History shows that mutual fund investors generally increase inflows after observing periods of strong performance. They buy at high prices when future expected returns are lower, and they sell after observing periods of poor performance when future expected returns are now higher.
This results in what author Carl Richards called the “behavior gap,” in which investor returns are well below the returns of the funds in which they invest. Perhaps with this observation in mind, Warren Buffett once said, “The most important quality for an investor is temperament, not intellect.” Continue reading “Who is the enemy of Investors ?”
As I did a story few days back When to sell and When to buy ? Trying to recollect the some book rules for Investments that holds true in many adverse scenarios.
As all of you must be aware of that the field of behavioral finance has helped us to understand that we don’t always make rational investment decisions.We often make poor decisions because of our biases. And the designers of structured product are well aware of these “flaws” in investor behaviour. So they structure products that exploit our flaws. Continue reading “Getting the Basics right for Investment”
I am personally inclined towards behavioral finance, as it has continuously challenged the conventional financial theory of rational wealth maximizers.
The irrational financial decisions, emotions and psychology have taken over the field of finance.
The very famous Aswath Damodaran says, the equity risk premium is the key to investing & valuation.
Ben Graham told once Mr. Market is there to serve you, not to guide you.
In the Taleb’s language you buy – sell or you make omelette out of it depends upon your luck, randomness, Probability, Belief, conjecture, Theory, Forecast and Anecdote.
The most crucial investing question that I have noticed is: Do you know your time frame? Continue reading “Investing facts and Behavioral Finance”
For the true connoisseur, the finest expression of the art comes when a high-profile investor identifies a bubble, perhaps even makes money out of it, exits in time – and then gets sucked back in only to lose everything in the resultant bust.
An early example is the case of Sir Isaac Newton and the South Sea Company, which was established in the early 18th Century and granted a monopoly on trade in the South Seas in exchange for assuming England’s war debt.
Investors warmed to the appeal of this monopoly and the company’s shares began their rise.
Britain’s most celebrated scientist was not immune to the monetary charms of the South Sea Company, and in early 1720 he profited handsomely from his stake. Having cashed in his chips, he then watched with some perturbation as stock in the company continued to rise. Continue reading “Sir Isaac Newton !! I can calculate the movement of stars, but not the madness of men.”
Eddy Elfenbein, “A bubble is a bull market in which you don’t have a position.” (Twitter)
Sharing the Best quotes on the question of Financial Bubble:
Justin Fox, “Bubbles arise if the price far exceeds the asset’s fundamental value, to the point that no plausible future income scenario can justify the price.” (HBR)
Jason Zweig, “Another sign to watch for: In every bubble, there are always people trying to burst it by declaring that financial assets have become overvalued. At first, Prof. Goetzmann says, such skeptics earn respectful attention. But eventually, investors turn on them with anger and ridicule.” (WSJ) Continue reading “Financial Bubbles”