If you have walked into an electronics store any time in the last few years, you'll know what I'm talking about. Trying to buy a television set or an audio system is like hacking through a think jungle of acronyms and features that have little to do with watching a movie or listening to music.
You have choices like DSGX, QSD, or GXQ sound processing, speaker parts made of special alloys, graphical displays that look (and proudly claim to look like) like airport runways and remotes controls with more buttons than any could possibly remember.
So pervasive is this features-driven selling that if you observe customer behaviour in an electronics store, you'll find that people spend most of their time listening to salesmen drone on and on about features instead of listening and watching and comparing. How a stereo sounds or a television's picture looks, which should be the primary decision-making factors, are almost completely ignored by both the sellers and the buyers.
Why does this happen? The conventional explanation is commoditisation. The theory is that there is no differentiation between the products, that everything looks and sounds the same so the only way to distinguish your products from your competitors is to afflict them with this disease of featuritis. I don't believe in this explanation.
I believe the real reason for such selling is that it works. And it works because buyers are not knowledgeable enough to evaluate the core product attributes. It really takes a trained ear to distinguish between good and not-so-good sound quality in a stereo. Most buyers don't have this trained ear. So they settle for the next best option-buy fancy feature-laden consoles which light up like Tokyo at night and impress the neighbours.
Unfortunately, one is seeing a lot of this features-driven selling in mutual funds. Driven by the fund IPO boom, practically all fund selling now focuses on features. Funds wearing different shapes and sizes of 'caps', 'opportunity' funds, sectoral funds and a myriad other features are what are being pitched to investors. These are the equivalent of DSGX, QSD or GXQ sound and Tokyo-by-night consoles.
But the fact is that it is actually much easier for you to learn to evaluate the core product attributes of a mutual fund than it is to develop a trained musical ear. Instead of figuring out what is an 'opportunity' and what isn't or whether you are better off wearing many different kinds of caps or a single flexible and adjustable one, you should focus on the basics.
The things that matter are what kind of returns a fund has generated in the past (which of course means that it must have a past); how volatile it has been; who manages it; what does it invest in; and how much does it cost. This five-fold path is all there is to it. None of this has changed for many decades in the past and none of it will change for many decades in the future. You can be a smart investor for your whole life without having to learn any new tricks.
As the Americans (supposedly) say, buy the steak, not the sizzle.
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