Self-deception is costly when it comes to investing. So let’s consider some of the lies that a lot of us may be telling ourselves and the impact they may have on our portfolios.
You know what your investment returns are. You would be surprised at how few people actually know what their returns are. Even fewer understand their performance relative to a benchmark.
Here are some hilarious thoughts when you say and what does it actually mean:
1) That’s overbought (I’m not long and think buyers are stupid)
2) That’s oversold (I’m long and think sellers are stupid) View full article »
BSE has around 4000+ stocks listed but actually traded would be in range of 1000 stocks and NSE has around 1600 and again actively traded would be close to 100.
There are some dangerous stocks that should not be traded for various reasons as there is no liquidity in them, or they are prone to get delist and there are other reasons as well that might be interesting to read. You may not heard their name as well,
Kappac Pharma: Company with Chronic disease/Pharma name is deceptive and misleading.
Vikas Globalone : Kiska Vikas ? And nothing Global.
Cressanda Solutions: What Solutions? Providing solutions for black money conversion? View full article »
Extraordinary returns follow extraordinary discipline. Discipline in buying and selling, and maybe the most important one of all, holding. Developing the conviction to hold is something that I’ve learned over time. It didn’t come easy. The basis of this article is to give some insight on how to develop the conviction to hold your winners. It is very tempting to sell along the way, and it’s okay to take a little off the table, but the big money is made by holding.
“It never was my thinking that made the big money for me. It always was my sitting.” — Reminiscences of a Stock Operator
Many of us, myself included, look at stocks that have made big moves and think to ourselves, “If I would have only knew about that company and bought it back then.”But would you really have developed the conviction to hold during the run up? The problem is that to achieve a multi-bagger in the portfolio, you have to hold a multi-bagger. And if you want it to change your life, you need to hold a lot of it. View full article »
In one classic experiment conducted by Daniel Kahneman and Amos Tversky, pioneers in the field of prospect theory, subjects were given a hypothetical choice between a sure $3,000 gain versus an 80% chance of a $4,000 gain and a 20% chance of not getting anything.
The vast majority of people preferred the sure $3,000 gain, even though the other alternative had a higher expected gain (0.80 × $4,000 = $3,200).
Then they flipped the question around and gave subjects a choice between a certain loss of $3,000 versus an 80% chance of losing $4,000 and a 20% chance of not losing anything. In this case, the vast majority chose to gamble and take the 80% chance of a $4,000 loss, even though the expected loss would be $3,200.
In both cases, people made irrational choices because they selected the alternative with the smaller expected gain or larger expected loss. Why?
Because the experiment reflects a quirk in human behavior in regard to risk and gain: People are risk-averse when it comes to gains, but are risk-takers when it comes to avoiding a loss.
This behavioral quirk relates very much to stock trading, as it explains why people tend to let their losses run and cut their profits short. So the old cliché (but not any less valid advice) to “let your profits run and cut your losses short” is actually the exact opposite of what most people tend to do.
Source : Taken from Daniel Kahneman and Amos Tversky work paper
The last two post were on forecasting the markets, so I decided let me continue on forecasting. The Atlantic published a challenging article on the decision-making abilities of financial experts sometimes back, I like the arguments and the study outcomes are not surprising to me😉
There are experts, and then there’s everybody else. In finance, experts have studied the subject and follow the markets closely, so you’d expect that they’d be superior at betting on the stock market as well as on other financial matters, right? Well, perhaps not so much. As the psychologist Philip Tetlock—who did a 20-year study on the subject—famously said:
Experts are poorer at predictions than dart-throwing monkeys. Study after study has shown that low-cost index funds—investments that track major financial market indices—outperform “actively managed” mutual funds. View full article »