Do Fund Managers lie to you? - The Honest Truth By Ajit Dayal
Investing in India - Honest Truth by Ajit Dayal
Do Fund Managers lie to you? A  A  A
19 AUGUST 2014

Oh, oh: a headline on the internet coming in from Business Standard "Domestic investors drive market to new highs".

In this article a few of the Star Fund Managers and Star Analysts who make a living talking the walk are quoted as saying that this is the Era of The Domestic Retail Investor. They are basically urging you to buy into the surging Indian stock market. The story notes that how FII's are selling at these elevated levels but buying by the locals - smart folks like you - is keeping the market racing towards new peaks. Dumb FII and smart retail buyer.

Should you be proud of that fact?
Or nervous?

They lie, you fry!
Confession Number One: I am a, sort of, Fund Manager. And many companies I am involved with as a "promoter" are part of the "stock market activity": Quantum Mutual Fund, Equitymaster, PersonalFN...

Confession Number Two: We will never do - or say - anything to keep the commission income or management fee flowing. We will state what we believe based on certain assumptions, and the advice could be wrong. We are not the typical "promoter" who will push a story and suggest a lie.

Confession Number Three: We have been "wrong" for the past few months! Our advice to clients is to be careful. The client money we manage has high cash in the portfolios as we trim or sell positions in stocks and are waiting for a return to sensible entry points to buy shares. It is not good for our reputation to see a bull market raging! ☺

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So, with these confessions confessed, let me suggest a string of assumption and facts that leads to a hypothesis:

  1. This share market rally since September 2013, is based 50% on hype and expectation;

  2. The rally is also 50% based on relief that the disastrous government policies of the Congress led UPA-2 would be reversed;

  3. The Modi win did nothing to share prices - the BSE-30 Index gained 1% on election day; admittedly, the Index had gained a blistering +22% till the announcement of a truly historic election outcome;

  4. The Budget was like the monsoon, below normal and way below expectations, the "experts" on TV shows were struggling to hide their disappointment;

  5. The Independence Day Speech was a rallying cry for much-needed social change but it did nothing for stocks or for the growth in earnings of companies - unless you are in the tiling, plumbing and toilet business;

  6. Your wealth advisor should be asking you to be cautious, not gung-ho. If you are under-weight equity, now is not the time to start buying and certainly not the time to go overweight! However, few people in the field of finance have any notion of integrity. And fewer still have any respect for the fact that they need to look after the interest of their clients. Clients are there to be fleeced, not served;

  7. If Foreigners don't buy and start to sell, there will be a problem in that share prices will start to decline sharply; India will be unloved and the financial firms will lose revenues.
With these assumptions in mind, one can state the hypothesis: One way to offset that decline is to get the locals charged up to buy. This keeps the "order book" healthy, the AuMs look good, and the professional hacksters in the field of finance with 3-letter degrees and a 4-letter attitude will have a great Diwali and year-end bonus.

Table 1: Now you see me, then you won't and there won't be any crows to catch the lies!
Since April 2014, the CY 2014 EPS revised down, CY 2015 continues to creep up
Reporting Period Earnings Estimate of S&P
BSE Sensex for CY 2014
Earnings Estimate for
CY 2015
S&P BSE Sensex
Index Level
% Change in S&P BSE Sensex
in INR
January-14 1,345.7 1,576.3 20,513.9 -3.1%
February-14 1,344.4 1,574.7 21,120.1 +3.0%
March-14 1,571.2 1,817.9 22,386.3 +6.0%
April-14 1,581.4 1,817.2 22,417.8 +0.1%
May-14 1,576.0 1,831.4 24,217.3 +8.0%
June-14 1,563.7 1,835.2 25,413.78 +4.9%
July-14 1,553.4 1,860.2 25,894.97 +1.9%
Source: Bloomberg

Supported by the fairy-tale stories of good earnings growth (Table 1), they will make you buy at the top and then let you suffer the decline.

And, then, in the next Investor Education Roundtable hosted by a media house, they will claim - with the arrogance that would make Indira Gandhi proud - these retail people are fools: they buy at the top and they sell at the low.

I was part of one such Roundtable in 2013 when many of the same people being quoted all over the media with "buy now" signals said with a straight face how dumb you folk were to buy high and sell low. Being an MBA I can tell you that ethics is in short supply. And not having a CFA I can tell you that it may do little to add to ethics. Degrees - and net worth - are criteria used by lazy regulators living in glass towers to sift out the bad from the good.

The Honest Truth is that the professionals in the field of finance take the trust you place in them and take you to the slaughtering chambers with no remorse and no shame.

Beware. Be Sensible.

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Quantum Long Term Equity Fund Quantum Gold Fund
Quantum Liquid Fund
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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

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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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7 Responses to "Do Fund Managers lie to you?"


Aug 25, 2014

I do not know why people invest in these kind of funds. Very simple investment strategies, like dogs of the Dow, outperform most of the fund managers.

I know lot of engineers learning 20 different programming languages. But, these people will not read a single book on investment. They will give their hard earned money to fund manager who graduated from C grade university and has 25 years of work experience. In fact, he has one year of work experience that is repeated 25 times.



Aug 24, 2014

I completely agree with Mr Niraj, that giving this type of frank opinion is not easy.I also have been a fool having burnt my hands b4.Thanks to equitymaster as they have have educated us a lot.Thanks a lot.



Aug 20, 2014

It takes guts to go against the tide, which is precisely what you are doing. I hope at least some of the lambs pay heed to what you and Equitymaster (EM) have been saying and escape the slaughtering. I have been slaughtered in the past, too bad that I didn't know that EM existed, I used to follow the 'experts' and the 'fly by night operators' on different websites. It saddens me to see many people like me (specially guys new to the market) doing exactly what I used to do. I know what future awaits them.

Like (1)

Sreekanth Yelicherla

Aug 19, 2014

@Anish: Link please.
Somehow MFs in India do not instill confidence in me. My question is can there be someone who is going to care about my money equally or more than what I do! I have belief only in 2 AMCs now.

Like (1)


Aug 19, 2014

I fully subscribe to the views expressed by Mr Tayal There is enormous amount of short supply in honesty and integrity of people employed in the financial market. Even if few of them were honest they had either to follow the dictate of their masters or leave their job to engage in other profession like writing books or directing movies. I had my own experience and that made me so bitter that normally I tend to take just the opposite view of what the inspired expert says and, on the aggregate, it seems it pays.

Hope your compelling argument will save a few gullible investors.

Like (1)


Aug 19, 2014


Like (1)

Anish Shah

Aug 19, 2014

As always, you are bang on. Also read in todays newspaper that Quantum fund is carrying significant amount of cash!!

Like (1)
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