Monday 17 November 2008

Pygmalion Effect

Pygmalion Effect

Recently happened to read the anonymous comments of a supposedly senior fund manager (and presumably an expert):

Many of us might wonder about the dichotomy between the public and private statements by the fund manager. In fact, some of us might even think that it is unfair on the part of the fund manager to express such contradictory views.

However, I'm reminded of the famous movie "My Fair Lady" and the Pygmalion Effect. If the fund manager indeed expresses his concerns for the funds crunch, liquidity crisis, redemption pressures faced by him, etc. in an open forum, the obvious result will be a run on the fund (similar to a run on a bank, NBFC, etc.). When there is a full-fledged run on a financial entity, be it a bank or an NBFC or a mutual fund, our basic Economics Lessons learnt in +2 will enlighten us that it is impossible for even the strongest entity to survive.

Hence, in such a situation, it becomes a moral duty of the fund manager, the CEO of the entity, the Regulators, the Finance Minister, etc. to express truthful yet positive opinions about the situation. If not, the resultin chaos will not only bankrupt the specific mutual fund scheme, NBFC, Bank, etc., but also result in a whole lot of eminently avoidable pain for a whole lot of retail investors.

"Men often become what they believe themselves to be. If I believe I cannot do something, it makes me incapable of doing it. But when I believe I can, then I acquire the ability to do it even if I didn't have it in the beginning." - Mahatma Gandhi

Regards,

N


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