In his new book “Noise”, Daniel Kahneman gives example of his hypothetical friend Paul who was diagnosed with high blood pressure by his Doctor.
3 Months of different medicine tracks were still not able to bring down the blood pressure of Paul.
Meanwhile Paul had to move to a new city where a different Doctor told him to buy a home blood pressure kit to measure his blood pressure and note down the readings.
According to the new Doctor, Paul didn’t have any blood pressure, he was suffering from “White Coat Syndrome” that raises blood pressure of an individual when they are in a doctor’s office.
One key task of a doctor is to make a diagnosis and sometimes it involves making a judgement and judgement can go wrong for a variety of reasons.
A thumb rule is often applied to make things simple.
However, the challenge with a thumb rule is that its simplicity itself makes it invalid in many if not all situations.
One Size fits All.
One-size-fits-all describes an item, situation, or policy designed to accommodate a large amount of people.
Something that is one-size-fits-all will not be an exact fit and is not tailored for every circumstance, but it will suffice.
One-size-fits-all came from the garment industry.
In the 1970s, many retailers carried items that were oversized;
They were designed to fit a range of sizes.
However by the 1990s, companies experienced a backlash from people who did not fall within the range of sizes for a one-size-fits-all item.
Most ready-to-wear designers began using the designation: one-size-fits-most.
It was just about this time when the popularity of the expression one-size-fits-all really took off. Note that one-size-fits-all is hyphenated.
One-size-fits in Investing
Recently the conversation on a business channels program on mutual funds made the following suggestion:
Investor should not have more than 8 schemes
2 debt schemes-ultra-short term; corporate bond fund; short-term; banking & PSU
6 equity schemes
– 2 large cap-One index & 1 active
– 2 flexicap-One concentrated on domestic stocks and another one with international exposure
– 1 small or midcap fund, however exposure should not be more than-25% of total exposure; and last but not the least
– 1 tax savings
How about considering the following:
- What is the risk profile of the investor?
- What is the investor saving for?
- What is the time horizon for these goals?
- Can the customer take the risk of mid/small cap?
- Should it be mid cap or small cap?
- Why only 6 equity scheme?
- Why 2 for large, 2 for flexi but only 1 for mid/small?
- Is this kind of concentration good for the client’s risk-profile?
- If you are choosing only 1 scheme what should be the criteria?
- Why international exposure and why not provide it directly rather than through flexicap scheme?
- How much international exposure fits into client profile?
I am sure you can think of several other questions in this context.
The challenge of advice on a TV channel is that the advice can only be “one-size-fits-all” because of the very nature of the medium.
It’s just “Noise”.
Just like a garment of a particular size will not fit all, similarly an advice of a certain kind will not fit all.
I believe that time is not far when every portfolio will probably be investor as investor evolution will make them more aware of their specific need.
The key for the investor is to think about their specific situation rather that “follow the herd”.
Remember if you buy a shoe that’s not your size, it will either itch or keeping falling off your foot.
Decision is yours.
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