Getting emotional about investments will hurt FRANKLY SPEAKING

“I have asked my agent to surrender the policy and get the refund. Let me follow up and find out why this has not happened so far,” said Mahesh Sinha, a client whose portfolio we were re-structuring.

Sinha had accumulated a long list of money-back insurance policies over the years. From the list, we had specifically highlighted the need to surrender a particular policy that had a very high annual premium (with negligible insurance cover, as usual). It had been three months since the recommendation but the policy had not been surrendered.

We informed Sinha it was not in the interest of the insurance agent to surrender the policy because of the fat annual commissions. More so because he was required to maintain a ratio of policies staying alive for a particular period. Surrendering an expensive policy like Sinha’s would ruin his numbers. So, depending entirely on the agent to surrender the policy would mean an indefinite wait.

But, it was difficult for Sinha to budge. Being a senior executive in a large information technology firm, he was well versed in understanding commercial motives but he chose to overlook such an obvious conflict of interest between his and the insurance agent’s needs. And, despite the obvious delay, he was unable to accept that the agent would not really carry out his wish to surrender the policy.

It reminded me of my experience with another client who had a very large investment portfolio, the bulk of which was invested in five under-construction real estate properties. He had agreed he was overexposed to this sector and to sell one of the properties, as a start. But, six months later, the sale was nowhere on the horizon. While he had asked the developer to get him buyers, the catch was that the developer was still in the process of selling unsold flats in the building. Clearly, there was a conflict of interest.

While this client kept on insisting the developer would sell the flat for him due to a long-standing relationship, it was amazing to see his confidence.

This lack of realisation about the obvious conflict of interest from both these clients provoked me to enquire deeper into the subject. Both are successful professionals who have played roles in mega deals for their companies and are extremely market-savvy. Yet, they suffer from an inertia problem when it comes to their own significant wealth. The realisation dawned on me: Both needed to assure themselves that they had not made a foolish mistake by buying too many insurance schemes or real estate. It hurt their egos to recognise their error of judgement. They continue to pay a heavy cost for this vanity, disguised as inertia.

I was able to break through the resistance of at least one by highlighting the cost of “inertia” but am still awaiting action from the other party, despite all efforts. Are you like these clients?

Many smart investors are unable to admit that their investment decisions may have gone wrong