When we don't have the time to analyse companies...
When we don't have the inclination to work hard...
...we take the easy route...we buy what others are buying!
Hence we tend to follow the informed investors such as the Rakesh Jhunjhunwalas, the FIIs or the MFs, and buy the stocks that they have bought.
This is a mistake...a big mistake.
Firstly, their risk appetite is very different from ours. So what is good for them, may not be good for us too.
Then, their time horizon is very different from ours. So what is good for them, may not be good for us too.
Also, their liquidity requirements are very different from ours. So what is good for them, may not be good for us too.
Further, the tax implications too differ. So what is good for them, may not be good for us too.
And last but not the least...
...their objective is to maximize gains
...their aim is to be the "best" investor in town.
Why would anyone want to invest in a MF that delivers poor returns vis-a-vis its peers?
And our objective is...
...to make enough money to meet our financial goals.
We don't have to necessarily be the "best" investor in town. Therefore, as long as we achieve our aims (be it education, house, marriage, retirement, vacations, gadgets, etc.), it does not matter if we do not buy the best companies and make the best returns. It does not matter if we don't buy at the lows and sell at the peaks.
As such, our focus should be to invest in decent enough companies, to make decent enough money and fulfill our decent enough needs and desires.
We would do a much better job of making money in equities, the day we make this shift in our focus.
