Monday, March 17, 2008

Bunch of overpaid jokers

Why do these so called equity analysts and fund managers have jobs? They are employed using our money to tell us when is the best time to enter or exit the market or make such calls on our behalf. AMCs charge a whopping 2+% per annum in management fees for equity mutual funds which go into the salaries and perks of these characters.

And what do they do to earn this money? Parrot the line that everyone in the market who is worth their salt knows anyway. Recommend infrastructure stocks when they are at PEs of 20-30 and paanwaalas and their aunties have already bought them. Say that the market is strong and will do well in 2008 when the subprime crisis was looming in global markets. Put out research reports on over-researched companies like L&T and NTPC. Do they deserve the money they are gobbling up?


slash said...

Fund managers do not charge 2%+ fees that goes into their pockets. They charge 1% management fee, the rest goes into managing the daily expenses to run the scheme like advertising, broker fees for buying and selling stocks, etc. But that's the smaller picture.

The big picture here is that not all fund managers are rogues. True, for people like you who track the markets daily (you may not trade daily, but at least keep one eye glued on sensex), you don't need fund managers to manage your money. But just as every fund manager is not a rogue who is just after your money, every investor is not as savvy like you. Your mother-in-law - once upon a time our typical model investor as our ex-editor used to call her – for instance, may not have access to company annual reports, research reports to decipher and run various P&L ratios or the understanding to make sense on what’s said on CNBC TV-18, to decide on her own, which stocks to buy, which stocks to sell, and when, etc.

Secondly, no fund manager in the world would have predicted this sort of crash with 100 per cent guarantee. If the fund manager would have sold everything and sat entirely on cash when markets touched 21,000, perhaps in hindsight he would have looked like a surefire winner, but if the markets hadn’t tanked and continued to rally, 100 other investors would have cursed him for missing that portion of the rally. Think about it. No amount of persuading would have won the investor’s confidence then, even though markets were justifiably over-valued then.

Further, fund managers are not paid their fees to sit on cash. They have to, by law, remain in equities at all times. Most of them can increase their cash allocation to 30-35%, but not more than that. If fund managers could sell everything and sit on cash, you could do the same too. Why pay the fund manager fees if he is going to sit on cash? Hence, the decision to sit on cash or not, is the investor’s decision. By judiciously remaining in equities and remembering the fact that bears and bulls are a part and parcel of the markets that spare no one – not even the direct equity investor, good fund managers have delivered around 30 to 50 per cent CAGR returns over the past five years. The key is to be patient and stay invested in the long run.

ShareKhan said...

Thanks for your views. But when sub-prime was looming in Oct-Jan, our fund managers and analysts were screaming BUY here. Thats like expecting the oncoming train in a tunnel to miss you.

Manoj Bharadwaj said...

The gurus (Warren Buffet et al) have been for ages criticizing mutual fund fees. Some of the better alternatives are (in the order mentioned):

1. systematically (even better) or non-systematically invest in a low cost index fund - yes this would still be a mutual fund, but there won't be as much management fees
2. pick the stocks from the index yourself (as in investor) and invest in them. systematic is better even here.
3. take time to read up on equities (start with 1 hour a day) and develop expertise to pick the fundamentally sound stocks and invest in them - basically invest on your own
4. if you really want a fund, at least invest directly through the fund house and save on the load