Investing Behaviour

The Sensex was down 700 points yesterday. It’s down 250 points as I write this today.

Whenever we get days like this — like when the Sensex is down 500 points or more — my phone begins ringing with inquiries from friends and relatives.

They always ask the same question: “What should I be doing now?”

Even my wife has this question every time she sees the markets fall like this.

“What are you doing now?” she asks me.

You see, this is ‘not’ the right question to ask in such times.
[Read more…] about Stocks Crash! What Should Investors Do NOW?

My eyes were caught by a headline in a business paper yesterday. It said, “Steady rise in shady deals, price rigging”.

At first I thought this was an article on the real estate sector in India. But then as I read it further, things really started to look ‘shady’.

The article talked about how data from the stock market regulator SEBI suggests that the cases of market manipulation and price rigging in stock markets have steadily increased over the past few years.

In fact, such cases now account for almost 50% of the cases taken up for investigation by the SEBI.

What this data simply means is that a growing number of people in the Indian stock markets are following the mantra ‘Greed is Good’ as was said by the character of Gordon Gekko in the Hollywood classic Wall Street.
[Read more…] about Is Stock Market a Casino?

First, a quick question. Take the last three digits of your telephone number, and add 400 to it.

So if your telephone number ends in 146, adding 400 to it will give you the answer 546.

Now answer this question – In which year did Alexander invade India?

Think…think!

Even though your telephone number has nothing to do with ancient India’s battles, you will note that your answer to the above question would most likely revolve around the first number i.e., 546 in the above example.

Whatever number you come up with for the sum of the last three digits of your telephone number and 400, your guess for the year of Alexander’s invasion will be close to your sum.
[Read more…] about In Investing, Catch the Right Anchor to Avoid Sinking

Markets are up, again. The BSE-Sensex is up almost 1,100 points over the past three weeks. Even other global markets have staged a comeback.

For now, the co-ordinated plan of international policymakers to lend cheap dollars to European banks to tame the credit crisis seems to be doing the trick.

In short, the bad news seems to be past us, at least for the time being.
[Read more…] about The Greatest Market Timer in This World is…

“The hardest virus to kill is an idea,” said the character of Leonardo DiCaprio in the movie Inception. This idea – of the difficulty of killing an idea – is widely prevalent.

We see this in businesses where once a management gets an idea that sounds wonderful, it is very difficult to ask it to change its plans even if the idea is destined to fail.

Things aren’t any different in stock market investing.

Investors seldom expect to be wrong, and thus hold on to bad ideas – bad stocks – even when it seems clear that their original idea was faulty.

But this is a typical behavioral attribute and you can’t blame anyone who shows this kind of a tendency – of not accepting that his idea is bad, and therefore must be killed.

In this post, we look at the relevance of killing bad ideas in stock market investing, and how you as an investor can do that.
[Read more…] about Kill That Idea Before It Kills Your Wealth

Dictionary defines bankruptcy as the state of being or becoming bankrupt. And you are bankrupt if you are unable to satisfy any just claims made upon you.

Some also define bankruptcy as a legal proceeding in which you put your money in your pants pocket and give your coat to your creditors.

These definitions apply to you once you are already bankrupt.

But the question is – How do you go bankrupt?
[Read more…] about The Easiest Way to Go Bankrupt

Do you remember the 2009 swine flu pandemic that caused worldwide panic? An estimated 14,300 people died of this virus.

If you think that’s a big number, you would be surprised to note that more people die every year due to seasonal flu.

But even then, swine flu caused much greater panic than the regular flu. What could be the reason for that?

Or consider the following example. In the months after the September 11 terrorist attacks in the US in 2001, travellers made the decision that travelling by car was a far safer way than by air.
[Read more…] about This Big Investing Mistake Can Cost You Heavy

“I hate it! It’s like the end of world for me!” said my friend Ravi hanging his head in desperation.

“What happened?” I asked. “You lost someone in your family? Oh, I’m so sorry!”

“Oh no, not that!” he said.

“Then what? Your dog died?”

“No, no!”

“Someone stole your Blackberry?”

“Vishal, will you let me speak?”

“Yeah, c’mon tell me what happened?” I smiled at him and asked.
[Read more…] about Want to Become a Better Investor? First Get Your Brain Damaged

The spread of business channels and other financial media has had grave consequences for investors over the past few years.

One of them is the need to justify each and every move of the market.

The other is the tendency to buy or sell stocks first and think about the rationale of buying/selling later.

The third, and the worst, consequence for investors of watching business channels and reading financial media has been the nonsensical focus on the movement of the Sensex or the Nifty.
[Read more…] about The Stock Market Nonsense Called ‘Consensus’