When I wrote the article “What was my advice when stock market crashed in 2020?“, I have mentioned that I am going to share with you all two of my client’s stories. In this post, I am trying to share and prove that your educational qualification is the least required qualification for investment.
Even I tried to expose this in my earlier post “Best Market Timer Vs Worst Market Timer Vs SIP Investor of Nifty – Who is the winner?“.
However, even though we are aware of all these, we the educated tend to over smart in investing as we think we are highly qualified means we have an extra edge over those who are not so qualified.
Education Qualification is the least required qualification for investment
Few months back I wrote an article about a cab driver. That article turned hugely popular among all social media platforms. I have written a real-life story of a mutual fund investor who is constantly holding his investments in the same funds for a long.
Refer to that wonderful story “Cab Driver and his 10 Yrs 15% Equity Returns – What we can learn?his 10 Yrs 15% Equity Returns – What we can learn?”. In this post, I tried to highlight that how ignorance created wealth for this cab driver.
Coming back to the purpose of this post, the one story which I wish to share is of a cab driver and another story of an IDBI Bank Manager who did her MBA in Finance. One is illiterate about investment and another is highly qualified.
I don’t want to repeat the story of a cab driver. You can refer to the above-shared post to read more about him. Instead, I wish to share the story of this IDBI Bank Manager.
She contacted me to review her portfolio during the mid of 2019. I found that around 95% of her portfolio was in equity mutual funds. She was holding around 25-30 funds. She started her journey of mutual fund investing in 2008. So for her its almost around 11 years of journey.
When I reviewed her portfolio, I suggested her to revamp and trim the number of funds. Accordingly, I also suggested her to follow the concept of asset allocation.
However, her question to me was “When the funds are generating fantastic returns ranging from 10% to 18%, why do I have to move to debt where the returns are around 5% to 6%?”.
Yes, her question was valid. However, I told her “Luckily you are investing from 2008 and afterward during this 11 years of journey you have not experienced any market crash and whatever you invested turned in green. That itself created confidence (over-confidence) inside you that your strategy is right. However, the first step fo investing is asset allocation based on your goals and to protect whatever you gained rather than taking a blind risk.”
She did not listen to me and I was also not worried much as she approached me just to review her portfolio. After that our interactions ended there.
However, last year during the month of July, she approached me again to recommend few debt funds. I surprised by her need as she was firm believer of equity and doing equity investing since 11 years and what made her to think of debt fund? Her answer was “I saw huge downfall during 2020 market crash and with fear I withdrew everything with a loss of around 30% to 40%. Now I don’t wish to enter into equity market again. Hence, I need few safe debt funds to invest”. Accordingly I suggested her few funds.
Again few months back, she called and asked me equity fund recommendations. It’s again surprising to me that why her position now changed to equity? Her answer was “I lost around 30% to 40% in 2020 and now I am seeing huge uptrend in the market. Hence, again I want to regain of whatever I lost last year through equity.”
Do remember that she was confident during 2019, she lost confidence in 2020 and again she wish to enter into equity in 2021 with a hope that she will get back of whatever she lost last year.
Instead, if she kept her calm without worrying the notional loss, then she might be in far far better position than others. However, our mind will not work liks this. Instead, both FEAR and GREED force us to stop act wisely with our behavior control.
These are the two real stories which I share with all my new clients or with few prospective clients to understand the importance of emotional controlling than education.
Education makes us to eligible to read, write and to certain extent understand. However, our formal education fail us to teach the basic and important concept of how to control our behavior, fear and greed.
Hence, no matter how much educated you are, make sure to start learning about investing as if you don’t know anything. Your educational qualifications are useless when it comes to investing. To certain extent they may give you an advantage over illitretate. However, beyond certain level it is how you behave and control the risk matters a lot rather than your degrees.