As title says, here is a case study on my personal mutual fund investing activities and the experiences. In this case study, I reveal the mistakes and errors happened to me as a beginner and steps I have taken to overcome these in the future. Those who have already read my Investment Biography, I have posted some time back, might know when and how I started direct stock investing on 1993. Even though, 10 years later, I have started investing on mutual funds and later realized the mistakes I have made. Like any other investor, I was investing to mutual fund and continuously committing errors until I have found the same and rectified it.
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Let me take some time to recall my investing experience. When recalling my direct stock investing experience, I feel totally happy on all action I have made because of the effort I had put to create my own stock selection criterion to research, buy and even, sell the stocks. These self made criterion still playing major roles for me as an investor. When coming to my mutual fund investing experience, I still wonder, how could I still commit some big investing mistakes that should never happen to me because I am an experienced investor! . Also I again feel sad while thinking, how I forgot to make a perfect mutual fund selection and investing criterion prior to start investing!
Below are the list of major mutual fund investing mistakes happened to me as a beginner:
I have identified my first mistake from my strong feeling on the decision I have made to invest on mutual funds was totally wrong. With this feeling, I slowly put myself to the requirements of identifying a satisfied answer to a major question, “Why an experienced stock market investor gave his money to a third person, to whom he don’t know whether is an idiot or a right investment manager, to manage? I still don’t have a right answer to this but I agree this as one of my mistake. This question always irritated me and I felt very bad whenever thinking why I invested on mutual funds. This committed error lead me to stop investing on mutual funds unnecessarily and study on the most important risk factor associated to any Mutual Fund; “Fund Manager Risk” (Tomorrow I will post a detailed article on Fund Manager risk and what are the factors supporting this risks)
Second, when I start investing, I have used to invest small amounts to number of mutual fund that gave tax benefits. Through this wrong action, I got a portfolio of large number of mutual funds with little units from each. It gave me tax benefit but late I have identified that some of this funds are real laggards and the money I have invested on most of this mutual funds, have been lost to great extend. Like the first experience, I have not felt so bad because I have invested very low amount to each of this funds. The point I have learn from this experience was not only one but multiple as follows:- Tax focused mutual fund investing is really a foolishness. All tax funds will give tax benefit but most of them are real laggards and an investor loose his money to a great extend. If you give that money as tax would be more better than managing documents.
– Don’t give your ear to a New Fund Offers. I was a fan of NFO’s at the time I have start investing on mutual funds. Most of the NFO’s I have invested no have just less than half price per units, compare with what I have paid at that time to subscribe the same.
– Remember, all the fund managers are perfect. Most of them are even worst than any fools. If you invest on 10 funds, I am sure only 3 or maximum 4 will give you returns and others will give you lose.- Don’t believe reports on NFO from any source. They are nothing other than pure nonsenses.
As third, my portfolio had lots of funds but small investing amount. If you have stocks, you can manage it from single location like your trading account. But managing a mutual fund, if you have purchased manually, is an irony and it would be difficult to monitor the stocks. I learn to select right mutual funds using Systematic Investment Plan for long term than selecting huge number of funds, including total laggards, to manage and give worth to the money I have invested.
Finally, when I have identified my mistakes, I sold all the mutual funds when the market was peak. I lost some money for tax but from the influence of market, I have controlled my lose to a 20% of total money I have invested to all these mutual funds. I have learn a great lesson of starting SIP in mutual funds when the market is down and always sell the fund when market is in the top. Remember, it doesn’t mean all the fund value come down when market is down or all the funds value will increase when market is in the top.
The best lesson I have learned is, if you have confidence and knowledge to invest stock market directly, then take that path. Never go to invest with mutual funds because it required time to identify best funds, best manager and all other factors supporting to force one to invest on the mutual funds. At present, I have identified and invested on 2 large cap mutual funds in a Systematic Basis and continuing with it. Both fund has good reputation and large cap based. This is as the part of financial planning for my kid and I personally doesn’t hold any funds in my portfolio because I don’t believe most of the fund managers. Why should I believe when I have capacity to research, identify best stocks to purchase!!
Lessons Learned: If you are able to do a work, never allow others to do it for you. You will never get the required result you required or satisfy with the produced results.