Wit. Wisdom. Value Investing.
After last week’s crash landing, this week wasn’t any better for stock markets around the world.
The Indian markets, represented by the BSE-Sensex, closed the week down by 466 points, or 2.7%. This took the Sensex to sub-17,000 levels for the first time since June 2010.
Is this market going up or down? [Read more…] about Is This Market Going Up or Down?
When in doubt, follow. This is an apt quote on the behaviour of us humans.
We generally draw comfort in going with the majority, or the consensus.
The problem is that we have very less control on such behaviour, as evolution has equipped us with this tendency of running a rat race.
Yes, you read that right. We are all running several rat races, whether in our work lives or when it comes to investing our money.
[Read more…] about The Problem With a Rat Race is That Even If You Win…
The way we conduct ourselves in real life has a lot to do with what we’ve learnt from our parents, and especially from our grandparents.
In fact, the best memories I have of my childhood are of the nights spent with my grandmother who told me stories of the kings and witches, of what made people good and what made them bad, of the importance of forming good habits and the harmful effects of walking the wrong path.
You must have had the same experience.
Anyways, why I’m telling you all this is to show how our influencers change when we are dealing with our real lives, and when we are dealing with our stock market investments.
See this…
Here is a snapshot of the home page of today’s Economic Times.
Many investment experts and financial websites make outrageous promises of untold riches to their readers and clients.
‘Become the next Warren Buffett’, some would promise. And then there are others who would suggest – ‘How you can get rich like Warren Buffett‘.
If you have also come across such promises or claims, and have started to believe that you or your kid can really become the next Warren Buffett, see this..
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The brain we have on the top of our head isn’t a flawless machine.
It is definitely powerful and comes in an easy to carry container. But it has its weaknesses.
In everyday terms, we call such weaknesses as ‘biases’. The good part is that while we cannot exchange our brains with other people nor can we upgrade it at a hardware shop, we can avoid mistakes that our biases cause by just taking notice of them.
[Read more…] about Your Brain on Stocks
“It’s impossible to predict the future, but humans can’t help themselves. From the economy to the presidency to the Super Bowl, educated and intelligent people promise insight and repeatedly fail by wide margins. These mistakes and misses go unpunished, both publicly and in our brain, which has become trained to ignore the record of those who make them. In this hour of Freakonomics Radio, we’ll dream of the day when bad predictors pay.”
Listen to the radio here: [audio:https://www.podtrac.com/pts/redirect.mp3/audio.wnyc.org/freakonomics_specials/freakonomics_specials060411.mp3]
“Just as nature abhors a vacuum, people hate randomness. The human compulsion to make predictions about the unpredictable originates in the dopamine centers of the reflexive brain. I call this human tendency ‘the predication addition’.”
This is how Jason Zweig describes the human tendency to predict in his book Your Money and Your Brain.
So do you suffer from prediction addiction?
[Read more…] about Do You Suffer from Prediction Addiction?
We learnt yesterday how the sunk cost fallacy leads investors to throw good money after bad.
Well, here’s what I read in a leading business daily that talks about the impending financial crisis in the western world:
“An apocalyptic Lehman-style moment seems unlikely right now, because US legislators will likely come to some sort of a deal that will allow the federal government to resume borrowing, while Europe has invested too much in the integration project to let things collapse in the first episode of stress.”
Note the words – “invested too much…to let things collapse”.
Now, this is a case of ‘sunk cost fallacy’ on a massive scale.
Pity the poor taxpayer!