Tag Archives: Portfolio Management

Thursday Trivia ~ Trust the Process

Last week, I came across a fabulous resignation letter of Sam Hinkie who served as the general manager of the National Basketball Association’s (NBA) Philadelphia 76ers from 2013 to 2016. He has also consulted for several National Football League teams. A resignation letter that I would love to re-read from time to time.

I’m sure your first thought would be that writer has gone nuts! How can a resignation letter be wonderful? The words Resignation and Wonderful simply don’t match each other. 

The reason is his cross-pollination of ideas from the world of investment. Hinkie goes on to quote Howard Marks, Seth Klarman, Charlie Munger, Warren Buffet to name a few. He has somehow taken the best out of them and applied in running a basketball team. A sports person taking ideas from investment world has been an unheard event to me. If you have come across anyone who cross pollinates ideas then please write about them in the comment section below, we would love to hear more about them.

“I believe in the discipline of mastering the best that other people have ever figured out. I don’t believe in just sitting down and trying to dream it all up yourself. Nobody’s that smart.” — Charlie Munger

A brief history of Sam Hinkie and Philadephia 76ers

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The 76ers hired Sam Hinkie in May 2013. The team’s owners, led by private equity investors, chose him for his analytics acumen. They figured Hinkie, a Stanford MBA, could Moneyball the 76ers to greatness. When Hinkie interviewed for the job, he made it clear to the owners that he thought they were “a long way away” from winning big. The cupboard was bare of talent, and if they wanted to win a championship in the long term, their best way forward would involve a lot of losing in the short term.

Here’s his thinking: Historically, in the National Basketball Association (NBA), the teams that win championships rely on star players such as Michael Jordan and Lebron James. Hinkie believed the surest way for the 76ers to get a star of that caliber was to have a high pick in the amateur draft (the annual process through which newly eligible players are selected by the NBA’s 32 teams). The highest draft picks are awarded to the worst teams, and if the 76ers were bad enough for long enough, he argued, they would eventually get a great player. It would take patience though.

Hinkie warned his bosses, the team, and its fans that the short term would be painful, and it most certainly was. Almost immediately upon Hinkie’s hiring, the team began “tanking”—the sports term for losing on purpose. Hinkie traded the team’s best players and made no attempts to acquire players that would make it better.

Over the next three years, the 76ers were horrible. They lost more games than any other team, and broke the NBA’s record for consecutive games lost. It all culminated in the third season when the team won only 10 of 82 games, making it the second worst NBA team of all time. One prominent sports writer called the team an “abomination,” and another an “atrocity“. Observers called for the NBA to intervene and have Hinkie replaced with a manager who wouldn’t tank. The team’s attendance and tv ratings were among the lowest in the league.

But even at the worst depths of history-making failure, many of the team’s hardcore fans were steadfast in their support of Hinkie. Unlike his predecessors, Hinkie offered a concrete plan based on quantitative analysis. The team was an embarrassment on the court, but they were getting talented young players with high draft picks who might some day become stars.

“[Before Hinkie, the 76ers] just had mediocre teams playing mediocre basketball, being incredible boring… and having no plan,” said Michael Levin, a lifelong 76ers fan and host of the popular 76ers podcast The Rights to Ricky Sanchez. Levin was immediately enamored of Hinkie, he told Quartz. He was happy that the team was finally ”thinking long-term at expense of any short-terms gains.”

In April 2016, Hinkie stepped down. “Given all the changes to our organization, I no longer have the confidence that I can make good decisions on behalf of investors in the Sixers….” Hinkie wrote in his 13-page resignation letter to the 76ers board. The resignation letter served as a defense of his decision-making, as well as a kind of philosophical treatise that includes references to Elon Musk, cognitive science, the physicist James Clerk Maxwell, and Jeff Bezos’s 10,000 year clock. The letter cemented Hinkie’s reputation as a mad genius or a fool—all depending on your point of view.

By January 2017, it finally became clear that Hinkie was right all along. The 76ers have won more than half of their games over the last month. The team’s talented young players are blossoming, and it is in a strong position to acquire more excellent players going forward.

Most emblematic of Hinkie’s success is the emerging stardom of the 76ers’ agile giant Joel Embiid. Hinkie drafted the 7-foot Cameroonian in 2014 even though he had a broken bone in his foot that would not allow him to play for six months. Embiid was a player of immense talent, and because the 76ers were not worried about winning in the short term, the injury did not deter Hinkie from drafting him. 

Correlation to our Investment Process

As many of our readers are aware that we follow a strict quant driven approach for our investing our client’s money in mutual funds. We call it Dynamic P/E Asset Allocation Strategy. It’s purely process oriented that takes away any emotional input for buying or selling any mutual funds.

The key objective of our strategy is to provide risk adjusted returns compared to Nifty. This attribute can be seen in the lower standard deviation and better sharpe ratio in our portfolio. Standard deviation can be construed as a measure of risk in the portfolio and sharpe ratio is return generated by per unit risk taken.

Having a standard deviation of 7.74 which is significantly lesser than Nifty’s standard deviation of 13.45 has resulted in lower volatility in the portfolio. That has created a peaceful investment journey!

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Just like the process of Sam Hinkie when he intentionally tanked the team down for creating a winning team, our quant model too asks us to invest in equity when market is sliding down. We have to see red in our equity portfolio for a little while as the market bottoms out. This is the whole purpose of our quant model to take rational investment decisions by looking at numbers and not falling for emotions such as fear and greed.

We are not an expert at catching the bottom of the market. Our process is not for timing the stock market accurately either. Nobody can do that all the time. 

Even the greatest investor – Warren Buffet cannot. Even Isaac Newton once famously quoted “I can calculate the motion of heavenly bodies, but not the madness of people” while talking about his inability to time the market correctly.

There many quant models out there who successfully outperform their respective benchmarks. We are comfortable with our current quant model that has enabled us to manage risk in the portfolio as well as outperform Nifty. 

That’s why we echo the words of Sam Hinkie – Trust The Process!

– Jinay Savla

Disclaimer: The intention of this blog is not to advertise about our portfolio allocation strategy or ourselves as superior financial advisors. The intention here is to create a faith in Process or System that every Investor must follow in every market condition. Just by falling into emotions and taking wrong decisions will do more bad for an investor than good. Once again, Trust The Process!

Thursday Trivia ~ A Review on different Mobile Budgeting Apps

‘How does change happen?’ asked a curious student. Teacher smiled and replied, ‘Two ways. Slowly at first then Suddenly!’

In last week’s Thursday Trivia, we presented a wave of change in recording household and personal budgets. An activity, which we have been used to traditional single entry book keeping method. Over the years, double entry book keeping system has gone through remarkable technological innovation. There are very good softwares for such a system of book keeping. Because of it’s extensive commercial use, it was disrupted before our traditional single entry book keeping budgeting method for households.

Post demonetisation, a wave of being cashless has erupted in India. Going cashless has it’s own economic benefits. But we all know, how difficult it then becomes to keep a record of our expenses. This was the major concern of most people post demonetisation.

Last week, few of our readers asked us to recommend a good mobile budgeting app. Since, we do not engage in recommending one particular app, we decided to ourselves use a few apps and write about it’s advantages as well as disadvantages. However, let’s not look at each one individually but let’s look at what we require our mobile app to do and work it forward from there.

Linking multiple Bank Accounts

A question that was raised by one of our reader was does these apps link our bank accounts? Is it safe? Won’t cyber security hack into it? Isn’t the whole system subject to a great danger?

Bank account numbers are not linked through online banking. Suppose, you swipe a card for a dinner at your favourite restaurant. A message will come on your phone, which mentions the amount debited, account number, date, time and in brackets even your current balance in the account is mentioned. Apps such as ET Money, Walnut, Money View request your permission and collect the information for the same.

However, it was disappointing to see apps such as Qykly, vMoneyTracker and Coin Keeper which are highly rates did not perform this basic function and requires the user to input these details manually. This not only creates a disinterest to use the app but defeats the whole purpose of providing ease to the user.

Statement of Expenses

In Apps such as ET Money, Walnut and Money View the bank accounts are linked, so every time the user swipes his card, these apps appear on your screen and ask you to allocate various heads under which that expense should be put. It’s an easy 5 second job for the user.

However, cash expenses has to be put in manually under different heads. At first it might take some time, but after a while it just becomes a matter of seconds to record the same. Cultivating that habit would be very important. In simply 3 clicks, a cash transaction can be recorded. If this is not ease, then what else is?

In apps that do not link your bank account, an entry has to be manually fed into. This just gets boring after a while and chances of expenses getting unrecorded are high.

User interface to view expenses is much better in Walnut and Money View than most other Apps. Since, every app gives a gamified view of expenses, Money View is found to be very clean while Walnut is just one step behind it. Rest others have a lot of information on those pages which might not be of relevance such as ‘Share’ function in ET Money on platforms such as Facebook, WhatsApp and Twitter. It doesn’t make sense as to why a person would disclose their monthly expenses on social media platforms. WhatsApp still kind of makes sense as to share it the statement as a report format, but then a simple screenshot is available on the phone to do it.

Hence, the common sense behind building such an interface is also compromised.

Set Budget and Reminder of Bills due

This is a plain vanilla function which is available in every App. All you have to do is just set your budget amount. However, budget cycle remains the same ie. starting from first of the month to ending on last date of the month. A reminder of bills along with their due dates is no more a requirement. Utility companies such as, electricity, telephone send their customers reminder messages well in advance. This setting is useful when there is a payment gateway through the app which automatically makes the payment. However, as of now the function is not available while your mobile wallets perform this function.

Again going back to the first point, if your bank accounts are linked then this function will make sense to you. Otherwise, manually feeding every expense will not serve the purpose.

Option to Invest

Only ET Money App allows to make investments while the rest of the apps don’t have this function. At the first mention, this seems like a tempting function. However, ‘investments are subject to market risks!’ speaks our mind. While budgeting for monthly expense, having an option to make investments sounds like a good deal. But having too many things in one app takes the flavour away.

The App allows making temporary investment in liquid funds, gold funds to selecting a mutual fund and starting a systematic investment plan with the same. The question is would you trust your money being invested by an App or by a human being who assures to take care of your hard earned wealth? It depends from person to person, however exploring the app would not be a bad idea.

User Interface on Spending Summary

ET NOW                                     MONEY VIEW

Summary

To summarise, Walnut and Mone y View stands out distinctly with a cleaner user interface that makes it easy to record a transaction. However, Walnut is not available for iOS users till now. In the start, it may prove to be a trouble to watch our expenses being recorded on a mobile phone but in time it sort of becomes a habit.

User interface and experience in these apps will improve over time as this vertical has not been explored for personal finance as yet. Once enough people start using it, these Apss will look a lot different from what they are now.

– Jinay Savla

Disclaimer :

Currently, we have limited our review to only ‘free’ versions of these Apps. There maybe a case where “Premium’ version which provides a different experience. Incase, you have in past or are currently using a budgeting App, then please do share your experience in the comment section below.

Also, if you have a specific query on any function of the App which we have not covered here, then please feel free to write it below. We will be more than happy to help.

Thursday Trivia ~ Mobile Budgeting Apps

‘Take control of your finances!’ was the very first advise which Ramesh gave his son Jay. It had been 2 years since Jay had been working with a big multinational company but wasn’t able to save anything. For him, money would come in the first week of the month and by the next month’s first week he would go broke and wait for his salary to come.

‘When we were your age, we would write down each and every expense. It’s because we ran a strict budget, you were able to study in a good school and college. You people think we compromised or lived a miserly life, but the truth is it’s because we were strict with our finances that you are able to relax with yours.’ Leela (Jay’s mother) stepped into the conversation. Watching her son going broke every month was an alien concept to her. She had always saved enough and many times from her savings bought gold which helped her daughter’s marriage.

‘So what shall I do? I am not going to remember every expense that I have made. What’s the point of making so much money if it cannot be used for our own luxuries? All my colleagues live the same life, they are also hardly able to understand where they spend. It’s our generation thing, more advanced in every way then yours.’ Jay seemed to not control his emotions. Into his mid twenties, he couldn’t understand the very reason to save or invest. After all, youth has it’s impulses. Jay had dreams. He wanted to roam around the world, eat the best food, drive that sexiest car and drink the best possible wine.

‘Wait. Don’t get this conversation any further. Jay, there is a solution for you. It’s okay if you don’t want to write down your expenses. There is a solution to your problem – a mobile application which enables keeping a track of your finances. Plus the best part is when you swipe your card, the app will pick up that information from your message box and keep a record of that expense. Is that too hard to handle?’ Jay’s best friend Rahul stepped into the conversation. Being in the same age group, he knew how out of fashion it is to keep a book of expenses.

‘Have you used any?’ asked Jay.

‘Yes. Of course, otherwise why would I suggest it to you!’ answered Rahul.

Jay and his family smiled at Rahul, as Rahul started to explain about the Mobile Budgeting Apps in detail.

These apps are created available for free or paid basis on Google Play Store and iOS App store. Following are the features that are inbuilt into them.

Automatic Linking of Bank Accounts

Upon starting the app, it requests a permission to read the messages of your phone. Since, all of us spend through credit / debit cards and use net banking for major payments or transfer of money, our expenses are recorded with appropriate bank details.

The app pulls out the data and aggregates it those expenses. Also, balance of different bank accounts is automatically reflected.

Please note, only those bank accounts will be linked which will have your mobile number as a registered contact detail.

Managing Expenses through Gamification 

Manual input of every expense takes time. In this fast paced life, we often forget where did spend last. Just think about it, if every weekend your schedule is shopping, dinner and movies. It becomes tedious to keep a track of it, considering the hectic week ahead.

After downloading the app, just create a few categories of expenses. After that, you can simply arrange those expenses in different categories created. It takes less than 5 minutes to do the same. Also, since there are recurring expenses such as telephones and electricity bills, you can simply manage those merchant payments and next time those expenses will be directly reflected in those specific heads.

File your Income Tax Return

This can be a very personal choice for different individuals. Most would not opt for the same, as they already have their tax advisors doing the same. Although, it would be a good option to cross check and see whether you are paying the appropriate tax.

Please note, this feature would be more appropriate for salaried individuals and not those who run their own businesses.

Investments

In young age, investing is a boring job. After a certain age, the very same person feels had he done this job a little early in his life. Even the Oracle Investor Warren Buffet says, ‘I bought the first stocks at the age of 11, I was wasting my time till then.’

The App contains different features for making investments too.

Smart Deposit in a Liquid Fund

Idle money is sometimes devil’s taste. Even your financial advisor would tell you to keep 3 month’s expenses worth of contingency fund in your bank account. This contingency fund can be temporarily parked in a liquid fund which can be invested or withdrawn at any given point of time. It also helps to control unnecessary expenses, as watching the money sitting in the account leads to guilty spending.

Mutual Funds

These days, mutual funds is the flavour. With it’s simplicity of investing through systematic investment plans, individuals are becoming investors at a faster pace.

These Apps give an option to buy / sell mutual funds. Different funds are allocated under categories and with one click of a button, an investor is able to participate in the stock market. Now that’s a revolution!

Gold Deposit

Indians are obsessed with gold. It’s this obsession that paves the way for an option to invest in a gold fund. Generally, households in India have physical gold so investing in a gold fund would depend on the asset allocation on the investor.

Insurance

Currently, the App offers Car Insurance and Two Wheeler Insurance. Life Insurance, Health Insurance and Tracking of existing policies is also a part of the App making an access to insurance in a much easier way. One stop shop to compare insurance rates and get quotes.

Traditionally, we are used to buying insurance from our agent who not only looks after us but our family and relatives. For those, who have a financial advisor, the job is rested in those able hands.

Automated Bill Calendar 

A section where the user can put in various bill dates and it’s cycles. It’s build to remind about upcoming bills which can enable the user to utilise money better. However, we use this feature on our calendar in the phone. Off lately, merchants of our regular bills pertaining to electricity and telephone, give us remember messages on our phone itself. Hence, keeping one more calendar might not be that great an idea.

‘That’s brilliant!’ a cry of excitement came from Jay. His parents and Rahul knew that a solution is round the corner.

– Jinay Savla

Disclaimer : 

This Trivia is simply meant to educate our readers about tracking your expenses through a mobile app. Readers are requested to have their own research done before using any Mobile Budgeting App.

We also request to share your reviews on any of the mobile budgeting apps used by you in the comment section below.

Thursday Trivia ~ 5 Golden Nuggets for Every Young Star

It’s been 5 years since Rajesh started his full time job. In the past, he has done many part time jobs to support his education. Apparently, Rajesh comes from a very well to do family. But it’s his father’s wish to have Rajesh finance his own education and take care of his life ahead. It may sound hard but this has actually worked in his favor. There have been times in the past when Rajesh may have complained to his father innumerable times but his father didn’t seem to give it a second thought. As a result, today Rajesh is living a dream life just when his other peers are trying to get hold of their careers. But there is one problem. Despite of making a lot of money, Rajesh seems to be running out of money all the time. As usual, just like his peers, every month end he would look at his bills and say, ‘Mumbai – A City of Dreams’ and accept his fate that he will never be able to save anything. Just like what every son does, when faced with a problem the very first person to turn to is – father.

 

His father listened to the whole story with great patience. After a brief moment of silence, father said, ‘Rajesh just do 5 things that I say henceforth and money will never trouble you.’  Let’s look at those golden nuggets which changed Rajesh’s life forever.

 

  1. Save First – Spend Later

 

It’s not that people with the best careers or high income earning professionals have the most comfortable financial future post retirement. However, during the course of a career, everyone seems to think that way. The next job switch, promotion, bonus, commissions, etc. will lead to a better financial future, yet the reality is far from truth.

 

Rajesh was driven about creating a better career because of which he never gave enough thought to his money habits. His father gave him a small formula : Income – Saving = Spending

 

Budgeting for savings is equally important. Every month, a person is exposed to installments to be paid for home / office, car / bike, fees for children’s education and other adhoc expenses. Most of these expenses are directly debited from the bank. Hence, it’s wise to first decide how much to save and then spend.

 

  1. Emergency Fund

 

Rajesh’s father asked him, if he ever considered his job being lost? Answer was obviously No. However, Rajesh thought a lot of his colleagues stood the chance of losing their jobs. It’s a classic case of underestimating bad events that happen to a person and overestimating the same bad event happening to some one else. As a result, his father asked him if there was enough money in the bank to keep the house floating for 6 months if Rajesh ever lost his job. Again, the answer was No.

 

As a result, Rajesh now considered keeping an emergency fund which would sustain the expenses of his house for at least 6 months.

 

To add a small note, emergency fund should not be created for purchase of a gadget, downpayment for a car, or a vacation.

 

  1. Insurance

 

Everyone takes insurance when they start working. Usually, at start of career the cover seems to be adequate. But as life progresses, not many bother to look at whether their insurance cover would still be enough? Even the omega question of whether it’s a plain insurance policy or an insurance policy which has an investment option is never thought about.

 

On hearing this, Rajesh took a note of this and called up his insurance advisor to review his policy the very next day.

 

  1. Asset Allocation

 

Doctors always suggest every person to have a regular health check up done atleast once a year. However, it’s common to see very few follows such an advise. Most others visit a doctor only when something serious happens to them. When Rajesh’s father asked him to keep a wealth manager, the first sentence which he said, ‘I can’t afford a wealth manager, I don’t have enough money.’

 

More often than not, people miss out on keeping a wealth manager under a common notion that they don’t have enough money, just like they won’t visit a doctor because their health is not bad. In this notion, a person misses out on the fact that it’s important to start from somewhere. Starting small builds a solid foundation of future wealth. Also, it provides enough flexibility in terms of asset allocation.

 

Rajesh never thought about making investments in different asset classes. He always had invested his money in shares of a company suggested by his friends. A small fixed deposit was created just because bank managers had asked him to. Yet, he wasn’t aware about the return on investment in both his investments. When his father took a note of it, Rajesh replied with a stern voice ‘it’s not my job.’ To a large extent, he is right. It’s not his job to select a good company to invest or check out for any further options available. That’s where his father suggested on having a wealth manager look at it.

 

A plethora of investment options are available to every investor, such as mutual funds (equity and debt), commodities (gold / silver), portfolio management services, liquid funds, etc. Since, it’s not the job of every person, they don’t have enough exposure to the same. Even creating different allocation strategy with these investment options are not taken as seriously as they should be.

 

For more please read the asset allocation series we published some time back – Series 1, Series 2 and Series 3.

 

  1. Celebrate Life, Not Money

 

The real use of money is the very problems it helps to solve. Rajesh could never believe that in the very rat race of his career he had forgotten that it was his father’s birthday. Rather than celebrating a birthday, they were worried about his finances. To which his father asked, when was the last time he took his wife out for a long drive. Rajesh could barely remember, when he looked at his calendar it was already 6 months and they had not even taken a day off from work. Weekends were spent either sleeping or working.

 

If we are working so hard for money, does money work hard for us? Think about it for a while. If money is not working hard for us, then are we not missing out on the true golden nuggets of our life such as family, friends, life partner, children and our close confidants. When was the last time, you had a cup of tea with your friends without an inch of stress of work or when was the last time you played some sport with your children? That’s where it’s best to have an expert wealth manager who makes our money work hard for us, while we steal these little moments of life.

– Jinay Savla

Thursday Trivia : The Oracle Question of Portfolio Management

 

As Wealth Managers, we are often asked, ‘When equity market falls, our portfolio value also falls. But when equity market rises, our portfolio doesn’t seem to rise to as much.’

Image Courtesy :www.sharesinv.com

 Enough theory is written about how equity markets behave. Thanks to the internet, all these theories can be googled in an instant. Most of the time, this leads to a lot of confusion. Not to mention, how television bombards us with news in trying to figure out what really happened. Participation of so called ‘experts’ on social networking fronts have also increased to a great extent. Too many people trying to hunt down a single event to see if they were correct in what really happened. Due to such bombardment, a retail investor is often left perplexed about what or whom to believe. It is often difficult for a retail investor to keep his belief in his equity market investments. This leads to a loss of confidence for a retail investor in the equity market as well as his own advisors. Which is often concluded that real estate or a fixed deposit with a bank as a safe heaven for their money.

Other important factor is about ‘Basic Education of the equity markets’. This doesn’t mean news, a special course on investing, behaviour aspects, etc. It simply means, knowing that nobody understands the behaviour of equity markets. It’s the fundamental truth. That’s why it’s not really important to predict what the price of a particular stock of a company. As often as we see, market predictors often make money through prediction and not really by investing their own money.

An equity market has to be viewed as a collection of businesses, where a right of ownership is available upon paying a certain price. An investor’s portfolio will consist of several such businesses. The more concentrated a portfolio looks, it shows higher capacity to take risk of the investor, while a diversified portfolio indicates a lesser capacity to take risk. A conventional wisdom that tells us, higher risk leads us to higher returns. But is that really true? That’s why an investor often gets carried away to take on unnecessary risks. Owning few businesses is a full time job, since it’s important to know what exactly is happening around. Immense study is required for the same and constant monitoring of the micro as well as macro forces of the equity markets.

On the face of it, it looks a tremendously smart to only invest in few companies as it gives massive bragging rights to an investor as well. During good times, an investor is often heard as, ‘while the entire markets were up by 2% today, but my portfolio was up by more than 5%’. To add salt to this, other investors also applaud such an achievement. While most others try and copy to achieve such an out performance. Some will go to an extent of selling their existing portfolio and model their portfolio according to those who outperformed yesterday. Such is the greed.

Basic mantra of equity markets is that they are cyclical. Good times are often followed by bad times and vice-versa. If that was not the case, then there was no need to have an equity market. Investors would simply put in their money, make profits and invest in other companies to gain more profit. There would be no case of ‘margin of safety’, ‘cheap stocks’, ‘cigar butt stocks’ and many more which are illustrated by greatest investors like Warren Buffet, Charlie Munger, and their likes. Warren Buffet has quoted, ‘only when tide goes out do you discover who’s been swimming naked?

Image Courtesy :www.news.forex.live.com

 

It is at such times that intelligence and expertise of investors is tested. While holding out fewer businesses, it is more likely that he will lose out more than entire equity markets combined. There may be several reasons for it. But the fear will be struck deep within the subconscious. Others, who followed the suit while portfolio was performing, will be seen doing the same. Everyone switching on their television to see and figure out what the real reason was and will end up listening to the so called experts once again.Though nobody would admit to the basic education of equity markets that nobody can predict them.Maybe because fear takes over. In fear, humans are always keen on reasoning it out rather than trying to take corrective actions. Only a handful take corrective measures and learn from them. Rest end up making the same mistake twice.

So many times, we read that it is important to sell when markets are high or expensive and buy when market are low or cheap. Do we pay any heed to it? Turns out that most of us don’t like the idea of losing. In fact, in the world of behavioural psychology, it is termed as ‘Loss Aversion Tendency’. We feel the pain of loss more acutely then we feel the pleasure of gain. In other words, we may like to win but we hate to lose.

To give a small example, we’ve all heard (probably a lot) about the downfall of Lance Armstrong. In the documentary “The Armstrong Lie”, he has opened up on talking about what drives him. This is what he has to say : “I like to win, but more than anything, I can’t stand the idea of losing. Because to me losing is death.”

Image Courtesy :www.behaviorgap.com

 

This leads to a very simple question, ‘when markets are cheap and an investor enters, does he double his money the very same day?’ and ‘when market falls, how many investors not only lose their profit but also lose a significant part of their capital?’ Such is the irrationality of the equity markets, when it falls, it takes away a lot but while it is cheap, it gives very few options. Oh wait, isn’t that a human tendency as well? Think about it.

 If such equity markets are not driven by such irrational decision making of investors then who else drives them?

To sum it up, just think about a tree. During autumn, it sheds it leaves very quickly. However, during the spring time, it takes time to grow it’s leaves. Just the same way, rather than worrying about the above oracle question, try to nurture yourself and your portfolio which can withstand autumn and spring with equal happiness.