What my little girl taught me about investing wisely

“Why can’t I buy that toy, papa?”

 

“You already have another one like that.”

 

“But why can’t I buy one more?”

 

“You won’t like playing with two similar toys. Isn’t it?”

 

“Why are you saying this?”

 

“I know that dear, because I was a kid myself!”

 

“Why have you grown up, papa? If you were still small, you could have played and enjoyed with me and my toys!”
 
“Everyone has to grow up, my baby!”

 

“Why papa?”

 

Why? Why? Why?
If you’re a parent of a small child, you most likely hear this question several times during a day – “Why?”

 

While all children are inquisitive, there are some who love to prick your brain by asking questions until they find a satisfactory reply from you.

 

My 6-year old daughter falls in this very category of hyper-inquisitives.

 

I find myself bombarded with her questions every now and then.

 

There are some questions that I have replies for. And then there are many for which I have no replies.

 

But I enjoy her questions as they most often force me to think beyond the obvious to pull out the answers that satisfied her inquisitiveness.

 

There is a reason a child asks so many ‘Why?’ questions. And this is something most adults don’t understand.

 

The reason is that when a child asks a question on a subject she is not familiar with, she has no point of reference.

 

In simple words, she’s coming from nowhere in her inquisitiveness regarding her question.

 

It’s same as you walking into a space scientists convention. Would you be able to understand the intelligent discussion that’s going on, or even ask a simple question that didn’t give the scientists the hint that that you don’t fit in with the crowd?

 

I bet most of us couldn’t, because most of us have no point of reference regarding space science.

 

Similarly, a child will continue to ask questions till the time she gets something that she understands and appreciates.

 

Ask questions 
That’s the best advice I can give you about how to invest wisely.

 

I have seen too many investors who might have avoided trouble and losses if they had asked basic questions from the start.

 

Like these questions on stocks…

• Is this really as good a company to invest in?
• How will this stock make me money? Dividends, capital gains?
• How liquid is this stock? How easy would it be to sell if I needed my money right away?
• What is the maximum I could lose with this stock?
• How long has the company been in business?
• Is its management ethical and experienced? Has the management been successful in the past?
• Has the company ever made money for investors before?
• How is the company doing compared to their competitors?
• Where can I get more information about this stock? Can I get the latest reports filed by the company with the SEBI?

Like these questions on mutual funds…

• Does this mutual fund match my investment goals?
• Why is this scheme suitable for me?
• How will this investment make money? Dividends, interest, capital gains?
• How easy would it be to sell this scheme if I needed my money right away?
• What are the specific risks associated with this investment? What is the maximum I could lose?
• How experienced is the fund manager? For how long has he managed this specific scheme?
• How has this fund performed over the long run? Where can I get an independent evaluation of this fund?
• What specific risks are associated with this fund?
• What type of securities does the fund hold? How often does the portfolio change?
• Does this mutual fund invest in any type of securities that could cause the value to go up or down rapidly in a short period of time? (Like, derivatives?)
• How does the fund perform compared to other funds of the same type or to an index of the same type of investment?

Like these questions to the financial advisor…

• What’s your interest in recommending this investment to me?
• Have you ever been disciplined by the stock market regulator SEBI?
• How long have you been in this business?
• What training and experience do you have?
• What other firms have you been registered with?
• Have you personally bough this investment in your personal account?
• What is your investment philosophy?
• Describe your typical client. Can you provide me with some names and telephone numbers of your long term clients?
• How do you get paid? By commission? Amount of assets you manage? Some other method?
• Do you make more if I buy this stock (or bond, or mutual fund) rather than another? If you weren’t making extra money, would your recommendation be the same?
• Are you participating in a sales contest? Is this purchase really in my best interest, or are you trying to win a prize?

It’s your money at stake
See, it doesn’t matter if you are a beginner or have been investing for many years. It’s never too early or too late to start asking questions.

 

It’s almost impossible to ask a dumb question about how you are investing your money. Don’t feel intimidated. Remember, it’s your money at stake.