Category: Behavioral Finance

The Investment World is difficult in Social Media Age

In today’s world where so many investment products are available , we got cluttered with doubts and dejection many times . At last we try to do lot of research but later we invest depending on our personal guts and sometimes gets profit and most of the time mediocre return or pure loss.

Do you know why it generally happen ?

The answer is from our childhood we have been told that we should not depend on anybody and do on our own , which is self reliance .

But think once while you perform/invest are you doing the same ?

Definitely NO!!

You saw some youtube channel and insta shorts or some twitter thread etc and then invest . In this modern social media age its easy to influence anybody as people are 24/7/365 days staying with mobile . Even in your bed also you watch this before sleeping which impacts severally to your subconscious mind and deepen conviction .

Actually this is not “swadhaya” . Actually it means self study and retrospection .

Its always borrowed conviction and knowledge which will hardly make you wealthy .

Recently i discussed with one guy who called me and told want me to invest in mutual fund and told “INDEX Fund is safe”

Do you think really INDEX Fund is safe ? Kindly do a swadhaya .

One Up In Wall Street- Preparing to Invest(Ch-1 to Ch-5)

The Major Points Peter Highlighted in first 5 Chapters where he is trying to create an investment mindset for new investors .

The points are as below:

1.    
Do not overestimate the skill and wisdom of
professionals like fund managers or high rated stock investors .At times they also do wrong.

2.    
Take leverage from what your know

3.    
Look for Value investing .Means Off the Rader stocks if
you have good skill in picking companies when they are young.

4.    
Please have a house before investing in stocks directly.
Sometimes people in overconfidence invest all of their hard earned money in stocks and are ruined.

5.    
Invest in companies that are not in stock market. This
might be very risky but highly rewarded if you are smart and highly skilled to analyze.

6.    
Ignore short-term noise from social media and TV channels .Just stay the course once you have done your homework proper.

7.    
Large Profits can be made from common stocks. In Indian
market sticks like HDFC bank, Asian paints etc have given 4x-5x return in 10 years horizon

8.    
Large Loss also can be made in well-known stocks .Ex:
Kingfisher, Satyam Computer and Yes Bank

9.    
Nobody can predict economy and stock market correctly
either in short term or in long-term .So please do not try to time the market .That is foolishness.

10.  Historically Long term returned from stocks are greater than FD and bonds. So First plan and invest your money.

11.  Once you buy stock need to analyze in regular interval. You need to have high risk profile .The stock price can fall 50% and later rise 4 times as well .At the same time it may fall and stay there for decades.

12.  Direct Stock buying is not everybody’s cup of tea .So stay away if you relying on speculation rather than own idea and analysis.

13.  Always look for common stocks and don’t run behind some fancy stories to pick stocks.

14.  Buy only those numbers of stocks, which you can analyze. Do not over crowd your stock portfolio. Remember the number of stocks from different companies are like your babies. Please keep those numbers of stocks that you can manage peacefully and not in chaos.

My sincere advice to readers are if you don’t have time and have a day job better hire an advisor or Invest through MFD in well diversified Mutual Funds or BONDS after calculating your Risk profile and closing your Goals. Remember Good Return is not Goal.

Please subscribe my twitter and telegram channel if love my knowledge sharing writeups .Stocks discussed are here for educational purpose and not buying ideas.

That’s all from me , Yours Abinash 🙂

One Up in Wall street – The Making of a Stock Picker-2

In this chapter Peter Lynch tell us

  1. There is no such thing hereditary knack of stock picking . You have to make your own path.
  2. History and Philosophy is more important in stock picking than statistics and mathematics.
  3. You don’t need to be a CA or economist to become a stock picker . You can be a fourth grade and still be a stock picker.
  4. To understand stock investing you must start with investment rather than discussing with others .You will get firsthand knowledge by doing your own.
  5. Never buy a stock just because everybody is buying , better read understand and analyze and then take wise decision 
  6. If you are buying a stock better analyze on regular interval and check the health of the stock with respect to its fundamentals .After that take buy/sell decesion .

One Up In Wall Street – Millennial edition starts -1

One Up In Wall Street is a investment book written by Peter Lynch . As I read and learn , so I write here in regular interval for this book .Peter Lynch tell us how we can invest in stocks with our knowledge .

  • If you don’t understand a business better to stay away if at all later you regret for missing the opportunity. Ex: Cisco in 480 fold stock that Peter Lynch missed while analyzing.
  • An amateur investor can pick stocks by looking at the development in his surrounding office , market place etc.Don’t buy a stock just because you are using its product .Ex: People bought YES bank just because they have salary account with yes bank.Please give some effort in learning business.
  • If you do all your homework right also still there is no guarantee that you will make money from all your investments .Its just to reduce probability of mistakes in the long journey.Ex- If you bought 10 stocks , 5 may fail miserably , 3 may give you moderate bank interest rate return and 2 may give you multi fold return in long run.
  • Something will rise one day – This type of mindset is not investing rather its gambling . If you can not do hard work better stay away from stocks and buy mutual fun as per your taste.
  • Now a days due to news overhead stock prices fluctuate more than 1% on daily basis . So its normal in short run, Don’t panic if you have done your home work while selecting business .If you sell in panic and later sock started moving upward then you may miss total investment journey if you sum-up all above points . In short you will reach at the same place after many years of investing also and get frustrated .

Please keep in mind 3 points

  1. Never allow noise and nuisance to to ruin your good portfolio
  2. Your portfolio also should not ruin your leisure and vacation , hence always stick to good fundamental stocks.
  3. Always have sufficient cash with you (May be 15 months emergency funds which will give peace of mind in case market fall either in buying more or mainlining your lifestyle for sometime if you loose job and market fall at same time )

What Corona Virus Taught us financially?

Coming to 2020 , the entire year was full of virus ,death, quarantine ,lockdown ,testing and vaccine…..

Loss of job , economic turmoil all happened due to this virus.

Well, almost. There are time-tested lessons in personal finance which have been staying relevant for ages, but often not well understood or realized as certain things are learnt well in tough times only. And 2020 was indeed a tough year to forget soon. lessons for lifetime are as follows:

  • Trying to predict the future (of market, or for that matter of anything) is the stupidest thing to do.
  • Having no health insurance, depending solely on employer provided health cover or having a health cover of less than sufficient amount with never read terms and conditions – are as good as inviting the worse to happen.
  • Spending as much as if there is no tomorrow and delaying savings as if the future will always be kind to us – can be a catastrophe.
  • Making ad hoc investments without any plan whatsoever may also land us in trouble such as not being able to liquidate investments when required.
  • Assuming that the party (source of income) will go on forever like as before – is going to fall flat sooner or later. That does not mean we should panic; that means we should remain prepared.
  • Need of asset allocation in one’s portfolio: We have discussed this in length several times. As not all assets out-perform or under-perform at the same time, it makes lot of sense to invest in assets which are negatively correlated to each other. The more this allocation is process-oriented and automated, the better.
  • Need of having an emergency fund: Yes, this doesn’t sound attractive at start, but can come real handy when everything else go wrong.
  • Need of adapting to changes: Here, by ‘changes’ I mean ‘technological changes’. Things have already changed and are going to change very fast – technologically. And for most part, it is for our benefit. The sooner we get comfortable in using technology in our day-to-day life, the better. Technology has made managing investments and insurance much more convenient and safer in the year 2020.

What is FOMO and the best way to deal with FOMO…

FOMO stands for Fear of Missing Out . Does it sound familiar with what you might have experienced recently? Let me explain further.

At this time when we all are closely (but virtually) connected 24 hours a day – we can easily come to know who is upto what. When I found (through some or other social media) that my colleague has bought something at an unbelievable price, my immediate feeling could be – I should also go for it before it’s too late. “Flash sale”, “Till stocks last”, “Great Indian Sale”, “Limited period discount” – all these phrases pump up our anxiety level and make us believe – that if we don’t act immediately (without even letting our brains to work) we are going to miss out an excellent opportunity which will never come back.

In reality, this is never true. Instead such fear often make us act stupidly. We lose money and time for something which we hardly require at that moment. If someone has made some great money in a short span of time through making some investment somewhere – should we just fear of missing out and copy him ditto? Where such behaviour may lead us to? How to overcome FOMO if it’s so harmful?

Not that FOMO is injurious to your health, finance or life! It can bring good result, joy or satisfaction also. Let us not paint any behavioural trait as black or white – where in reality they are often grey.

Only one thing that you can do (and should do) is to recognize the presence of FOMO in our behaviour. After acknowledging it, even if your heart and mind says – ‘Yes’ – then go for it. Taste it. On back of your mind, keep this very clear that almost everything comes back except time and relationship.

Now coming back to finance. Whereas delaying investment decision is bad and affects power of compounding negatively, running after a product not knowing fully how it fits into our overall personal finance roadmap is even worse. If a product or stock worked for someone, not necessary that you should also go for it. Your risk profile, investment horizon, income-expense pattern, priorities – could be very different from him/her. So, sit with your advisor and check whether a product is fit for you before jumping the gun.

So thats all from me for today . Stay Healthy and stay happy..

Cheers ,

Abinash

16 Timeless Tips ….

  1. An attempt at making quick money leads to losses far higher than the initial investment.
  2. If stocks don’t seem by historical standards, stand aside and invest in very small amounts.
  3.  Buy and hold does not work always .Never average down a losing investment unless it is a part of well-thought out process.
  4. The best tip is there is nothing called “Hot tip”.
  5. Never fall in love with your stocks. It will never fall in love with you. It will fall with market J
  6. Calculate first how much you can lose, not how much you can gain.
  7. Valuations don’t matter in short run and “short run” can last for months and even beyond a year …
  8. Experts care about risks and Novices dreams about returns.
  9. Forecasts usually my market experts are usually useless.
  10. Develop a method and stick to it and have patience.
  11. Lots of humility helps.A rising tide raises all ships and so you may have been just lucky.
  12. Stocks fell more than you think and rises higher than you will possibly imagine.
  13. Investing in popular stocks, fad industries and new ventures are riskier than it may seem.
  14. Bear market start in good times and Bull market start in bad times….
  15. Neglected sectors often turn out to offer good values.
  16. Don’t assume either the media or fund manager know more than youJ. Their record shows they don’t. 

16 Timeless Tips ….

  1. An attempt at making quick money leads to losses far higher than the initial investment.
  2. If stocks don’t seem by historical standards, stand aside and invest in very small amounts.
  3.  Buy and hold does not work always .Never average down a losing investment unless it is a part of well-thought out process.
  4. The best tip is there is nothing called “Hot tip”.
  5. Never fall in love with your stocks. It will never fall in love with you. It will fall with market J
  6. Calculate first how much you can lose, not how much you can gain.
  7. Valuations don’t matter in short run and “short run” can last for months and even beyond a year …
  8. Experts care about risks and Novices dreams about returns.
  9. Forecasts usually my market experts are usually useless.
  10. Develop a method and stick to it and have patience.
  11. Lots of humility helps.A rising tide raises all ships and so you may have been just lucky.
  12. Stocks fell more than you think and rises higher than you will possibly imagine.
  13. Investing in popular stocks, fad industries and new ventures are riskier than it may seem.
  14. Bear market start in good times and Bull market start in bad times….
  15. Neglected sectors often turn out to offer good values.
  16. Don’t assume either the media or fund manager know more than youJ. Their record shows they don’t. 

The Monkey , Goat and Stock Story :)

So there was this village where one day a man appeared and said that he wanted to buy monkeys. He said that he would pay a hundred rupees per monkey. The villagers caught all the monkeys in the neighborhood and sold them to him for a hundred rupees each. Soon another man appeared and said that he would pay two hundred rupees for each monkey. But there weren’t any more monkeys around. They were all owned by the first man. So the villagers went to him and said that they were willing to take the monkeys back and return his money. But the monkey owner was unwilling to sell. The villagers raised the offer price to Rs 150 per monkey, then Rs 175 and finally to Rs 199 but the man just didn’t want to sell, even though he clearly didn’t have any use for the monkeys. Eventually, just to see whether he would sell, they offered him Rs 200 but he still refused.

The villagers were puzzled by this. Finally, one of them figured out that there must be someone else who was going to come to the village and offer even more money for the monkeys. Convinced that this was the real explanation, they went and offered the man Rs 300 for each monkey and sure enough the man accepted. Joyous at having landed such a good deal, they quickly paid him off before he changed his mind and took possession of the monkeys. The man went away with his money and presumably lived happily ever after. The villagers waited for the next buyer. And waited. And waited. But no one ever appeared who wanted to buy a monkey.

But wait. If you think you’ve guessed the moral of the story, you are wrong because the story isn’t over yet. This story isn’t quite the same as the monkey story you may have got in one of those chain-forwarded emails. In my version, there was another village nearby. In this village a man appeared one day and offered a thousand rupees each for a goat. Now goats were valuable, but not as much as a thousand rupees so the villagers sold the goats to this man. A similar thing happened here too. A second man appeared, offered two thousand for each goat, the first man refused and eventually the villagers ended up buying the goats back for Rs 3,000 each. Here too, the two men disappeared and no one ever came and offered so much money for a goat again. But there was a difference. Goats aren’t monkeys. They could be milked every day and the milk was good and healthy. In fact I’ve heard that Gandhiji preferred goat milk. Even the goat droppings could be used as fuel, though I’m not sure of that. When the goats eventually grew too old to be milked, the villagers could kill them for mutton. All in all, it wasn’t a complete disaster.
But the monkey-owners were not so lucky. They actually had to be kept in one’s house. The monkeys ate too much, shouted and shrieked all day and sometimes bit people. Eventually, when it became clear that the monkeys were worthless, their owners abandoned them and tried to forget about their losses. And that’s the moral of the story. In the stock markets today, there are good companies that are overpriced and there are worthless companies that are overpriced. If you are going to be a fool and pay absurd prices because you think that a greater fool will appear in the future, make sure you buy a goat and not a monkey.


Source of the story:

The Monkey , Goat and Stock Story :)

So there was this village where one day a man appeared and said that he wanted to buy monkeys. He said that he would pay a hundred rupees per monkey. The villagers caught all the monkeys in the neighborhood and sold them to him for a hundred rupees each. Soon another man appeared and said that he would pay two hundred rupees for each monkey. But there weren’t any more monkeys around. They were all owned by the first man. So the villagers went to him and said that they were willing to take the monkeys back and return his money. But the monkey owner was unwilling to sell. The villagers raised the offer price to Rs 150 per monkey, then Rs 175 and finally to Rs 199 but the man just didn’t want to sell, even though he clearly didn’t have any use for the monkeys. Eventually, just to see whether he would sell, they offered him Rs 200 but he still refused.

The villagers were puzzled by this. Finally, one of them figured out that there must be someone else who was going to come to the village and offer even more money for the monkeys. Convinced that this was the real explanation, they went and offered the man Rs 300 for each monkey and sure enough the man accepted. Joyous at having landed such a good deal, they quickly paid him off before he changed his mind and took possession of the monkeys. The man went away with his money and presumably lived happily ever after. The villagers waited for the next buyer. And waited. And waited. But no one ever appeared who wanted to buy a monkey.

But wait. If you think you’ve guessed the moral of the story, you are wrong because the story isn’t over yet. This story isn’t quite the same as the monkey story you may have got in one of those chain-forwarded emails. In my version, there was another village nearby. In this village a man appeared one day and offered a thousand rupees each for a goat. Now goats were valuable, but not as much as a thousand rupees so the villagers sold the goats to this man. A similar thing happened here too. A second man appeared, offered two thousand for each goat, the first man refused and eventually the villagers ended up buying the goats back for Rs 3,000 each. Here too, the two men disappeared and no one ever came and offered so much money for a goat again. But there was a difference. Goats aren’t monkeys. They could be milked every day and the milk was good and healthy. In fact I’ve heard that Gandhiji preferred goat milk. Even the goat droppings could be used as fuel, though I’m not sure of that. When the goats eventually grew too old to be milked, the villagers could kill them for mutton. All in all, it wasn’t a complete disaster.
But the monkey-owners were not so lucky. They actually had to be kept in one’s house. The monkeys ate too much, shouted and shrieked all day and sometimes bit people. Eventually, when it became clear that the monkeys were worthless, their owners abandoned them and tried to forget about their losses. And that’s the moral of the story. In the stock markets today, there are good companies that are overpriced and there are worthless companies that are overpriced. If you are going to be a fool and pay absurd prices because you think that a greater fool will appear in the future, make sure you buy a goat and not a monkey.


Source of the story: