Associate Fund Manager-Equity, Quantum AMC

BROKERAGE SHOULD NOT BE MORE THAN YOUR GAINS

HIS MISTAKE

Early in his career, Shetty bought stocks, only to sell them as prices appreciated 10-15%. However, his portfolio gains were not great as many of the stocks he had bought were making losses. When after a couple of years he tallied the amount of brokerage he had paid on his trades, he figured it was way more than the capital gains made. Thanks to his constant churning, the transaction costs had eaten up a chunk of his earnings.

THE LESSONS LEARNT

Constant churning of stocks equals high transaction costs. Make sure the brokerage doesn’t eat away your capital gains. Buy a stock and hold it for the long-term for optimal gains.

Suresh Soni, CEO, DHFL Pramerica AMC

ACQUISITION COST IS JUST A DOT IN THE GRAPH

HIS MISTAKE

When Soni started out as a fund manager, his fund’s portfolio statement had a column stating the cost at which he had bought his stocks. He referred to the column to determine if he was making a profit or not. However, soon realisation dawned that instead of looking at the cost, one should be looking at what happened to the company thereon. The acquisition cost has no bearing on the company’s future. Using the cost as a reference point can lead to incorrect decisions because of cost bias. This bias leads us to sell winners and keep holding on to losers.

THE LESSONS LEARNT

Don’t use acquisition cost as a reference point to sell or hold onto a stock. Understand what the future holds for the company. If cost has to be used, use it in context to the company’s historical PE.

Jayant Pai, CFP and Head–Marketing, PPFAS Mutual Fund

KNOW WHAT YOU OWN BEFORE INSURING

HIS MISTAKE

Pai renewed his home insurance policy without factoring in the replacements and sales made during the year. It was only after he received the renewed policy that he realized that several pieces of furniture and appliances had been replaced. In effect he was insured for many things he didn’t own and he had no cover for many things he did own. When he sought a refund for the extra premium that he paid for things not owned, all he got was a pro-rata amount.

THE LESSONS LEARNT

Before renewing your home insurance, check contents. Don’t forget to include new items and delete those no longer there. Before getting anything repaired, check if the item is covered in the policy.

Alok Agrawal, Senior Director, Deloitte Haskins & Sells

START INVESTING EARLY

HIS MISTAKE

Initially, Agrawal let his earnings accumulate in fixed deposits. Heeding his banker’s advice, he also opened a recurring deposit without realising the tax implications. He was happy with the fixed interest, not understanding that it dwindled after accounting for tax. It was later that he realized that equity was the way to go, especially when you are young.

THE LESSONS LEARNT

A proper post-tax comparison of returns should be made before investing. Start investing in equity funds from an early age when you’ve fewer responsibilities and more time. Benefit from the power of compounding by staying invested for long.

Lakshmi Iyer, CIO (Debt) and Head-Products, Kotak Mutual Fund

DON’T MIX INSURANCE WITH INVESTMENTS

HER MISTAKE

She invested in an Ulip because she wanted an insurance product in her portfolio. Her logic for choosing an Ulip over a pure insurance product was that she would get something in return for the money she had put in. When she replaced the Ulip with a term policy, her premium came down by a third.

THE LESSONS LEARNT

Insurance and investment decisions should be taken separately. For insurance, choose term cover and treat it as an expense. For investments, opt for mutual funds on the basis of your requirements.

Sonu Iyer, Tax Partner & National Leader-People Advisory Services, EY India

GO EASY ON GOLD

HER MISTAKE

Iyer treated gold the way most Indian women do—as a great investment. When she started working in the mid-1990s, she primarily invested in gold and government bonds. It was some time before she understood that her investment style was affecting her overall portfolio returns and that gold was best used only as jewellery.

THE LESSONS LEARNT

Gold is not an ideal investment, for the short-term or long-term.

Saravana Kumar, CIO, LIC Mutual Fund

SELL IN HASTE, REGRET AT LEISURE

HIS MISTAKE

Kumar’s fault lay in being unmindful of the size of the opportunity. Often, he sold too early. He settled for good returns and missed out on meaningful participation. In 1998, he divested some IT stocks that ended up multiplying 5 times between 1999 and 2003.

THE LESSONS LEARNT

Resist the temptation to sell early. Don’t just settle for decent returns. Investments in stocks are fruitful when they are held for the long-term.

Seemant Shukla, Head of Sales and Marketing, Edelweiss Asset Management Limited

DABBLE IN STOCKS ONLY IF YOU KNOW HOW

HIS MISTAKE

Keen to earn a quick buck, Shukla assumed that dabbling in stocks was a piece of cake. However, stocks require constant attention, something he couldn’t give. Soon, a large portion of his investments went haywire. He lost time and money. It was then that he started investing in equity mutual funds and earned satisfying returns.

THE LESSONS LEARNT

Investing and trading in stocks require expert knowledge and understanding. Don’t try to get rich quick. If you don’t have the time or expertise, invest in equity mutual funds and let fund managers take the stock calls. 

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