"Anyone can be a DIY investor, not everyone!"

Hi Dev! Welcome back.

1. Let's do a little recap of our earlier discussion and introduce you to our readers. You did your engineering, followed it up with an MBA, started investing at the age of 21 and became a SEBI-registered advisor. Today, you run a popular blog called StableInvestor.com, travel to a new destination every six months, and provide investment advice to people from all walks of life. What did we miss?
   
   Nothing much! Four years is pretty short term for a self-confessed long term investor like me. But jokes apart, the last four years have been interesting. The blog is almost nine years old and has grown in popularity. And so has my fee-only investment advisory practice.

   Due to increasing work commitments, my travel has reduced. But I still manage to clock a few miles every now and then. Nevertheless, I need to get my travel habit back on track once this pandemic is over.
   
   

2. Great! How have you grown as an investor in the four years since we last interviewed you?
   
   Although it’s difficult to compartmentalize the exact growth, a few things have been reinforced after my client interactions.
   
   I often say that there is no point being the richest man in the graveyard. So money should be a means to something else. Secondly, without goals, there is no purpose to the portfolio as it becomes a directionless assortment of products pulling in different directions. The portfolio ends up going nowhere as does the investor.
   
   People cringe at this idea of tagging investment to goals as they only understand the notion of simply growing the money. But they don’t realize that having a purpose (a concrete goal) and then building logical systems (via proper investment plan) increases the probability of goal achievement. And that is the purpose of money. To help you have a chosen amount of money in your chosen timelines. Isn't it?
   
   On the other hand, let’s say if you beat the index by 2% one year, then you can’t eat the outperformance. If you aren’t investing the right amount, then even beating the markets will not be enough. What is the point of any outperformance then? Most people focus on the returns rather than on increasing the amount of money they can invest in. During the initial years of accumulation, the savings rate is a bigger contributor to wealth than returns. 
   
   As for my direct stocks portfolio, the approach hasn’t changed much. I still stick to investing in predictable, well-run businesses that have reasonable assurances about their growth. I am not an adventurous cowboy trying to tame various wild horses. I know a few simple things and that is what I try to do.
   
   Occasionally, I take riskier stances in small parts of the portfolio but only for exploring an idea/theme rather than finding the next multibagger. Over the years, I have realized that looking at the technical aspect also helps.
   
   The 3C strategy of Cash+Courage+Crisis played out pretty well for me during the recent fall in markets. So that was another learning reinforced for me -- that you either get good news or you get a good price in markets, but never both. When there is a crisis, you need to show some courage even if you are uncomfortable doing that. That is to say, get comfortable being uncomfortable if you wish to make money in investments.
   
   

3. That brings us to our most important question right now. What do you think of the markets right now?
   
   It is very rare that the markets can be called as fairly valued. They are either over or undervalued. But given the various factors at play, it does seem that the pendulum is on the side of overvaluation. How much overvaluation? Many would find it extremely overvalued from a statistical perspective. But if you look at it contextually, it might not be the case.
   
   In any case, it’s about how much money you make when you are right, and how less you lose when you are wrong. As they say, amateurs are worried about being right or wrong. Professionals think about making money.
   
   

4. Follow-up question: How has Covid-19 impacted your investing and the investment advice you share with others?
   
   Covid-19 is a Black Swan event for which nobody could have prepared. It is another matter that due to lackluster earnings and high valuations, the markets were already on a cliff. Covid-19 just pushed it off the cliff. 
   
   But the pandemic has shattered our gradually-built perception of ‘normal times’. Our generation (or even previous one) has had a pretty smooth life in general. Speaking historically, the calm of the last few decades was an outlier period. Advice on managing money is in general, evergreen and simple. One must keep money aside for emergencies, opt for family health insurance and an adequate term life cover, and balance risk with investment horizon.
   
   There are no changes to those basic tenets. But since one can’t say how things will pan out, I have advised many clients to shore up their reserves for any unexpected events. For some aggressive clients, the sudden crash in March provided an opportune time to add more equity at attractive prices.
   
   The pandemic has also brought back health and family back to the center for many people. Being rich won’t help if you and family aren’t healthy and happy. Isn’t it?
   
   

5. Given how Mutual Funds have fared recently, many are suggesting FDs, PPF, ETFs, and even direct stocks as alternatives. Thoughts?
   
   Every product has its day. Many are forgetting that mutual funds are just a vehicle for investing in equity (and debt) markets. So if equity (or debt) markets are facing headwinds, even the mutual funds will face the same. It’s not that the vehicle itself is bad or something like that. The choice of product should be requirements-driven and not just random selection based on high returns.
   
   An FD might be a good option for a conservative saver who doesn’t want to take risks associated with even the good debt funds, leave alone equity funds.
   
   PPF is a solid debt product that delivers good tax-free returns compared to other debt options. Of course, it has its liquidity constraints which is a feature of the product, and not a bug. Along with EPF, it can easily form the core of debt part of the portfolio holdings for the long term goals.
   
   Both FDs and PPF can be part of one’s overall portfolio. You can easily and ideally go for both, not just any one of the two. You pick different products as per investor’s needs and assemble a proper portfolio that has a well-managed asset allocation.
   
   In general, it's not just about ‘ORs’ when picking financial products for your investment portfolio. It can easily be about ‘ANDs’ if more than one products serve your purpose.
   
   

6. Where do you think you have done better than your peers? What has been your biggest mistake in investing?
   
   I don’t compare. What works for someone else might not work for me at all.
   
   Over the years, I have tried many approaches and realized that having a valuation-conscious and contextually-aware allocation strategy works best for me. I have been sticking with it for the last several years and it has helped me do well. So I tag along for now. But I regularly keep testing strategies (in smaller test buckets) for things I am not confident about or I wish to experiment with.
   
   Biggest mistake? I have made tons of them. But that’s an acceptable tradeoff from how I see it. Not sure if it’s the biggest but not averaging up aggressively when I had sufficient conviction is something that I feel I still need to work on a lot.
   
   

7. What are some of your hard-earned investing lessons that you didn't find in books?
   Once you have read a few core books of investing (and I still have full regard for the investor-cum-authors), the incremental benefits/learnings that you get from each new one is pretty limited.
   
   As is rightly said, successful investing is pretty simple but not easy. One hard lesson I learned is the importance of sticking to a strategy and giving it time. And you got to know how much time you need to give to a chosen strategy. No point following a strategy that you can’t stick with for long enough.
   
   I will even go to the extent of saying that it’s better to choose the 2nd best strategy (than the best one) if you have a higher probability of sticking with it for long enough.
   
   

8. Follow-up question: According to you, where do experienced investors go wrong? What are the common traits among investors you admire?
   Boldness can be an asset as well as a liability. Good investors know (most of the time) when to be bold in the markets. 
   
   Being humble is also necessary to know when you need to give the market the respect it deserves and not try to be bold. Every now and then, you will be proven wrong. Don’t take it to heart. It's how the markets work.
   
   Your investment experience will never be a straight upward sloping line. Greed (for lack of a better word!) is good, at least to an extent. It’s necessary to be honest. But the ability to leave some money on the table and leave the party (market) when you don’t want to, is something that I admire in some great investors.

   
   

9. What is your current asset allocation?
   That depends on my goal-specific portfolio. Different goals (or goal buckets) demand different allocation approaches. My near/short term asset allocation is a very simple 100% debt. No point being adventurous in the short term.
   
   I manage my longer term allocations more actively. So most of the time, it is equity-heavy. Currently, I am comparatively less in equity than I have been in the recent past. But my risk profile is different from others. Asset allocation isn’t exactly a CTRL+C, CTRL +V kind of thing. Isn't it?
   
   Note - What I say above or elsewhere here should not be considered as investment advice or guidance by anyone. If you are a DIY guy, find what’s best for you. Or else contact good investment advisors to help you figure things out investment-wise. This is my way of putting up a disclaimer. Just look out for yourself.
   
   Dev travels to a new destination every six months.
   

10. What is the litmus test for evaluating or selecting an advisor/Wealth Manager?
    There isn’t just one factor for doing this. And I may be biased in what I am about to say.
    
    The first is the competence of the advisor. The advisor should have a proper handle on the strategy/products he is advising on. This is difficult, but also non-negotiable. You can never ask the barber whether you need a haircut or not. Right? So verify the claims of the wealth managers instead of blindly believing their sweet talk. 
    
    The second is the transparency in telling prospective clients about what he can and cannot control. If in doing so, he ends up not getting a client because he was unwilling to over-promise, then so be it. 
    
    Many so-called wealth managers aren't very transparent about these things. But whether we accept it or not, we do have a responsibility towards clients. 
    
    Another aspect to consider would be a conflict of interest. You need to be sure that the advisor is sitting on the same side of the table as you. That is, his incentives should be aligned to yours. Earlier in the era dominated by LIC ‘uncle’ agents, people weren’t aware of this angle. 

    
    

11. The Nifty50 PE and gold prices are at an all-time high. On the other hand, the returns from FDs and real estate are barely beating inflation. Many don’t like Mutual Funds either. What would you advise the average retail investor to do in these circumstances?
    
    First let’s talk about the so-called average investor. Problem with averages is that they look good in theory but each individual has his own unique circumstances (deviations from averages). So what might be advisable for an average investor may not be necessarily good for an investor who is part of such an average calculation. This sounds counter-intuitive but that’s one issue with the concept of averages.
    
    But even generally speaking, there are multiple factors (in addition to the ones listed in the question) at play before one can advise on anything. Let me talk a bit about the ones listed.
    
    Nifty50 PE is making new highs these days. And for someone who runs on a valuation-aware strategy, it might seem like a good time to exit as high PE generally means low returns in future. But it is not as simple as just looking solely at the PE ratio and making changes. I have explained this in greater detail in my post here and here.
    
    Gold too has seen a stupendous run. But I consider it a tactical part of the portfolio rather than its core. So it's good to have some gold, but not too much. That said, the allocation to gold can be higher in times like the current one. But it’s a lot about getting the timing right in such plays, which is easier said than done.
    
    For the common, ‘average’ investors, it's best to stick with asset allocation which is in line with their goal timelines and risk appetite. And if current market run up has increased their equity allocation to beyond the recommended weight, then rebalancing should be done to bring it down again. For those who are (or consider themselves) sophisticated investors, a tactical overlay on rebalancing events which is based on some factor-driven strategy can also be considered.
    
    

12. Thoughts on DIY investors?
    To be honest, managing one’s own investments isn’t exactly rocket science. Stick to a few basic time-tested rules, keep increasing your knowledge, and stay disciplined. That’s it.
    
    But still, most people end up messing their finances. As an analogy, think of health. Everyone knows what they need to do to remain healthy. But they still fail to take care of their health. The same is the case with investments. DIY investing is sexy. But it can be risky and mess things up if you aren't ready. I have said this often -- anyone can be a DIY investor. But not everyone.
    
    I recently onboarded a client who, till very recently, was a self-confessed DIY investor. The majority of what he knew came from online forums, friends, internet, books, etc. But as a result of his DIY endeavours, he kept investing in various products that seemed-good-at-some-point-in-past. The result was a random collection of products in a directionless portfolio.
    
    The crazy crash of March shook the ground beneath him (in his own words). He was shocked and unable to fathom what to do next. He had the knowledge, but felt that it wasn’t sufficient. He decided to bring in someone else and we touched base.
    
    What I am trying to highlight here is that DIY investing isn't tough. But every now and then, things will not happen like you expect them to. And then, will be the real test of being DIY.
    
    Please don’t get me wrong. I am not against DIY investing. That is exactly how I also started my journey. At times, people overestimate their ability to manage their investments. This isn’t an issue during good times. But when things turn ugly, they don’t know what to do.
    
    

13. For an Indian investor, what book(s) or resources would you recommend?
    Sadly, not many India-specific investment books have been written. And those which have been written might not appeal very much to beginners. I suggest sticking to the non-Indian investment books first. Once you get a hang of these, try out the Indian ones. Hopefully, we will see better books written for the Indian investor in future.
    
    

14. Complete the statement - The market is __________.
    The market is will change again
    
    

15. If you had to choose one quote or statement on investing for a wall hanging, what would it be?
    I pick 3 instead:

    Profitable investing is about having others agree with you… later.
    You will either get good news or a good price.
    Even this will pass. The pendulum will swing again.