Setting Aim



Podcast Transcript:

I met a friend after long years. He had been around the world, worked in many countries, and seen the best and worst of the oil booms. In fact, he worked in that sector and was slowly getting ready to retire. We go a long way back. All the way back to college actually. He was always someone who set his sights high and I was the opposite really. I set my expectations modestly.

Here we were again. Setting sights on what return expectations ought to be. Little had changed. He felt that India is a great story in the making. I agreed completely with him. But, my view was that one needed to be very selective. Valuations weren’t really screaming buys. He vehemently disagreed. “JUST BUY without a bother” was his screaming comeback.

To me, it was never easy not to bother. When valuations weren’t in favour, I always stayed very choosy. And, when they were in favour, I would loosen my purse strings to buy aggressively. But, here was a friend ready to do the opposite. And I was supposed to advise him.

The difficult part of giving advise lies in SETTING AIM. An adviser needs to set aim correctly and ensure his investor buys into the targeted return. Often, there can be a mismatch in expectations. If one is not careful, this mismatch can be far wider than we imagine. Being on the same page will happen only if the expectations are set carefully by the advisor and accepted by the investor.

This is never easy. My experience has always been driven by mismatches. When I was optimistic, the investor was cynical. When I was cynical, the investor was brimming with confidence. While I may eventually end up being right, it does not help the cause of my investor. After all, he needs to buy into my belief at the right time.

This is possible only if my investor agrees to the aim I set for him. This BUY-IN is CRUCIAL.

My friend was brimming with investment confidence. I had to break down his confidence and then instil realism. Importantly, I could ill afford to upset his ego. After all, everybody who has seen the world thinks that they have a damn good worldview. But a market view is not the same as a worldview. Few people recognise that home truth. Overconfidence always comes at the most inopportune moment.

Experience teaches advisors more lessons than investors. My friend had never invested in India. But, here he was more confident than me. And I had the thankless task of talking his expectations down.

This is the irony. Advisors always spend more time setting expectations correctly than managing them. In fact, most of an advisor’s job lies in rightly setting aim. Much time and effort goes into it. When they know what to expect, it is important to maintain their expectations within the realm of realism.

Setting aim right and keeping an investor focused on his aim is the most important task before an advisor. I am now working on my friend. Telling him how investing in Indian equity is not the same as investing in cannabis stocks. The highs don’t last just as well.


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