Did racial profiling hurt your investment returns? - The Honest Truth By Ajit Dayal
Investing in India - Honest Truth by Ajit Dayal
Did racial profiling hurt your investment returns? A  A  A
29 MARCH 2011

"Being at such a gentlemen's restaurant in Paris with the Americans is embarrassing", said my European host over dinner, "it's like they have never seen breasts and then they drink too much and they puke all evening. They should have a bathroom marked 'Only for Americans'."

While my host is concerned about puking Americans, in America they probably wish there was a bathroom reserved for Europeans who seem to get drunk at every soccer game and riot like their ancestors from ancient tribes.

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The Swiss hate the Germans, the Germans hate the French, the French hate the English, and everyone hates the Americans. Each of these "nationalities" carries a certain profile in our head and evokes a certain reaction. On many occasions, while waiting for a plane and working on my laptop at an airport, people have approached me and asked me to help them with their computer problems. That seems the most natural thing to do; after all they do read the newspapers and know that Indians rule the technology world. So, a dark skinned person sitting with a laptop must be an Indian techie! Little do they know that their "racial profiling" has failed because I know nothing about computers or gadgets: sadly for them, I am stuck in the stone age of the Palm V and a random Nokia mobile.

Is that what mama taught you?

But that is the human mind: we are conditioned by what our parents teach us, by what we hear, by what we see, and by our past experiences. And then we judge something based on that "characteristic" of race, colour of skin, religion.

So, when a news item reported, "foreign national asked to leave plane because they were stinking", we all pray hard "hope that was not an Indian" (nope, was not).

I am a frequent flyer and it is interesting to see the varied responses that the airline crew have to their guests of various nationalities on the plane. Some of the crew are fantastic and polite, some are professional and don't have any real connect with their passengers, and some are downright rude. The level of service on an airline, a security check point, or in a restaurant probably reflects the frame of mind of the service provider at that point in time but could also be part of the racial baggage that we carry with us. The colour of our skin, the clothes we wear, or the passport we carry, probably has some influence on how we are treated. Not that racial profiling is limited to an international platform, it exists within a country. Many years ago, I recall being told about a statement either in Time or Newsweek magazine where a Gujarati was quoted as saying that, if he saw a Sindhi or a snake, he would first 'take care' of the Sindhi. Two confessions are needed here: I am a Sindhi - but (hopefully) less dangerous than the snake!

I must confess that I, too, am guilty of racial profiling. In the early 1990's, as the Indian stock markets went through their first opening I had a joint venture with Jardine Fleming, one of Asia's most respected financial institutions. I was so awed by the foreign brands, that I was sure they - true to the colour of their skin - would be angelic and a god-send to the Indian retail investors who had, generally, been at the mercy of the not-so-transparent Indian brokers. Boy - was I wrong. While Jardine Fleming did have some fantastic practices and systems, when push came to shove (and that is always the true test of moral fibre), the firm was more keen to protect their bottom line and their profits rather than do what was good for the investors in their unit trusts. I have since graduated to a new level of racial profiling. My new "belief" is that the level of crookedness in the financial sector is a function of the fx rate of the country of origin of that financial services company. Since 45 is the fx rate of the USD to INR and 62 being the fx rate of the Euro to the INR, so goes my racially profiled mind that would reflect the degree of the crookedness. So, a Wall Street firm is likely to be 45 more crooked than an Indian financial services company. A firm from the euro zone may be 62x more crooked than its Indian counterpart.

Tom Hansberger, to whom I owe a lot in terms of our research and investment disciplines, once told me "when I meet someone, I think of two things: what can I learn from that person and what can I teach that person".

Beautiful words indeed. But, alas, we are so far away from that 'nirvana'.

Our past experiences along with all the in-built prejudices that we absorb from our mothers and our fathers, from our aunts and uncles, from our friends, are accentuated by what we see in the movies or read in the newspapers. These "experiences" make us react in various ways to the first look, to the situation we are in.

Don't let prejudices eat in to your returns.

But how can racial profiling hurt your investment returns? Well, it may not be a "racial profile" but there can be a few biases that get built into the system and then find their way into your portfolio. And hurt your returns.

For example, we have often heard investors tell us - and the press write articles on this - that being a small fund house means we cannot give good returns to investors. The distribution channels are by and large upset with us because we refuse to pay commissions to them unless they disclose it to their clients. So, their experience, just like mother's comment that "Oh, he is not from a good family because his parents play cards" sticks in your head.

You may have just lost the best person in the world to be with because of something you heard when you were ten years old - and it stuck in your head! You may have just lost out on a sensible investment option, because of the "racial profiling" of the distributor. The motive of the distributors in dissuading you to stay away from the Quantum Mutual Funds may be to safeguard their own economic interest. Nothing wrong with that. It is just that you, as an investor, should be aware of why a statement like that was made. And that it could hurt you.

Graph 1: did the prejudice of size hurt your returns?
Data Source : AMFI; Data Compilation : Quantum AMC

The above graph is for illustrative purposes. All returns are Compounded Annualized Returns and are for the Growth Option of the funds. Past performance may or may not be sustained in future and may not necessarily provide a basis for comparison with other investments. Since Inception returns of QLTEF are calculated on NAV of Rs. 10 invested at inception.
Methodology Average of Large 5 Funds: Large 5 Funds average has been created considering the five open-ended diversified equity schemes which were the largest in terms of Average Assets Under Management (AAuM) as on March 13, 2006 as per the AUM data available on AMFI website. Compounded Annualized Returns for the large 5 Funds are calculated assuming that 20% of one's capital was invested in each of the 5 largest funds, and averaged by taking into consideration NAV of growth option of the respective scheme from March 13, 2006 to February 28, 2011. Returns Since Inception are calculated with effect from March 13, 2006, which is the date of inception of the Quantum Long Term Equity Fund.

The press and the media all feed into our views of a "brand" - an extension of racial profiling, in some ways. Because the firm advertises a lot, it must be real. Because the firm is willing to spend advertising money, its investment teams get quoted more often. All this reinforces the "racial profile" or "brand awareness" of a firm and its products. And you get lured into the mousetrap.

If you wish to see the power of the media, think of what they have just done: the India-Pakistan cricket match is a sporting event. They have made it a dangerous battlefield for war. Our minds have been so twisted by the junk that we read and see and hear that sometimes we forget the basic and simple tenets of life.

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After the launch of our advertising campaign, Quantum Mutual Funds is now seen to be a real entity. We are in Times of India, so we must be "real".

The Honest Truth is that Quantum Mutual Fund was real even before we advertised.

We are so real that we have published The Quantum Theory of Investment to explain our long-standing views on investments.

So, don't build a bathroom for the Americans who have never seen breasts, or one for the Europeans who treat every soccer game as a right to riot, and don't treat the India-Pakistan cricket match as the next battle. And don't believe many of the rabid statements of the opaque distribution channels.

No, fight this illogical and unintelligent noise.

Look for simplicity. Look for joy.

And, yes, look for sensible long-term, risk-adjusted returns.

Suggested allocation in Quantum Mutual Funds (after keeping safe money aside)
Quantum Long Term Equity Fund Quantum Gold Fund
Quantum Liquid Fund
Why you
should own
An investment for the future and an opportunity to profit from the long term economic growth in India A hedge against a global financial crisis and an "insurance" for your portfolio Cash in hand for any emergency uses but should get better returns than a savings account in a bank
Suggested allocation 80% 20% Keep aside money to meet your expenses for 6 months to 2 years

Disclaimer: Past performance may or may not be sustained in the future. Mutual Fund investments are subject to market risks, fluctuation in NAV's and uncertainty of dividend distributions. Please read offer documents of the relevant schemes carefully before making any investments. Click here for the detailed risk factors and statutory information"

Disclaimer: The Honest Truth is authored by Ajit Dayal. Ajit is a Director at Quantum Advisors Pvt. Ltd and Quantum Asset Management Company Pvt. Ltd. The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and has not been authenticated by any statutory authority. The author, Equitymaster, Quantum AMC and Quantum Advisors do not claim it to be accurate nor accept any responsibility for the same. Please read the detailed Terms of Use of the web site. To write to Ajit, please click here.

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14 Responses to "Did racial profiling hurt your investment returns?"


Apr 1, 2011

I am surprised to know that Ajit Dayal is a Sindhi. I have lived in Sindhi societies for some years and know a little bit about them. I understand there are two general classes among them. The Sindhis who opt for education and the Sindhis who opt for business. The educated Sindhis go on to become doctors, lawyers, educationists, etc. Generally the good Sindhis are the former. Maybe this view of mine is also a stereotype.

The business Sindhis are what-can-you-say ..... cut-throat businessmen. Two of my relatives, in two separate cases who created speciality chemicals/pesticides companies were swindled out of the their shares and their companies by their Sindhi minority partners. One of them was reduced to literal poverty by the embezzlement and subsequent bankruptcy of his company. About 15 years ago my family suffered also at the hands of a Sindhi real estate broker who befriended my father in his old age and made him part with a few lakhs for a flat that we never saw again. Needless to say we never saw this Sindhi gentleman again.

I have lived in the UAE also and have dealt with business Sindhis there too. They are reputed to be sharp businessmen more suitable for dealing with smuggling, legal loopholes, conniving, etc.

Though I have had bitter encounters, I feel that todays young Sindhis are more honest and transparent than their parents, who may have done what they did due to the trauma of losing ones homeland.



Apr 1, 2011

Power of the Media: "If you wish to see the power of the media, think of what they have just done: the India-Pakistan cricket match is a sporting ....." So true!!!

Another classic that deserves mention. PJ Thomas who is known personally to be an incorruptible man is now labelled and hanged as a corrupt bureacrat simply because the judicial system in india lets justice get delayed/denied ..... and the media hovering over the hapless victim like vultures dive in for the kill labelling what/how they want without any real analysis or discourse on the matter.


Lawrence Rao

Mar 31, 2011

Very good read.



Mar 31, 2011

Many investors look forward to the dividends offered by companies and fund houses.Quantum as far as I know has not given dividends on their schemes consistently.Most people like to have their returns in hand and the option to do with it as their situation demands.Give the people what they want.Don`t thrust what you feel is best upon them.Everybody`s situation is different.Most research firms harp upon the growth option. I know that its good.But the first question a prospective investor asks is `How much dividend will I get`? If you are not aware of this then you are not attuned to the comman man`s wants.



Mar 31, 2011

This article is weird. One should not say 'anything' to prove one's point. The entire world has an image of what sort of people indians are.The reason why Indians have tough time to visit any country and getting visas is because the image we have. I wonder if the author is convinced that Indians are clean and Americans are 45 times crooked. There is good and bad in everythig and everywhere. So let us knock prejudices out.



Mar 30, 2011

Great article, Ajit !!! really love the way you do covert canvassing for the Quantum MF--- if size really does,nt matter, is it necessary to garner funds thru' these subtle messages? agreed, QLTEF is performing well--I also hold QLTEF. Why not continue to keep performing the same way without any noise--when the performance is really good, surely more money will flow in, no?



Mar 30, 2011

Quite a pathetic article I must say. Linking racial profiling to trying to sell your fund! Why does the author always sound like a rebel without a cause...Also that graph is sales pitch material - why note take the best 5 rather than the largest five, size is anyway unrelated to performance!



Mar 30, 2011

yes.profiling in the mind is very deep rooted.you are giving examples of foreigners.but what about the dalits in india /or for that matter minorities?by logic ,if a certain minority is 15% of the population you would expect them to be somewhat in that % range in any establishment of some size.But the result will be surprising .they will not be even 2 or 3%.so what happens to the remaining ? this is very widely prevalent and deep-rooted.fortunately as the author i was able to overcome the prejudices and advice by the financial agents and to invest in Quantum mutual funds.But I wish their online services will be upgraded to include STP,s and daily STP into daily SIP and portfolio updation is automatic .


Mayur Taday

Mar 30, 2011

The name Ajit Dayal meant Quality & Honesty to me until I read this article and came to know of his Sindhi background. In my friend circle, we used to discuss about Sindhi friends/colleagues being associated with superiority complex,being always suspicious about others and being highly opportunistic! But after I attended life transformation program from Landmark Education, I learnt that it is we who create filters in our mind for others and keep looking at people through these filters. Rather than dealing with the person in front of us in the "present", we look at the person created in our mind i.e. through our filters. We also hear him from the "listening" that we have already created for that person in our mind through our interpretations, perceptions and stories! The result is obvious. The Sindhi that we know will remain a Sindhi that we know until we create a different Sindhi in our mind! I have been happily associated with Equitymaster,Quantum and Personal Fn and am a Quantum Long Term Equity fund Investor. The good part is that the name Ajit Dayal still means Quality and Honesty for me. This is indeed a breakthough and has liberated me from the filters/prejudices that I had for Sindhi friends/colleagues and in general! Thank you Ajit for sharing/writing this article and providing me an opportunity to work on the "Sindhi Syndrome", which I confess had missed out on weeding it out of my system in the past. The investment returns from QLTEF would now be even more satifying!


Radhakrishna rao

Mar 29, 2011

Very nice article . I agree with misconceptions people carry during their life and realise the mistake very late. So Good and Bad people are in all race.

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