"Did you get this on WhatsApp?" she asked, handing over her phone to me.

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I kept my cup of coffee on the table and looked into her phone and found a forward quoting a mutual fund CEO on two different occasions. Sometime towards early September he had been advocating that investors should continue to bet big on the stock market. And now in October he had been saying that for the next few months, it was best if investors kept their money in cash. This basically meant that investors should stay away from the stock market, sell out and park their money in the bank.

"Ah," I replied, "I haven't seen this, but I am not surprised."

"What do you think is happening?"

"The BSE Sensex peaked on August 28, 2018, at 38,896 points. The Price to Earnings (P/E) ratio of stocks that comprise the Sensex on that day was a little over 25.1," I explained.

"What does that mean?"

"What it means is that on that day, investors were ready to pay Rs 25.1 as a price, for every one rupee of earning for Sensex stocks."

"I understand that. You explained it last week. But what does it really mean?"

"What it really means that Sensex stocks were in expensive territory in early September. The profits that companies were making did not justify their share price."

"Then why was the mutual fund CEO recommending that investors invest more?" she asked.

"Well, for the simple reason that mutual funds make money as a percentage of the money that they manage. The more money they manage, the more money they make."

"Hmmm."

"And that is why you will see that most people working for mutual funds, be it their CEOs or their chief investment officers, are perpetually bullish on the stock market, because they want you to keep investing. That's how the mutual fund makes money."

"How do you explain the WhatsApp forward then? If mutual fund guys are perpetually recommending that investors buy equity mutual funds, why is this gentleman now saying that it is best to stay in cash, over the next few months," she asked.

"That's the tricky bit. I have rarely seen a mutual fund CEO not be bullish about the stock market in public."

"Then?"

"I think the explanation for this lies in the fact that this gentleman must have been appearing on TV once too often, as an expert trying to sense of the daily vagaries of the stock market."

"Ah."

"From early September the stock market has been falling, while he has been asking investors to invest. After a month of getting it wrong, he now wants investors to stay away. I guess that's led to the comment."

"But aren't prices better now?"

"Oh, yes they are. On October 19, 2018, the price to earnings ratio of Sensex stocks was down to 22.03."

"Hmmm."

"So, basically this mutual fund CEO has been recommending the opposite of the classic investment adage of, buy low, sell high."

"Yeah," she said.

"In early September, when P/E ratio was close to 25, he wanted investors to continue to buy. Now when the P/E ratio is much lower, he wants investors to sell out and stay in cash. If he was bullish on stocks in early September, he should have been bullish even now."

"That makes sense."

"What I find even more surprising is that a mutual fund CEO has a view on where the stock market is headed in the extremely short term. This goes against the very idea of investing in equity mutual funds for a long period of time."

"Will do anything to be on TV, I guess," she said.

"In fact, a similar sort of situation applies to stock brokers also. They don't make money when you buy and hold on to your investments in stocks. They make money when you keep buying and selling, getting in and getting out of stocks. That's when commissions are made."

"The incentives are misaligned."

"They clearly are. Why else would experts give wrong advice?"

She got up. Opened up the windows. And the October heat started coming in.

(The example is hypothetical)

Vivek Kaul is the author of the Easy Money trilogy