If you are not measuring your investments properly, you are likely to be frittering them away
18-Dec-2019 •Dhirendra Kumar
It's an old adage of business that what you cannot measure, you cannot manage. Of course, many small and medium-sized businesses end up doing quite well based just on a gifted entrepreneurs' horse sense. Perhaps horse sense is actually just a superior, subconscious way of measuring. Perhaps thinking day and night about something--which is what entrepreneurs do about their business--gives people an instinctive understanding that is superior to any formal system of measurement.
However, this does not work with investing, at least not for the ordinary saver. In investing, it's always true--without exception--that what you cannot measure, you cannot manage. If you don't have a fairly precise understanding of your various investments and assets, then it becomes very difficult to meet your life's financial goals. What's worse is that you won't know whether you will meet them or not, and indeed you may not even have thought through systematically what those goals are.
When you measure what you haven't measured earlier, you can be surprised pleasantly or unpleasantly, or sometimes both, as has happened to a number of people I know. One interesting example is of an acquaintance of mine who had been investing sporadically in mutual funds for his entire working life. Many of these investments were tax-saving ones and most were fairly substantial ones of the order of Rs 25,000-50,000 and all in equity funds. He had a rough idea that he had invested about 15-20 lakh and it must have almost doubled in value.
Once upon a time there was no easy way to analyse such investments without a lot of data entry or by buying some expensive software. However, recently, after the launch of the new Value Research Online website, we have a (free) way of easily importing an entire history of investments with just a few clicks. I harangued my friend to download a PDF statement of his entire investing history from the CAMS website and just import it into the 'My Investments' section of the website, and the same for his wife's investments. In a few minutes he had an in-depth consolidated report of both sets of investments going back to the beginning. The total came to Rs 1.75 crores, literally six times what they had assumed they had.
The power of equity investments, and of compounding over long periods of time, had created a bonanza. I've seen this exact phenomena several times earlier. From a middle-class family which had struggled to meet financial goals, they went to feeling rich within minutes. Of course, the feeling didn't last longer. As they went through the reports, they realised that the analysis engine of the website had exposed many skeletons in their investing cupboard. About one-third of the funds they had chosen had turned duds long years ago and were just a drag on their returns. A few more were huge outperformers and surely deserved some more money being allocated to them. They had some money in dividend-reinvestment plans of funds, which is now a dumb choice, nothing more than paying needless tax. There was so much that could have been optimised earlier, some of it years earlier. Had they done that, they could have something like Rs 30-40 lakh more. Not just that, they could even see how much inflation had eaten away from their savings and how it would have fared had they used some other asset classes like fixed deposits.
Rs 30 lakh! That was the price they have paid for not paying attention, not measuring and not optimising their investments, not spending just an hour or so every month seeing where their money was going and what it was doing. Anyhow, they have still come out fine--they've made money, less than they could but still a lot. There are countless others in India who are doing all the hard work of earning money, are even saving it and then not managing it and losing the opportunity of reaching their financial goals. Don't be one of them.