I was meeting a bunch of friends and at some point discussion went into stocks, one of them said that he doubled his money in a short span by investing in a leading company and a couple of others agreed that they also experienced a similar return. I was a bit skeptical, as any such “out performance” should hit my radar (whether I choose to I invest in that opportunity or not is different issue). I came home a bit concerned and checked if my software is doing what it is supposed to. When I reviewed the performance of that company, I realized that its performance was decent but was nowhere as good as the folks said it was.
Another friend who is financially very savvy, has been telling me that some of the funds he invested were delivering excellent returns (over 25% annualized). I was a bit skeptical, I asked him to review the returns for his investments. Reported performance of a fund is not usually experienced by majority of the investors, for various reasons like when they chose to invest etc. I usually don’t invest in funds but would not want to miss out on any opportunity if it is really that good. Finally, my friend ran the numbers and came back with a much more subdued figure of 13%, which in itself is not bad but is not anywhere as good as 25%.
This is the case with many people who have invested in real estate and think that they have made a killing. They are usually looking at the number of times their money has multiplied but tend to ignore the time elapsed. When I ask them to look at the annualized return, most come up with annualized returns of less than 15%, which again is a good number but isn’t as great as they initially thought it was.
I believe that some of the best dressed people not only have a great sense of fashion but also have a very good mirror. I believe that the role that a simple thing like the mirror plays in helping them being better dressed is grossly under appreciated. The feedback they receive from looking into the mirror helps these guys dress better. People with modest fashion sense can benefit tremendously by using a mirror while people with great sense of fashion may turn out poorly dressed if they don’t use a mirror.
I believe that most of our financial decisions will benefit significantly if we had a financial mirror. Again this is not a very complex thing, a simple tool that can calculate the annualized returns, like XIRR function in Excel, will do. We should use this to find out the annualized return of our investment and how it compares with other options (like bank fixed deposits, or Index returns) we have.
In summary, learning to use a mirror is a great investment …..