High returns + Assured returns–Buyer Beware!!

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In the movie “Phir Hera Pheri”, the film’s hero Akshay Kumar meets Bipasha Basu, who promises to double his money in 14 days. It is indeed a mouth-watering proposition if it were to be true. Unfortunately, it was too good to be true. What Akshay Kumar did was something many investors in such a situation do not do. He asked how Bipasha could afford to pay such a high rate of return. The answer was simple, but that required further probing what Akshay failed to do. The lure of doubling the money in 14 days was so high that he stopped at asking just one question.

It is an important lesson for all of us: what someone offers high rate of return and that too “assured” or “guaranteed”, ask till you are fully satisfied about the possibility. High rate of return is possible only when there is a high degree of uncertainty. Certainty of returns can only offer low rates of return – comparable to the return on fixed deposits of good, sound banks. Otherwise, an investor may get high return on investment for some time but the return of investment has to be forgotten.

What should one do as an investor? Managing our investments is not just our need, it is also our responsibility. If one understands the role of investments in one’s life, the focus automatically gets diverted on the life-time needs of money and all the short-cuts are forgotten.

 

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