June 8, 2017

How to lose money consistently

Guaranteed approach to losing money -  Look at the last 3-5 year returns and extrapolate mindlessly. Invest when past returns are highest and sell after the market corrects

Starting amount: Rs 100000
1.     Invest infrastructure mutual funds in 2008 (after the boom) based on hard selling by mutual funds
2.     Sell in 2009 with a 40% loss on average
3.     Recuperate from shock for 2 years
4.     Invest in gold mutual fund in 2011/12 after seeing 5 years of boom
5.     Lose 10% of principal in next 3-4 years
6.     Now, invest in mid and small cap funds, after 3 years of boom.

The investor has already managed to lose 50% of principal by now. The above tale may be an exaggeration, but you can check mutual funds with the above kind of performance, with most being launched towards the tail end of the boom. Someone is surely buying these funds at the top of a cycle !
It may not be the same investor in each case, but I can assure there are definitely a few who manage to achieve this ‘feat’ over a lifetime as they never get over their greed and refuse to learn from their losses (it is always someone else's fault)

If you think, I am mocking such people – that is not the case. I did the same thing when I started out, but the only difference is I swallowed my pride, accepted my mistake and have tried to learn from it.
An oversized ego is always dangerous to the wallet

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Stocks discussed in this post are for educational purpose only and not recommendations to buy or sell. Please contact a certified investment adviser for your investment decisions. Please read disclaimer towards the end of blog.

6 comments:

Indian said...

I went through 1-5 in more or less same sequence. But I believe I got a little more wiser between 4-6. I would like to hope if someone has survived the crash/seen the dull market after the crash and is still in market, he is less likely to make the same mistakes again and more likely to have some balance between greed and fear.

Sahil Shah said...

If DSPBR has stopped accepting further monies for its small/micro cap fund for this very reason, kudos to them.
Even SIP investors who started in late FY16 after seeing prior three year returns should brace for much more muted returns; unfortunately their expectations would be as high if not higher.

Unknown said...

Sundaram energy opportunities fund that garnered close to ₹4000 crores in 2008 was down 40% a year later.

Mystic Wealth said...

https://medium.com/@MysticWealth11/am-i-a-negative-person-3ae2392ee41e

Anonymous said...

I noted in your linked post that you invested in index funds and ETF. You chose niftybees for ETF. And under comments section there you mentioned index funds charge higher fees and therefore you prefer ETFs. Do you still hold the same view?

Also, why you invested in both index funds and niftybees? If you were to invest in the index, doesn't one ETF suffice? Niftybees will give you market returns anyway, why another?

Can you elaborate on this? Thanks.

Vikas Rana said...

Thanks Rohit for the sweet and short post.

Haven't all of us been there?

I can sum this post as "Chasing Performance"..very dangerous. Worst thing if done for retirement accounts because you keep pouring money each month so losses don't look bad :-)