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Rediff.com  » Getahead » Are you a successful investor?

Are you a successful investor?

By P V Subramanyam
June 26, 2015 15:02 IST
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Find out if you do these 6 things to become one

Let me first tell you who is a successful investor!

To be a successful investor do you...

1. Have to beat the index?

2. Perform better than Warren Buffet, Rakesh Jhunjhunwala, Prashant Jain? Uh...

3. Get better returns than your classmate, brother-in-law, friend... (relative's return?)

NO.

To me there is only one goal of investing. It has to be to meet your goals.

Bringing us to the most important thing in investing -- GOAL BASED INVESTING. Now that we know who is a successful investor let us look at a successful investor!

1. They do concentrate on costs

Whether they are dealing with an IFA or a website for investing, they have a good view of their costs. I am still not sure whether to pay 2.25 per cen for a good fund house delivering 19 per cent return per annum or 1.5 per cent for a fund house getting 12 per cent. This is not easy to understand, but a regular monitoring helps.

Almost all of them use an IFA -- and on portfolios of say Rs 5 crore it is worth using an IFA -- and negotiate the fee. It works.

2. They keep the bigger picture in mind

They know their strategic asset allocation and do not worry about one quarter or the next quarter. They know fund manager styles, know which fund manager is not corrupt, and know which fund manager accepts criticism. They do not bother who is the Prime Minister or Finance Minister -- because honestly over a 100+ year wealth management cycle this will not matter. They realise that wealth creation is very different from lifestyle management.

3. They defer taxes

Avoiding taxes is a crime, but deferring it is a brilliant tax ploy. I know people who do not understand it, and I know many, many people whom I have helped implement this simple technique. So suddenly a person with a Rs 3 crore portfolio goes to a zero tax bracket. It is simple and can be done.

4. They keep it simple

If you run a channel you need a lot of talking heads. They need to talk, and the more you talk the more you complicate. I have seen portfolios with Franklin India Bluechip, HDFC Prudence, Prima, Prima Plus, Top 200, held for more than 15 years. Simple does not mean small. Many of these people have 8 digits and 9 digit portfolios and are not averse to putting more money into the funds that perform. I know one friend who buys Asian Paints, HDFC Bank, Colgate, HUL on a regular basis -- and not only on dips. Remember 'Less is More'.

5. They have discipline

Some of them have written down statements, many of them do not. They know which is their trading portfolio and which is their investing portfolios. I actually encourage them to have two brokers -- for trading and for investing. One investor I know has four fund managers looking after about Rs 65 crore of total portfolio. Each fund manager is rewarded differently. His fund manager cannot choose the broker, that the client himself does.

6. They follow the money

If you do not know how your advisers are compensated and where there is a conflict of interest chances are you will get ripped off. If you do not know it, follow the money and you can understand what is happening. These guys are damn good at it and treat everybody well, while protecting their backsides. They make sure that their bank RM is a little happy so that when time comes they ask their RM to stand outside the branch to collect Rs 100,000 cash because they are too lazy to go into the bank and withdraw money and they do not want their servants to know that they are withdrawing cash. So follow the money!

Note: The images is used only for representational purpose

Photographs: Jesús Domínguez/Creative Commons

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P V Subramanyam