Facebook Pixel Code

The power of skepticism and calculation

As kids, we were always taught that there is no substitute for hard work. While growing up, we were taught to work hard at our studies, as well as our extracurricular activities.

As kids, we were always taught that there is no substitute for hard work. While growing up, we were taught to work hard at our studies, as well as our extracurricular activities. And we did, at least the most of us did. But as we got older, hard work went to the backseat at some level. Don?t get me wrong, we still work hard at our jobs, we still work hard to ensure a healthy and happy life, but there is no doubt that a lot of things have become easier than they were. Technology has particularly made a lot of our tasks easier. Information is just a couple of ?googles? away, communication is easier with cell phones and emails, and the like. In fact, even investing has become easier. But, as far as I?m concerned, this is one area where the good old hard work can never be replaced.

These days, investors are being offered ready-made investment solutions. Just like we buy ready-made clothes, buying these solutions is easy. You pick the one that suits you the best. But, without a certain amount of knowledge, an investor wouldn?t even be able to choose the solution that?s most ideal for him. This is where learning about investments the hard way comes in. To pick the most apt investments, you need to put in some time and effort behind understanding at least the basics.

Before you get anxious, let me tell you that I?m not talking about sending you back to school. In fact, the basics that you need to learn and apply while investing are just two simple elements ? skepticism and arithmetic. These basic elements make for an unusual pair but are interlinked when it comes to investments. Skepticism will make you want to calculate and compare investments before you narrow done on one. And arithmetic will help you carry out these calculations and comparisons.

Let me elaborate with an example. Let?s say you get a call from a fund distributor you know. He tells you to buy this great fund that has generated stupendous returns in the past six months. Without skepticism, you would go ahead and buy the fund. But if you?re even the slightest bit skeptic, you would probe deeper and find out how the fund has performed over various time periods like one-year, three-years, five-years and through bear phases and bull runs. These calculations would end up showing you that apart from its recent performance, the fund has been average. Hence, you would not buy that fund and opt for something better. Makes sense to be skeptical, doesn?t it?

This is even truer for complex products like ULIPs. I?ve always advocated that ULIPs should be shunned by investors. But this advice has often fallen on deaf ears when investors aren?t skeptical and believe what their agent tells them. ULIPs are products that end up being more beneficial to your agent than to you. ULIPs are dubious products that come with equally dubious terminology like ?premium allocation?, ?fund management?, ?mortality charges?, etc. These terms are devised to do nothing else but impress investors. And those who are not empowered by skepticism and arithmetic do get impressed. The skeptical investors would try to understand ULIPs ? and other such complex products ? and would figure out that simpler investments are more suited to their needs.

In a nutshell, being skeptical is easy, it comes naturally. Using arithmetic requires a bit of effort, but it is imperative if you want your investments to be more beneficial to you than your agent.

Author is CEO of Value Research

Get live Share Market updates, Stock Market Quotes, and the latest India News and business news on Financial Express. Download the Financial Express App for the latest finance news.

First published on: 18-01-2010 at 22:36 IST
Market Data
Market Data
Today’s Most Popular Stories ×