The trouble with personal recommendations

by Manshu on July 29, 2011

in Opinion

Regular readers know that I don’t hand out personalized advice to anyone, and although I think most of my regular readers are aware of why I do this, I thought it will be a good idea to write down my rationale clearly, and also point people to this page when they seek such recommendations.

I didn’t plan to do this post but I’m getting more and more of these kind of emails nowadays, and I think that has something to do with where the market is right now, and how it has attracted quite a few new entrants to it. Also, I hope that this will nod you to evaluate others who are handing out advice a little more critically, which in my opinion will be a good thing.

With that said, here are my main reasons for staying away from handing out recommendations.

1. I’m not a professional: This is by far the number 1 reason. I’m not a professional and I don’t do this for a living. I don’t feel that I have enough knowledge to advice people on what they should do. I try to stick to  facts in my post, and then when there are comments I try to answer them factually as well. If you ask me what the Post Office Monthly Income Scheme is – that’s a much easier and factual question for me to answer than to tell you whether that’s right for you or not. I try to stick to those kind of questions.

2. You are unique like everyone else: Different people have different needs, and even if I felt I knew something was right, there is normally no way to find out if it is right for you without getting into a lot of details with you.

You can see some very good examples of this on the comments of the NPS post. You will see someone going after me because NPS is a bad product and I’m not saying so and then someone else going after me because NPS is a good product and I’m not recommending it.

Both these people come from different perspectives and I’m sure what they are saying is true for them, but probably not true for “everyone” else. When they find that their experience doesn’t match with what I have to say they take offense to that, and I can totally understand that. But how can you blame someone for doing a thing, and then not doing  the very thing?

A lot of this is contextual I’m afraid, and gathering context needs a lot more time and effort than is possible on this forum.

3. I really don’t know: This is true more often than I’d like to admit. But in a lot of cases I simply don’t know.  The L&T Finance IPO is open right now so let’s take an example of that – should you subscribe to the IPO or not?

Let’s think about the answers for a minute. If I say you should subscribe to it – what does that mean? In my mind it can  mean only one thing – that it will open at a premium and will not go down below the IPO price ever, or at least for a very long period. If that’s not true, then why not wait and buy it when it lists at a discount.

On the other hand, what if I say don’t subscribe to it? That means I expect it to go down with listing at which time I can buy it for cheaper or it could mean that the company is not worth investing in at all.

I don’t know of any way to predict these outcomes with reasonable accuracy – I simply don’t know.

Occasionally, this answer confuses people, they ask how are others recommending stocks and IPOs?

I don’t know how they are doing it, but I’m fairly sure why they are doing it.

Because there is a market for it.

The number of people who want stock tips, and recommendations outstrips the number of people who understand that these don’t work by probably 1,000 – 1.

Anyone who can tie a tie can give stock advice, and sometimes even that’s not needed. There aren’t very good ways of measuring how effective someone’s advice has been, and that’s how most of these people stay in the game for so long. Not by being right, but by not getting caught.

I’m not saying everyone falls in this category, but a lot of people certainly do. I’m sure there are people who predict very well, and once you identify them they become a very valuable resource for you as well.

Unfortunately, I have no tips or recommendations because I simply don’t know.

I can go in with a few more reasons, but the theme remains the same. I don’t think managing money, and finances is very hard to do, but at the same time it’s not as easy as to get a one line answer and then buy insurance, gold or stocks using that information. There can only be rewards if you put in time and effort in the research.

{ 22 comments… read them below or add one }

Hemant Beniwal July 29, 2011 at 7:11 am

Hi Manshu,
I really like your clear thought process & people also need to understand our limitations. Recently on “Stop Fooling Investor” post I added this comment:
Do we (so called experts in TV, Newspaper or Blog) know IQ, attitude, financial status, objectives etc of each (or any) individual reader/viewer. Even we don’t know about your job, family structure & even in some cases full or real names. 😉
Let’s take your case (reader Anil Kapila) – we are interacting from couple of months but only 10 days back I realised that you are close to 50 years. So if I would have given you some personal advice before that assuming you are in 30s – you can just imagine I have ruined your financial future. If I have give you some personal advice don’t follow it. 🙁
That’s the reason I shy from answering specific questions.

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Manshu July 29, 2011 at 7:49 pm

That’s a great example right there Hemant – thanks for sharing it.

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ujjwal July 29, 2011 at 9:45 am

manshu…
you are honest and great….good people…

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Manshu July 29, 2011 at 7:48 pm

You’re too kind Ujjwal.

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Sharath July 29, 2011 at 10:25 am

Thanks Manshu for your honest opinion on L&T IPO.
Which people/brokerage do you think predict better ( if you follow one ). Becasue, everyday we see/read recommendations from so many corners, as an investor ( not trader ), it is really tough to decide to whom we should listen.

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Manshu July 29, 2011 at 7:48 pm

The Hindu Business Line has some good reviews on IPOs, so that’s something you can read. The Dalal Street Journal magazine also has some good ideas on stocks so you can read that too. Other than that Business India covers a lot of small companies in every issue, and that’s usually a good place to discover small lesser known companies.

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Arvind July 29, 2011 at 11:14 am

well said. I liked the turn of phrase in “Anyone who can tie a tie can give stock advice, and sometimes even that’s not needed.”
you may wish to do a post on how to research an investment if one is a DIY person i.e. what information is to be looked for, sources of information one can rely upon, which are the important factors that go into decision making and which are not etc.
now that would mean a series, right?
have a good day.

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Manshu July 29, 2011 at 7:46 pm

Those are great ideas! I’m usually not good at writing series, but I can definitely try. I already wrote something a few months ago about three red flags that I look for. Perhaps you fill find that interesting:

http://www.onemint.com/2011/04/06/auditors-reports-promoters-shares-pledged-and-management-discussion/

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Ashok July 29, 2011 at 11:16 am

Hi Manshu,

Whether this excellent post will reduce the requests for personalised advice is very much open to question. My opinion is it will not. You will still get a lot of these requests. Probably this is also because of the growing popularity of your blog 🙂 !!

I have a lot of interest in personal finance and a lot of my colleagues ask me advice. I try to give out personalised advice, but it frequently is not taken. They tune out within a minute. People are only interested in Yes or No answers and not doing their own homework.

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Arvind July 29, 2011 at 11:45 am

Ashok,
yes, most people want only ready-made and brief answers to complex questions.

but most also do not know how and where to look for answers.
of course there are lots of resources online but one seldom finds a resource with a clear cut qualification as to whether it is for beginners or for the somewhat more advanced readers. these terms themselves are so relative…:)
it looks like a hopeless situation.
the lucky one who hits on a sensible way can run with the money. others must stumble and flounder.
i suppose the correct answer for the laity is ‘go see a professional’. but is there an intelligent way of evaluating a professional’s advice?
have a good day.

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Manshu July 29, 2011 at 7:42 pm

Hi Ashok,

Yeah, I’ve experienced that too, and I guess the question also is whats in it for you? Why do you spend time to sort these things out if only to be ignored? I guess you can’t continue to be interested in it for long.

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ashwin July 29, 2011 at 1:55 pm

Hi Manshu,
I really like your blogs and keep reading them often.

I have been investing for the past 6 yrs and have learnt that investment tips dont come easy. In this galore of ppl, new news channels, newspapers, blogs and get rich soon sites…. ppl are lost and cant find a clear way to invest.

I totally agree when you say, you give the facts and dont tell your opinion on it.. in my humble opinion, you can still put a last line as to what you feel. Since it helps the investor to take a decision.
Maybe they will get biased, but for beginners they need some guides like you.

Many a time, after seeing cnbc and others i feel what do i do with the facts of a company. i dont knw what to infer with those facts…. bloomberg utv makes it simple for me as to what to expect…. so CNBC is for matured investors and bloomberg is for beginners like me 🙂

Thats all i wish to say….thanks for the blogs…this is a real useful thing.
Ashwin

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Manshu July 29, 2011 at 7:31 pm

Wherever reasonable, I try to do that, but in a lot of cases there just isn’t a clear cut answer, and it’s based on opinion only. Not everyone needs to pick stocks or invest in IPOs and spend that much time learning and understanding balance sheets. There are good mutual funds that do it, and you can take advantage of these products. So, even for beginners, I don’t think they are at a disadvantage since there are options available.

Thanks for your comment Ashwin – it has given me an idea to write some posts about what basic numbers and financials mean, and how to evaluate them.

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Kapil Dev Tejwani July 29, 2011 at 5:21 pm

Hi Manshu,
Nice write up.
On a side note the fact that you are not professional and you are not doing this for living might make you more popular for advice giving becuase you can be unbiased and you do not have to grind your own axe in any recommendation..So just my thought why people are flooding for advice to you…..Cheers!!
But yeah I do agree with your points that people should not bother you with personal advice requests.They can learn lot of things from this blog and make their own decision.

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Manshu July 29, 2011 at 7:24 pm

Hi Kapil – That may be the case, and good on people to recognize that. I’m honored that people want to seek my opinion, and appreciate that greatly. It doesn’t bother me, but I want to state my position to make it clear why I don’t do it and hopefully help some others recognize why this type of thing doesn’t work and influence their thought process also.

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krish July 29, 2011 at 6:42 pm

Very well said Manshu.

I believe most ppl don’t have the time or patience to understand what is “investing” and rely on tips or instant answers to feel gratified. They don’t realize the trap they are falling into.

Let’s take the same example of L&T IPO — there were brokerages who said “Subscribe” and there were also quite a few who said “Avoid”. Am sure most ppl would have gone ahead with what their brokers recommended. How many ppl take time out to read the RHP and see if they understand the business and are confident of it’s success 10 years down the line??

The reason I visit your blog instead of MSM and other hot tips blog is for the same reasons you mentioned above. Please continue with your efforts in educating/enlightening your readers as well as yourself.

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Manshu July 29, 2011 at 7:21 pm

Thanks Krish – I think that’s how bloggers have created a niche, and grown around the world – providing some depth, and doing things differently and perhaps in a tad more useful manner than the MSM. I’m glad you bring this comparison because I’ve been thinking about this for the past few days, and thinking how this space will shape up in India in the next ten or fifteen years.

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Hema July 29, 2011 at 8:27 pm

thats a very honest post Manshu, this is one of the reasons I like your blog. You provide information not advise which is very difficult to do…

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Manshu August 1, 2011 at 7:37 pm

Hi Hema – It’s definitely a lot easier to advice and opine instead of coming up with a fact based posts. In fact, there are several people who approach me with guest post ideas, and fail to even grasp what I’m saying. They suggest a topic and say this is great because its controversial or something like that and will generate a lot of discussion on the blog, and I say well yeah, it will generate discussion but will it be positive?

Many times people just totally fail to recognize what I’m saying. I have nothing against others who build a website this way, and I know for sure that it works, but that’s not how I want to do things here, and I’m glad that there is an audience that understands and appreciates this.

Thanks for your comment Hema!

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Himanshu Bansal July 30, 2011 at 3:39 am

This is a really nice articulation in a very polite manner.

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Manshu August 1, 2011 at 7:38 pm

Thanks Himanshu – if you can be polite, why be rude right 🙂 ?

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vinay February 3, 2012 at 10:37 am

Hi Manshu,

How does Gold Mutual fund work’s & there is not much change in the NAV, though the name suggest ” GOLD “

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