Wise Wealth Advisors

D.Muthukrishnan (Muthu), Certified Financial Planner- Personal Financial Advisor

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We are our enemy

Posted by Muthu on April 9, 2017

The average holding period of a stock is around 10 months and that of mutual fund is around 18 months. We’ve been repeatedly highlighting this.

SEBI recently conducted a survey among investors. The results to me are not surprising. 38% of people hold mutual funds for less than 6 months. 19% hold only for a period of one year or less. 21% hold it between one to three years. Only 22% hold beyond 3 years.

There is no further drilling down. I believe that investors holding for more than 5 years may be less than 10% and those holding more than 7 or 10 years would be 2% or so.

The above data clearly indicates 57% of investors do not even hold mutual funds for a year.

In one of our piece we saw how S&P 500 has earned 10.4% over last 30 years while an average investor has earned only 3.7%.

The main reason for this is chasing performance and having a less holding period.

Even for a conservative debt oriented product like MIP, we suggest a minimum holding period of 5 years.

We don’t offer equity if the client is not willing to commit a holding period of 10 years.

Once good investments are chosen, what matters is holding period.

I’ve also mentioned why generally the holding period is less. I would like to repeat the same below:

We’ve written many times in the past how investor earns much lesser than what the investment provides by jumping the ship in bad times, not staying the course, chasing performance, frequently churning the portfolio, redeeming during corrections, stopping SIPs, chasing current fad or fashion ignoring long term consistency across market cycles, timing the market, not understanding the power of time and compounding, inability to develop long term perspective and so on. The list of behavioural errors investors make is indeed very long.

Many advisors, especially the institutional ones like banks, try to showcase their value by doing lot of activities on clients’ portfolio. This is the way to justify their role and earnings. But this only adds to client earning sub optimal returns. They are afraid to offer inactivity as value proposition.

For the last 11 years, we’ve chosen the tough path of adding value by doing less activity on your portfolio. Since investors generally equate activity with progress, it has not been an easy journey for us. Instead we chose to continuously focus on your behaviour which is what matters once a course is set.

I’m glad that those of you who are staying with us for long are earning good returns. I’m also grateful that you’ve understood our value proposition by continuing to stick with us by sharing our investment philosophy.

Remember if any one of us fail in investments in future, it would be due to our behaviour rather mis-behaviour. We are our own enemy when it comes to investments.

Let us avoid mis-behaviour and behave well, as always.

3 Responses to “We are our enemy”

  1. balaji said

    one of the reason to discontinue sip is the regulator. iam investing since 2007. when my first investor pan is not manditory then they made manditory. MIN number came. then the regulator said up to 50000 pan is not manditory. kyc came and ekyc came now it is ckyc. a investor who want to invest 500 has to go also these confusion. how the mutual fund industry is expecting people will stay for longer period.

  2. Rvs said

    Please include impact of introduction of direct plans of mutual funds on portfolio turnover
    Also comment on the tax concerns / absence of stable tax regimes, poorly drafted legislations, KYC tamasha – that lead to exits

  3. MADHUSUDHAN VENKATA said

    Do you have an consulting firm or an company to guide investors in which mutual funds to invest, say something like scripbox? If yes, what is the difference between your firm and scripbox? or both same? Pls clarify!

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