Tuesday, June 29, 2010

A Class Apart

(Published in Moneylife.in today)
At most seminars on stock markets I am struck by the fact that investor expectations always seem to border on greed. An interactive session on broader issues degenerates into stock specific questions. However, a recent seminar I was privileged to address was a refreshing change. The crowd had a large number of active stock market players and this was a gathering of what I would term as ‘wealthy’ people. All of them (barring the organisers, who were dressed in suits) were in casual daily attire. Clearly, comfort was more important than appearance.
Almost all of them were very well settled in life and were constantly on the lookout for more opportunities. Everyone in the crowd (which was more than five hundred strong) had spare cash to invest. They had substantial wealth in real estate, gold, diamonds, fixed income investments and shares. A few of them had chosen the mutual fund route as an additional avenue, but not as a first choice. They all seemed to prefer direct investment in to equities. Most of the questions did venture into stock specific questions, but they were more to do with provoking the men on the dais who included a couple of ‘talking heads’ on business channels.
The older among the crowd had seen ups and downs in the market, so they were more casual about losing money in stocks. Many of them had large core holdings in frontline stocks and a good mix of stocks that bordered on the speculative. Yes, they were all businessmen, from the trading community. Some of them had also put money in to the market through the Portfolio Management Schemes and had mixed reactions to the route.
I did a straw poll of the audience and found that none of them had ever entrusted their wealth to a financial planner or a ‘wealth manager’. Their view was that their financial assets are secrets which they do not wish to discuss with others. They were also upset by the fact that some of the private bankers sent their representatives to discuss financial investment opportunities with them. They were upset by the fact that someone in the bank, other than the branch manager or the relationship manager is privy to their financial data. They have learnt how to avoid these pests through some hard talking with their banks and a few of them have gone to the extent of just keeping an account alive with the bank in question, whilst moving most of the money to other banks.
A large majority of them were in to mid caps. Here their approach was well defined. They focused on industries they had good knowledge about. For instance, a steel trader would look at his customers and their financial behaviour, their off take of material etc would be a good base for him. There were a couple of people who focused very sharply on acquisition targets. In the latter case, the guys knew that they were placing bets on something other than company performance.
Most of them spend a couple of hours or so every day to devote to their portfolio. They talk to more than one broker, get his views and keep track of his views. They have a list of favourite brokers as well as ‘contra’ indicators (brokers whose views have consistently been wrong).
So, far, what is remarkable about them? Does it sound like a typical market participant? Well. One thing was noticeable. Almost each one of them stayed away from derivatives. They had no problem losing money in their stocks but none wanted to. In fact a younger member responded that derivative trading was stressful and after having lost money (in his words “three days positive, fourth day wipe out”) decided that it was not for him. He also said that it needed more study of the market and a need to be constantly monitoring the screen.
For me the gathering was revealing. Here was a group of people, for whom equity is another asset class and not the only one. None of them seemed to be unduly worried or impacted by the volatility in the market. And more important, they got in with a preparedness that they could lose their money. In fact, one of them was a late entrant in to equities, having got in at the peak of 2008, but still active and working his way through 2009 and 2010 to recoup all of his losses and emerge in positive territory.
The interesting thing was that someone tried to explain to them the merits of “Systemic Investment” in equities. They brushed it aside, saying that it may have its merits for someone who keeps worrying about wealth. For them, equities were clearly beyond asset allocation. It was one more way to try and experiment with money. Equities were not their first line of defence in their wealth basket. They entered the asset class only after exhausting other avenues.
Well, we may choose to disagree with their approach on the grounds of it not being the optimum strategy to ‘maximise’ wealth, but they are a class apart, who do not need to keep score. As someone said, if you have to count your assets, you are not rich enough!

R. Balakrishnan
May 31, 2010

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