In my class I am normally asked “Is the equity market like a yo-yo?”, the other question is “Is the equity market like a roller coaster?”

My answer to both the questions …is NO. NO in capitals.

Both the yo-yo and the roller coaster have a predictable movement. You know the yo-yo will go down and up in exactly the same time. It will not stay down for 3 years and then be up for 22 days.

Similarly in a roller coaster the speed, the rate of rise, descent, the time taken, the number of gyrations is all fixed. You know that the whole ride will take “20 minutes” or “40 minutes” - and in a worst case scenario all you need to do is close your eyes! Once it stops you can get down.

If you close your eyes to your equity portfolio, you could wake up holding DSQ, Silverline, Lml, Patheja forging, Shaan Interval, Indiana dairy…etc. because you did not see what happened to the promoters of these companies.

PS: even on google you cannot find some of these companies - when some of them died they were burnt, and then their ashes were buried, hoping they do not rise again!!

Whenever I do a program on investments or personal finance, people rush to me, and ask “Are you saying direct investment in equities is so difficult, that we should not do it ourselves?”

My answer is normally yes. That is because for most of the people I meet - whether they be Relationship Managers in banks, employees of some engineering company, employees of a fund house or a life insurance company, the connect to equity is at best remote. They are never in the thick of equity. Normally they all have the following problems:

1. Not enough capital to create a portfolio: To create a sensible portfolio today it will cost you at least Rs. 10 lakhs. If you start out with Rs. 20,000 to invest, you can achieve really little.

2. No knowledge of portfolio construction: Buying just a bunch of shares will not (sorry may not) create wealth in the long run. You need to construct a portfolio consisting of value stocks, growth stocks, large cap, growth cap, across business houses, across geographies, etc. this is not easy.

3. No time commitment: For heavens sake do not treat direct investing in equities as a part-time activity. It takes a lot of reading, talking to people in the market, trying to figure out the economic indicators, - if you are not ready for the effort, go to a mutual fund or a unit linked plan.

4. Confusing between trading and investing: If your long term portfolio is all your short term decisions gone wrong, man your portfolio is in trouble!

keep reading…also see why people lose money in equities..

Mutual fund ranking is another media creation. Media needs to create stories daily. So it helps to have quarterly results. If you have 200 companies 4 quarterly results and 200 final results ensure that 1000 stories are ready. Similarly, if you 250 schemes and you have monthly rankings (thank God it is only monthly and not weekly) you have 250 stories a quarter!

Rankings also help the distributor - he goes to the client and says “See xyz.com is saying that Franklin India Blue chip is in the 3rd quartile, please invest in BFS Equity fund which is the best performing fund for the past week” So the client obliges. This helps the distributor earn his commission from churning.

It helps the site to get some publicity because BFS Equity spends a lot of money in publicity for itself claiming it is the best fund - and quoting xyz.com. That is nice.

Who is paying for all this? The people who advertise on xyz.com - which is largely all the mutual funds! What a nice game - some of this is taken away from your Nav - so you are paying.

For the investor the problems are….manifold. I will mention that in a separate post!

A Very good Poker joke is “Look around the table. If you are not able to find who is to be had that evening, it is you”. Similarly when you are with a professional and you do not bother to find out how he is compensated, frankly, I do not think it is the advisor’s fault. Learn to ask the correct questions. The title of this post is one such question.

The greatest dividing line that separates financial professionals is fiduciary obligation. By law, a fiduciary must act solely in the best interest of the client. As such, a fiduciary is obligated to reveal any potential conflict, as well as to fully disclose how they are compensated for their services.

Doctors, lawyers, chartered accountants, trustees are fiduciaries. In April 2005, the SEC set forth recent regulations that require brokers and other financial professionals to include the following to indicate an absence of fiduciary obligation:

“Your account is a brokerage account and not an advisory account. Our interests may not always be the same as yours. Please ask us questions to make sure you understand your rights and our obligations to you, including the extent of our obligations to disclose conflicts of interest and to act in your best interests. We are paid both by you and, sometimes, by people who compensate us based on what you buy. Therefore, our profits, and our salespersons’ compensation, may vary by product and over time.”

If you see this disclaimer, you should ask questions, request complete disclosures, and really question if this is the establishment that seeks to advance your best interests.

After all, that’s why you hire a financial advisor in the first place, isn’t it?

However, most investors do not spend enough time and effort on training themselves about the questions that they should ask. That is gross neglect. See what even SEC is saying is “advisers will answer questions that are asked”. So if you do not know what to ask, God save you!

How Does Your Advisor Get Paid?

Fee-Only Compensation: This model can minimize conflict of interest. A Fee-Only Advisor is paid for advice rendered and for ongoing management. No other compensation can be rendered by any other financial institution, thus advancing the fiduciary standard. Fee-only advisors are paid solely for their knowledge and their asset management services.

Fee-Based Compensation: Frequently confused with Fee-Only Advisors, but not at all the same, fee-based advisors may earn only part of their overall compensation from advisory fees paid by clients. They may also receive compensation for commission-based products they are licensed to sell, advancing an inherent conflict of interest. As such, fee-based advisors do not hold to a fiduciary obligation.

Commissioned Compensation: Commission-compensated advisors can face enormous conflict of interest. A financial benefit can only be derived through transactions, creating a bias toward account activity. Unbiased advice is an improbable outcome for investors who use the services of commissioned advisory services. Further complicating the conflict of interest issue, commissioned representatives can receive incentives for selling one investment over another.

Getting rich is simple; it’s just not easy.

If it were easy, everyone would do it and do it well … and they don’t! I’m not going to give you a step-by-step process you need to employ to get rich effectively. No, this article is to get you to stop and think about all the getting rich advice found in articles, books, blogs, you aren’t following. I want you to stop and think about the things you should be doing—and implement them.

In my presentations I talk about how to apply “getting rich” to your everyday life. Sometimes someone comes up and says, “I’ve heard “xyz” talk about some of those things before.” But they’ve never successfully applied them.

Hearing it for a year versus doing it for a year are completely different things. Success is about the “doing,” not just the “knowing.” In fact, all the bowlers in the world know that you have to bowl a simple looking red cherry six inches outside the off stump. Only McGrath does it! Does Ajit Agarakar not know it?

Does it not sound simple? Yes, but it is not easy.

There are so many things in life that look simple but, in fact, are not easy. Cooking is one of those for me. It always looks so simple. My wife/ mom can go into the kitchen and within 30-40 minutes put together a gourmet meal. Then, I get into the kitchen and …Oh My God!

Small repairs around the house look so simple. The only way I can help is pick up the phone and call the right guy – carpenter, plumber, cobbler! If I pick up a hammer and, well, it’s just not pretty. I remember when I was 7 my Mom saw my drawings and said you better not do Engineering or Medicine! Good advice, Mom. Thanks.

There are so many things in our lives that look simple but are not easy. Getting rich is one of them. It is a skill. A skill that takes commitment and effort to learn as well as consistently apply.

So, I’m giving you an assignment (sorry, my inner professor is coming out): Think of one idea in a book, article, recording, blog—anything—that you’ve read or heard over the last year that you wanted to apply to your life but never did. Your assignment is to pinpoint that “something” and do it within the next seven days. If it is something you do on an ongoing basis, then find a way to incorporate it into your life and/or your business. All excuses are equal—just do it.

Success is the uncommon application of common knowledge. You have the knowledge. Now apply it with uncommon commitment.

It won’t be easy. But I assure you it is simple.

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