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Apple Inc is today one of the most profitable businesses in the world, and Steve Jobs is often credited for bringing it to this position. As many of us know, he founded the company, took it to new heights, and then was ousted from the company that he founded. In 1997 when he returned to Apple, it was in dire straits but he turned it around and made it what it is today. What was it that he did right that others didn't? This is what Steve Jobs said when he returned to Apple in 1997: "People think focus means saying yes to the things you have got to focus on. But that's not what it means at all. It means saying 'no' to the hundred other ideas that are there. You have to pick carefully. I am actually as proud of the things we haven't done as the things I have done. Innovation is saying 'no' to 1000 things"
There is a huge lesson for all of us in the financial advisory profession in what Steve Jobs said. Helping an investor achieve his financial goals is what we do for a living. This journey is 10% about doing what the client should do and 90% about what he should not do. Focus, as Steve Jobs said, is not only doing things you need to do, but equally, its about saying no to a 1000 other things that your client wants to do but is not good for him.
It's about avoiding pitfalls
The world's greatest investor Warren Buffet says, "I don't try to make returns in markets, all I try is not to commit mistakes". What holds good for Warren Buffet is equally true for each one of us and our clients. When it comes to managing personal finances, many clients presume that a lot needs to be done to manage the money well and hence they want to be in action every time. This leads to a search for the best products of the season. Each time an investor attempts this, we try and highlight that he is creating a potential pitfall which can derail his long term objectives. The fact is that if it was so simple to find the best product, then all the investors would have been rich and we would have seen a lot many folio-returns than just fact-sheet returns. But the reality is way different. The fact is that with even such stellar track records of schemes, not many investors have made money. The reason is not the bad markets or bad schemes; it's the way an investor behaves. Chasing returns, getting swayed by the fear and greed factor and liquidating the assets before the defined time frame are some of the biggest mistakes that an investor makes.
Another pitfall is to get into something you don't understand, but are lured to because of high returns being promised. For instance, a client of mine gave me a call sometime back and told me that a real big time entity in financial services industry called him up to invest in National Spot Exchange or Commodity Market which would yield him 14% returns. He asked me to advise him on the same. He sent me a mail which had an explanation of how would they generate those returns. I responded saying - "Sir, I can't understand how they would manage to generate such returns but one thing is for sure that it is not sustainable. Returns in long term gets created when there is some economic activity which is missing here. Hence I would advise you not to invest." After 6 months the scandal was out and he thanked me for saving him from becoming the victim of the scandal.
Stay Simple and Keep it Simple
We try to adopt simple strategies to manage the portfolios as it's simplicity which prevails in the long run. But in today's world simplicity is the real challenge. For want of better returns investors often complicate their finances and forget that it's easy to complicate but difficult to uncomplicate. As even Peter Lynch said " The simpler it is, the better it is....".
We are often asked - "Should I book profits" or "Should I change the fund as the other fund is performing well" or "should we invest in equity as equity is on the rise" and so on.... The questions would never end. Clients want me to work their way and sometimes I have to be ruthless to make them understand the right way. My role as an advisor is more like a parent who would give his kid all that he needs but not all that he wants. Hence we make sure to keep it simple and straight.
Media is a BIG entertainer
By media here I mean every medium through which a client gets information be it television, print media or their friends, colleagues or family etc. Different media have different opinions on what is the best way to manage money. Hence it gets difficult for investors to hold their emotions and when it comes to mutual funds or market linked investment it's always exciting for investors. That's where the clients need a hand holding and we make sure that he stays put and does not get distracted.
The Fear of Direct
One of the rising concerns amidst the advisors is the "Direct Option". The fear would continue as long as investors perceive us as transaction enablers. But transaction enabling is only a by-product of advisory. For instance, one can learn how to repair a car at a click of a mouse but not many of us do so because we really look forward to a person who is a subject matter expert. Now whether it is managing personal finance or repairing a car, people look for subject-matter experts. All they long for is an advisor who can manage their money as his own and avoid mistakes. As long as people believe that you will manage their money as your own, Direct or Indirect would hold no relevance.
As I mentioned earlier, the key for us is to communicate to our clients what we really do. Clients may ask you, "Look, I can select a fund by browsing the performance tables that are freely available, and I can buy it online direct, at a lower cost than through you, so why should I go through you?" We, as advisors who like to keep things simple and focus on what really matters, should be able to say this confidently, "Sir, successful investing is 10% about selecting the right fund and 90% about avoiding all the blunders that most investors make after they have selected the fund - which prevent them from really making the money they ought to. My job is to help you not just with the 10%, but be with you for the 90% as well."
Discipline scores over Intelligence
Discipline is the key to success. Statistics can easily showcase 15 year returns of SIP but statistics hardly showcase investors who have run their SIP's for 15 years. Running a SIP for 15 years is not as simple as it looks like. The road to success is long and full of twists and turns and hence one needs to be disciplined to travel it. A lot of our efforts go into keeping the clients disciplined.
We are not in the business of NUMBERS we are in the business of TRUST. It's trust and belief that can create wealth for investors which is sustainable and long lasting. Remember there's a thin line of difference between "Making Profits" and " Creating Wealth" . And I am talking of Sustainable Wealth. Rather than succumbing to client expectations to "be active" with the portfolio in a bull market, we need to help clients understand the 10-90 route to investing successfully, help them understand the difference between "making profits" and "creating wealth" and help them understand the actual value that we add in helping them create wealth.
All articles in the Sell Well - Grow Well section are created by Wealth Forum. These are not to be construed as opinions given by SBI Mutual Fund.
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