Less is More!!
In the series of “Less is More” Today we will discuss “More
churn in portfolio”
When we talk about more churn alias frequent churn in
portfolio, opinions are divided!!
Investors feel, frequent churn is optimising the return and
risk and should be done with high frequency. May be once a quarter, half yearly
or maximum yearly. Well investors are not wrong!! Investors usually behave how
the advisor/agent/ Relationship Manager educate them.
Relationship Managers of Banks, Broking firms or distribution
house usually do this for fulfilling their annual targets therefore promotion
and bonuses!!
Many agents or distributors who are independent or
quasi-independent do it for optimizing their revenues or self goals. Many of
them do it due to sheer unawareness of financial markets and its behaviour or
their ability to do so much deep research.
I will restrict to comment on “why these Relationship
Managers or agents do it”. I believe, when you are entrusted to manage
investors hard earn money, you must put that extra to take care of investor’s money🙏
While there is no certain time frame or how much should you
churn, there is definitely a strong rationale that must be present for the
churn.
Let’s examine, why someone should churn the portfolio.
1)
Churn portfolio if you are nearing your goal. So
you protect your corpus for goal funding.
2)
Churn portfolio if your employment status has
changed. Retired or disable.
3)
Churn if there is demise or disability of the
earning member of family.
4)
Churn if the performance of the investment has
attained the peak.
5)
Churn if the performance of the Investment is
sub-par or below expectation for reasonably good period of time.
6)
Churn if the portfolio strategy is failing. And
do not see it playing out any time soon.
7)
Churn if there is any change in the Mutual Fund scheme’s
fund management team, ownership or mandate!!
There could be more reasons to churn portfolio, but one
thing to note is – there is not timeline compulsion to churn!!!😊 Monthly/quarterly or
yearly👍
Here are some of the reason that Investor’s or advisor's
churn portfolio completely.
1)
Markets have peaked out so exit total equity.
2)
Other asset looks attractive so let’s enter that
asset class.
3)
Commentary or narrative of market is changing so
let’s change portfolio. Full large cap or midcap or small cap.
4)
Geo Political news are bad.
5)
Economy is doing bad.
6)
General elections around the corner so exit. US
elections/Brexit etc.
If you have acted on above rationale, you know what exactly
happened post your action.
I have simple principal of managing money!! I do take active
bets in segments, capitalisation or asset class but I never take complete bet.
I don’t believe it complete exit or entry into any asset class or market capitalisation
or sector. I strongly believe that market is GOD and you can’t figure out what will
come next?
See the picture to which asset class did well over last 10
years. Spending some time and making own inferences will help you understand perils and dynamics of chasing asset class for returns.
If you have invested
thru us, you will know we didn’t exit equity at any point in time in last 10
yrs!! We did take active calls in Midcap, Small cap, Infra in 2013-14 but
didn’t put all money there. We kept monies in largecap, Multicap and Hybrid
funds also. In 2017-18 we didn’t exit full equity, but reduced allocation
considerably. Now also we haven’t put all monies in Small, Midcap etc. We
believe in Balanced and rationale approach in investing. This has paid off well
to you as investors!! Reversion to mean is fact, it happens for sure👍. Do not look at me for 100% active bets and portfolio construction.
I define my job as optimising returns for my clients with smooth
investing journey!! That’s why the name of the firm is “Wealthcare
Investments”. We endeavour to take care of your wealth from unreasonable shocks
of aggressive investing.
Let me share another thought!! Successful investing is
having core portfolio and satellite portfolio!! Our philosophy is to have up to
80% of your investment to be core portfolio (depending upon risk appetite) and
remaining to be in satellite portfolio. So active bets are to be used for the
satellite portfolio where you take call on market timing, sectors, geo
political news, economical news etc. but remaining money must stay in
investments. The 20 -30% of satellite portfolio could generate alpha in overall
portfolio return/risk.
So to sum up, no one can time the market nor can be accurate
most of the time. People have lost fortunes in attempt to outsmart the market!!
Love your money and be wise! Be satisfied with good returns rather than extra
ordinary returns.
If you need to know how to grow your money slowly but surely without frequent changes, feel free to contact
me. I am available at 9833778887 or wealthcarein@gmail.com
If you find our blogs helpful, pls do like, share and
comment
Author –
Bhavesh D
Damania
Founder -
Wealthcare Investments
EduPrenuer,
TV show panellist and Blogger
"Risk comes until you know what, where and why you are
Investing"
Disclaimer: We respect all individual approaches. Sole objective of
this series is to burst a few myth in Investing. There could be genuine
reason/experiences and “less is more” may not be appropriate. Investor must
consult own advisor to figure out right approach before adopting any of these
suggestions.
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