I have discussed investments with the same family. My friend’s husband prides himself as a very informed person on the markets and is keen to hold forth. He invests regularly in shares – mostly based on information (tips?) his broker and friends give him. He has been in and out of so many stocks, can reel out the prices, and is cool about the profits and losses. However, he knows very little about the companies he invested in. He has money in bonds because there is a tax rebate. His wife buys jewellery because she thinks it is an investment. She also trades in the futures markets, purely based on broker advice, and tells me she made a neat packet – only she can’t explain how. Both have never read a mutual fund prospectus and do not know to read a balance sheet. He knows so little about the companies he has invested in, and in many cases not even the full name. He cannot even tell me the complete list of where he has invested. It is not as if all investors are like this, but I informally know that many of them make money on the markets, but are not so informed about their own investments.

Look at how the same investor behaved with his son’s education. He armed himself with all information. Contradictory, isn’t it? The investment decision is as important as the college admission, it will fund the education and perhaps is more important. But he is not even half as aware as he was about a foreign university. The questions to ask are the actually similar: What is the background of the college? Who runs it and what’s their track record? Is it a registered and legally authorized entity? What courses do they offer? What is the future potential? What is the pass percentage? What is the placement scene and how have the students done? Who are the teachers and what is their track record? What other activities does the college have? What are the facilities?

Let me translate this for an investment. Who runs the company? Do the promoters have a good track record? What are the products? What is their past performance? Who are managers? What is their background and experience? What is the market for their products? What are the returns? Did they make money? What is the risk? How is the comparative performance of their competitors? Similar list of questions, isn’t it? It is all about being informed about the choice that we make. If I were to tell you that you should put your child in the college that is run by the government, charges the lowest fees and closest to your house, and let him study what they offer, will you happily accept the choice? Then how is it so easy to sign off an application form or demat slip, or hand over a cheque without knowing a thing and without asking a single question, simply buying out a promise? Why do investors discard prospectus without reading? Why don’t they ask simple questions on antecedents and track record? Is it really so complex? Or are we simply not even beginning to make the effort?

In the subzi market, I meet so many women, totally in-charge. They will ask for dhania leaves without flowers, pick the most tender ladies finger, argue on the quality, compare and bargain on prices and get home after being satisfied they bought the best quality at the best price. I do not think any of them were put in a class and taught how to buy subzi. To the uninitiated it is complex. But then, it is an informed choice that the women make day after day. So is it with investing. Ask for information. Learn to deal with it. Understand the simple rules. If you think cooking and investing are best left to those who know, choose mutual funds. Allow a professional to ask these questions on your behalf.

If someone promises 25% return, what does it take to ask where the return would come from? Or what does it take to figure out that what is return to you, is cost to him, so he should be offering less, why is he giving more? Tough? Ask the women who identifies the ripe coconut without breaking the shell, by tapping to hear the sounds.