The jungle is neutral and so are the financial markets

 

Going for a jungle safari – a very different experience for those who come from cities. Well, we also went for one. This sanctuary has few animals and some birds. Before entering the jungle, we hired a guide.

Before hiring the guide, we asked him the charges and then asked for what we will get in return. We asked him what all will he show us. And his answer is something all advisors can learn from. He said, “Sir, it’s a jungle. We will show you what is possible.” No tall claims, no big promises. Plain simple truth. Best way to manage expectations. We did not see any animal. But the route he took us through, was an experience in itself. After a while, the weather turned and clouds built up. It started to drizzle. There was no chance of being able to see any bird or animal. Can we blame the guide for the change in weather?

Compare this to the financial advisor’s business. Very often, the financial advisors build expectations, which are unrealistic. Many investors take it for granted that because one has hired a financial advisor; one will see only positive and high returns with no risk whatsoever. Many times, the investors assume such things even when the advisor may not have promised such things. It is important to ensure you clarify right in the beginning.

Then, what is the point in hiring an expert?

The guide knows the various routes. You do not. The guide will ensure you reach back. On your own, you may lose your way in the jungle. The financial advisor is supposed to know the behavior of the market – one of the important things to know about the financial markets is the amount of uncertainties involved.

The jungle is neutral. It does not care how much money you paid to the guide. It is oblivious to your name, title, position, or popularity. You may spot an animal, or you may not. The probability of a vice president being able to see an animal is exactly the same as that of a peon. The jungle is neutral. You have to follow the rules of the jungle. So are financial markets. The market does not care about your position or title or even the size of your pocket.

The financial market is also like a jungle. It is neutral. It does not care how much money you start with or it does not care what your educational qualifications are. You have to follow the rules of the financial market. And some most basic rules are, “buy low, sell high”; “plan well and stay the course”; “do your independent research instead of following the crowd”. So simple to state or write, but so difficult to follow.

It is the guide, who is supposed to help you navigate through the jungle. Whether you spot a big cat or not, the guide can only play a small role. Whether you will get a ten-bagger opportunity or not, the financial advisor can only help you be in a position to benefit if the opportunity arrives.

And like we cannot blame the guide for the change in weather, one cannot blame an advisor if the Economy turns bad. The guide has to help you ensure that you were prepared enough to take care of the unforeseen situations. Similarly, the IFD should be in a position to guide the investor such that the negative impact is reduced.

The financial advisor’s role is akin to that of the guide in the jungle. One has to know what all can go wrong and help the clients prepare for the unforeseen events. At the same time, the financial advisor puts the client in a position to encash the opportunities presented.

As someone has said, “You cannot direct the winds, but you can adjust the sails.” The financial advisor helps build a boat and then adjust the sails.

Remember, the jungle is neutral. And, so are the financial markets.