Less is More!!

Today's Topic  - Many Schemes.

After great response to my maiden blog series on Behavior and Investing, I am excited to write another series “Less is More”. Here we discuss how and why less is more?

I am sure, you will find it useful!!

Today we will discuss “Many Schemes”

Do you think more schemes/products are good in investing?

I know Investors who like to (over)diversify their investments into many schemes on principal of never put all eggs in one basket.

I do not agree to more schemes! Many schemes are usually chaos!

Broadly there are 4 asset classes. Debt, Equity, Property and Gold.

As an Investor, your starting point has to be deciding percentage allocation of total net-worth into these 4 asset classes. You should not burst this ratio at most point of times. While making asset allocation chart, consider having more of financial assets (like FDs, Debt, Mutual fund, stocks etc) rather than physical assets –like property and gold. Property is illiquid is nature, has high maintenance and transaction cost (stamp duty, registration, GST, up-keeping, brokerage etc.) Gold is a good hedge for portfolio and inflation but, you shouldn’t go beyond 10-20% depending upon ethnicity and time horizon (gold cycles can be 10 years long also wherein you make no returns and your patience can be tested)

Consider below points

1)      Too many products/schemes meaning too much of spread. Foot in many boats.

2)      Many products meaning low conviction of your advisor or yourself.

3)      It’s observed that over diversification leads to inefficiency in returns.

4)      If you don’t invest meaningful monies, you lose out on meaningful gains too.

5)      Reviewing too many product performance is cumbersome.

6)      Exiting also takes time and effort.

7)      Maintaining record and data management is also challenging. Like checking contact details, Bank details, tracking dividend/redemption payment.

8)      Its mammoth task when it comes to transferring investments from deceased person to surviving member and nomination hassles.

If you have many stocks in your portfolio or you have invested in many Mutual Fund schemes. You must have experienced what I have mentioned herein.

Keep it simple. Have few schemes in portfolio. There is no ideal number of schemes but 10-15 are maximum that one can go with. Look for schemes that gives you true flavour of all market segments. Review performance with the help of advisor and if required switch the poor performing scheme to high conviction idea. That’s it!!

If you are holding too many schemes or stocks in your portfolio, and wish to make slim and smart portfolio? Do contact me at 9833778887 or wealthcarein@gmail.com

If you find our blogs helpful, pls do like, share and comment

Author –

Bhavesh D Damania

Founder - Wealthcare Investments

EduPrenuer, TV show panellist and Blogger

You can reach him at 9833778887 and wealthcarein@gmail.com

"Risk comes until you know what, where and why you are Investing"

Disclaimer: We respect all individual approaches. Sole objective of this series is to burst a few myth in Investing. There could be genuine reason/experiences and “less is more” may not be appropriate. Investor must consult own advisor to figure out right approach before adopting any of these suggestions.

Illusion of Skill

In this blog series, 21 behavioural biases were discussed. These biases affects our life and Investments. Hope you liked them and were eye openers for few. The primary objective of writing on this subject was to create awareness around this unknown evil of biases. Another objective of linking these biases with Investing, was to create tribe of informed investors. 

Once you are aware of self biases and Investment wisdoms, you are most certain to become wise Investor!!👍

Thank you so much for your patronage and compliments on this blog series. I am overwhelmed🙏

Today’s blog is on “Illusion of skill”. The critical one!!

As they say “It’s more important to know what you don’t know. Rather than knowing what you know”. Couldn’t understand? Read it again.

Many a times we feel, we know this or can do that easily👍. But once we are at it, we realize it’s not our cup of tea!! Don’t you agree?

At times we also feel we have learned enough about something and do not pursue to learn it more. Ask any successful professional (Doctor, Architect, Lawyer CA) how important it is for them to keep learning? “I know everything syndrome” in them could mean death or low growth of their practice😊.

Any successful/renowned professional, will be student for entire life. That’s what even client expect from these professionals. Mere degree is no certification of wisdom!! Same is true for every human being. Continuous skilling is only way to survival or growth. IT professionals deal with the challenges of obsolesce of coding languages and technology.

In investing, many investors feel they are skilled. Here are some of the reasons Investors have shared with me

1)      I am skilled because I have been investing since decades.

2)      I am owner of business therefore I know how to invest.

3)      I am CFO of the company hence I am good at Investing.

4)      I am MBA- Finance, CA or CFA etc, therefore I am skilled.

5)      I have many smart Wealth Managers coming from large Banks/Institutions. So I know all the buzz.

6)      I have been reading Investment and finance magazines (or taking social media doses regularly) since yrs.

7)      I have been tracking markets since years and now I am skilled.

I am sure all of you have some of these belief in yourself😊.

Well success in investing is not dependent on the skills alone. You need emotion management more than, financial skills.

In bull market, lot of investors become guru (self-proclaimed) and start sharing own success stories😉. Like herd everyone also becomes disciple of that guru. I am yet to meet a person who shared his failure stories. Have you found one?

In investing it is more important to also know your safe capital and risk capital. I have seen many investors hold up to 50% of their corpus in risk capital (knowingly or unknowingly). Any amount more than 10% in (undue) risk capital is staggering, no matter how much wealthy you are! At the end of the day it is your hard earned money and can’t afford to take undue risk.

If you feel you are skilled Investor, here are some of the self-check questions:

1)      What % of investment decision of your’s were right?

2)      Did you invest significant amount of money in those Investment ideas? If not, you invested in gut feel and made some money. If you had strong conviction about that investment idea, you would have invested big money.

3)      How often you did you exit at peak and entered at bottom in those investment ideas?

4)      Have you done enough research before investing and exiting? If you didn’t it is herd/luck or tip.

5)      What was your source of Information about the investment idea? Was it social media, TV, colleagues, friends etc.? If this is your source of information, you invested on borrowed conviction (not skilled).

6)      Did you ever missed out exiting before the prices crashed?

7)      Are you holding stocks with up to 90% capital erosion?

No need to reply to me, but I am sure you are able to understand my point.

I personally believe, Investing is not science but it is Art. I spend good time understanding markets and its behaviour. I spend time with fund managers, CIOs and ask them questions like a learner. This helps me draw a picture about future, basis which I decide on the investment ideas. Diverse views helps me to re-check my hypothesis. I still feel I am student and learning about various cycles, hypothesis and frame works. It’s my moral responsibility to give better Investing experience to my clients, who trusted me with their money🙏

Knowing what you don’t know is first step in right direction!!

Apne Investment ka khayal rakhna!! Ye hi aapke bure aur achche waqt ka sahara hai👍🙏

If you find our blogs helpful, pls do like, share and comment

Author –

Bhavesh D Damania

Founder - Wealthcare Investments

EduPrenuer, TV show panellist and Blogger

You can reach him at 9833778887 and wealthcarein@gmail.com

"Risk comes until you know what, where and why you are Investing"

Halo Effect

  In the series of 21 behavioural biases we will discuss the 20^th bias “Halo effect”

Halo effect simply means single or few aspect, characteristic, trait or behaviour overshadows many others. One overpowers many other factors.

Don’t we judge a person by a single personality trait like smiling face, great physique, Social status, beauty or age etc. A person with smiling face, pleasing personality, eloquent speaker, killer eyes, rick and famous aren’t familiar phrases??

In investing also Halo effect works and has bad effects on Investing experience and returns.

Famous example of Halo effect is Ambani brothers. Many Investors had invested heavily in ADAG group as well, premise being he is also Ambani feud and is trained under same leadership of Late Dhirubhai Ambani. Mukesh multiplied his empire and Anil Ambani reduced to Insolvency. I am sure investors who lost fortunes in ADAG group will feel this in heart.

To make my point clearer, let’s see few more examples

1)      Till 2007-08, real estate companies were enjoying great valuations and you know what happened after that. Land Bank was key word during this time.

2)      During same period, Telecom companies were doing extremely well. ARPU (average revenue per customer) was the key word.

3)      Early 2000, dotcom or IT companies enjoyed higher valuations. Growth was key word.

4)      Till recently Housing finance companies and few NBFCs also had dream run. NIM (net Interest margins) and loan book growth were key words.

In each of these sectors, one key word (aspect) took the valuation to obnoxious levels and then it crashed to never recover in immediate future. Many companies have even disappeared or reduced to a penny stock😢.  Halo Effect played on Investor’s mind.

Our mind has short term memory and recent instances gets extrapolated or manifests in our thinking.

If the prices of sector/stocks have crashed, we tend to feel it will feel it will crash further. If a sector/stock is doing good, we feel it’s likely to continue for infinity😊.

Halo effects makes you irrational thinker and poor investor.

PSU, Pharma, Infrastructure and Telecom service as sector are expected to do well in times to come. These sectors were laggards for long time. If you disregard these sectors, you will most likely miss great upside. Similarly, Small and Midcap segment were overvalued till FY 17-18 ( you know we exited all of that in same period) and looks promising in times to come (you are aware that we started building positions in the same since early 2019)!!

Few stocks have rallied meaningfully since 2 yrs and are still going strong!! I believe they have entered the uncomfortable valuation zone and most likely to deliver subpar returns once the market witnesses broad based rally. If you buying these expensive stocks now, you are victim of Halo effect😊

In advisory too Halo effect works. Lot of investors believe that large Institutions are well researched and offer best advise due to their size and reach. Well, that’s true but the biggest issue with these institutions is the alignment of interest. Many a times they are serving their own/organisation’s interest rather than Investor’s. Content is not a problem but the real problem is of intent🤐.

What should you do as an Investor?

1)      As in life, remember that nothing is permanent in Investing too.

2)      If stock/sector or MF scheme is doing good now, it’s not guaranteed to do well in future also. And vice versa.

3)      Judging merely by latest performance and investing is not wise way of investing.

4)      Examine factors which are likely to affect your investment decision. These factors can be negative or positive. If negative impact expected, book profits or exit. If positive impact expected, add more or start investing. Don’t just judge investment by its price.

5)      Don’t be victim of Halo effect of “large institution/ Banks do good advisory and are aligning their interest with your interest”. You know thousands of examples of mis-selling by these outfits.

MF Trivia: Averse to risk of Markets but still wish to invest with safety guards? Consider Asset allocation funds. There are asset allocation funds with debt tilt and equity tilt. Ask us to find out what is more suitable for you.

If you find our blogs helpful, pls do like, share and comment

Author –

Bhavesh D Damania

Founder - Wealthcare Investments

EduPrenuer, TV show panellist and Blogger

You can reach him at 9833778887 and wealthcarein@gmail.com

"Risk comes until you know what, where and why you are Investing"

Anchoring effect

  In the series of 21 behavioural biases we will discuss the 19^th bias “Anchoring effect”

Like a ship controlled at bay with an anchor, similarly we also anchor thoughts with few data, hypothesis and average observations.

Let’s look at an example. Asking women her age is like next to crime😊 . Still what tools we use to guesstimate her age will be something like this. Kid’s age or education year or marriage year or husbands age minus 3-4 yrs age difference and so on. Some might consider looks to estimate age also.

Well, all the methods will mostly allow us to estimate the near correct age of a woman. But it’s not true in current world as women don’t marry at 25 nor they have child so soon or the difference in spouse age could be more than 4 yrs or even wife could be elder to husband😊 

Anchoring effect makes us generalise a few traits and events to be true forever and for all. Haven’t we made prototype image of how doctors should look or how Banker/Investment managers look. Any other appearance of them makes us conclude about their sincerity to profession. Isn’t it??

Don’t we say Chinese are crooks, western guys are spendthrift? Arabs are rich and lazy and Japanese are hardworking and honest.

Anchoring bias works on Investments too!! Answer yourself about a few expected returns and risks

1)      Don’t you feel all FDs are safe? Be in co-operative Bank, corporate or any other.

2)      Don’t you feel FDs must return around 8-9%

3)      Equity must deliver over 15% -25% return?

4)      Wise to Invest in equity is to look for multibagger, make quick buck and exit?

5)      Properties are best for highest return

6)      Property prices never fall.

7)      Gold is solid Investment class.

I am sure you are aware that all the above anchors are faulters.

Anchors are important for evaluating investment options but segregation of irrelevant anchors are most important in successful investing. There is no substitute to critical thinking in investing.

Broking companies give buy and sell call or expert speak of the stock and markets. They might have different audience, perspective and hidden agenda. Why should you anchor your thoughts around that? Staying invested is best policy, certainly reduce risk from time to time but timing the market is total waste of energy. Recall how many times markets have surprised you? Recall how many calls of the analyst, broker or expert on TV and print have been right?

Wise way of Investing is establishing time tested anchors like- Valuation, risk v/s reward and simple and transparent products. Ancillary anchors could be inflows, sentiments, Global/domestic growth rate, Interest rate etc. to name a few.

We at Wealthcare Investments also believe in the well-established Anchors and manage portfolios. We use ancillary anchors for generating extra returns from portfolio (opportunist approach). We had started investing in small and Midcap segment since Mar 19 and investing currently also (albeit with STP route). Results have been quite good. With Ancillary anchors, we don’t commit full money of sizable money. We still hold safer assets in portfolio like liquid funds, Asset allocation funds, Hybrid funds etc. When we see visibility of the well-established anchors playing out, we will be quick enough to go aggressive in portfolio. Our philosophy is- Investors don’t mind lower return but do mind higher risk/losses.

As an Investor, One must have rational approach in investing exuberance may work sometimes, not always. As I mentioned in my previous blogs also – many investors approached us when markets were scaling heights and they showed resistance when markets were cheap.

What should you do as an Investor?

1)      Decide on the few solid time tasted Anchors for your decision making.

2)      Pay attention to process of Investing rather than returns alone.

3)      Do not pay attention market noise. Most of the times they are NOISE only.

4)      Pay attention to your goals rather than returns. Of course returns are important but Goals and risk controls are even more important.

5)      Time in market is more important than timing the market. Experts have also failed in timing the market.

6)      Listen to your financial advisor. If you don’t have, appoint one.

MF Trivia: Investing Money in FDs because you need safety? Consider debt mutual funds. They are capable of giving higher tax adjusted returns. Although returns are not guaranteed like FDs, they did beat the FD returns since many years. Speak to us for more details.

If you find our blogs helpful, pls do like, share and comment

Author –

Bhavesh D Damania

Founder - Wealthcare Investments

EduPrenuer, TV show panellist and Blogger

You can reach him at 9833778887 and wealthcarein@gmail.com

"Risk comes until you know what, where and why you are Investing"

Neglect of Probability

In the series of 21 behavioural biases we will discuss the 18^th bias “Neglect of Probability Bias”

Every decision has probability of success and failure. Some acts where probability of success are high are worth pursing and others not worthy. Biggest issue with human minds is the positive outcomes blinds her to the risk presented. Risk is sort of ignored, to say.

Let’s take example – In casino, you have 2 tables. 1 offers 1000 for 100 bet and another offers 5000 for same bet of 100. You are most likely to choose the 2^nd option. However, rationally, you should have assessed, what are the chances of winning in 2^nd bet. Casino owner knows the human psychology and he is there to make money and not loose at all.

We often see the benefits of future rather than risk presented in an investment option!

Indians assume, buying property is safe and has returned 15-20% CAGR. For person with networth of 5-15 crore, properties are in the range of 60-80% of their networth. Many such people don’t have any other safer Investments like FDs and Gold also. They consider return as the only premise for investing. Such Investors operate in extreme spectrum. Either safe or aggressive (risk taker)

According to me, property has been riskiest investment proposition over last 10-12 yrs. Let me prove it how.

Developers have no pre-requisite criteria to start business. He can have either (not all) land, expertise, market or money. Whereas he should have expertise on all above criteria. Aren’t we familiar with delayed projects, stalled projects, cost overrun and thus unviability of project, FSI Violations, title issues, litigations, regulatory/Municipal violation, Cash tranx, Construction quality etc.

Remember value of property is half of your contribution if it’s delayed or stalled. Illiquidity is another peril.

Has Investor ever checked the profile of the Developer before investing? Isn’t it critical in Investing?

All Investors do risk checks before investing in equity, but the return outlook blinds them to check on these parameters when it comes to Property investing. That’s “Neglect of Probability”.

In financial Investing also there are errors in investing.

In Bull markets, suddenly AIFs, PMSs and structured products becomes flavour! Financial institutions and Banks dish out such products to their HNI clients who happily buy. Has anyone assessed if AIFs have indeed given sterling performance in entire tenure? Something has done well doesn’t mean it can do well in present scenario. Scenarios change and past performance can be illusive.

I saw great interest from my existing investors in 2017 and 2018 when there was boom in markets. We had to pacify them that it’s not best time to invest. We must adopt conservative approach now till market corrects. Market proved us right.   

Investor must adopt a mechanism (as you can’t create your own mechanism to evaluate risk) in consultation of his advisor. Your advisor is better placed to assess market risks and probabilities.

I know investors who find MFs risky but (un)secured lending to peers and property to be safe. You know what I mean😊 

We at Wealthcare Investments, do evaluate stages of market and believe in allocation basis that. We find value in Midcap, Small cap and Value Investing strategy. But we don’t aggressively invest in them. May be 30-40% can be allocated in this space but remaining money should be in Diversified and stable assets. Over long period the risk reward would favour our strategy over aggressive segment/sectoral bets.

As an Investor, she should spend more time on assessing probability of risk than return outlook alone. It’s said that risk can manifest from anywhere and can be brutal. So be mindful risk taker.

What should you do as Investor?

1)      Check what are the probabilities of better returns in future. Past performance don’t guarantee similar experience in future.

2)      Assess whether the Investment product has transparency in all processes.

3)      Assess if the product has liquidity. As probability of risk are higher in illiquid investments.

4)      Remember that liquid investment with 12% returns are far better than illiquid investments with 14% return.

5)      Think if the risk is worth the returns expected? High risk does not necessarily mean high return. Look for the core fundamentals before Investing.

6)      Keep margin of safety.

7)      Keep watch on your Investments at regular intervals. Take active calls when required.

MF Trivia: Mutual funds have products for all seasons and all risk profiles. If you are conservative, Mutual fund has products for you! If you are aggressive, Mutual fund has product for you as well. What’s more, Mutual funds are tightly regulated and becoming more and more transparent also.

If you find our blogs helpful, pls do like, share and comment

Author –

Bhavesh D Damania

Founder - Wealthcare Investments

EduPrenuer, TV show panellist and Blogger

You can reach him at 9833778887 and wealthcarein@gmail.com

"Risk comes until you know what, where and why you are Investing"

Action Bias

In the series of 21 behavioral biases we will discuss the 17^th bias “Action Bias”

It’s been said that we must be in action, always!! We are descendants of the quick respondents. Lightning fast reactions meant to be survival. If you see fire around, you will run in opposite direction, no matter how safe you were from that site.

“One should always be in Action” Well that’s right. But with a rider! Action- where, when and how? That’s million dollar question.

Our actions are triggered by our impulsive emotions. That’s dangerous. Mindful actions are more rationale and fruitful.

 Few examples:

1)      We just saw online sale by the biggest online marketers in last 30 days. People were in action to find deals and buy them. While few bought products they really wanted but many indulged in buying due the hype, Advt/promotions and discounts! Online marketers made you ACT impulsively with captions such as – Last hour, only few left, XXXX numbers of orders in last 1 hour etc.

2)      How we react to small incident at home or office and later regret of that action.

3)      How we react and do what the crowd is doing, without knowing about it at all. We just copy the crowd.

We prefer action over inaction. Many times inaction is boon. Current world is different, it rewards reflection rather than (re)action.

Investors too make the same mistake out of Impulse and herd mentality.

Since decades, this has been the truth!! Investor take many decisions out of impulse action bias and end up selling or buying a stock/MF or any other assets.

Few recent cases that I encountered are:

1)      Seeing good profit in portfolio currently. Should we sell it?

2)      A scheme is not doing well. Why don’t we exit and invest somewhere else?

3)      Let’s exit current portfolio and move to Index funds or schemes doing good in recent past.

4)      Market is about to fall, let’s sell everything and re-enter at fall.

5)      I will wait till market falls. It’s too expensive.

These are all classic cases of Action Bias.

How does the Investor know about all this? Social media does the work besides the punters of market. Generic message (at times from unverified source) are taken more seriously than anything else.

Action bias is very common for the Investors and (many) advisors too!! Many times Advisors end up promoting the best performing fund by redeeming poor performing fund. End result, it ends up into never ending trap of chasing returns😊

At Wealthcare Investments, we evaluate performance of existing funds and look for opportunity in newer products/themes. So when we decide to re-shuffle the Investment, we test our hypothesis before we go to Investors. We put enough efforts in understanding why we are redeeming a fund and buying another fund. We do it on both assets, but more on tactical assets.

Little scientific approach in investing can give us great experience.

What should you do as Investor?

1)      Assess whether frequent action leads to more pain or gain?

2)      Check the charges, taxation and time loss before you act.

3)      Examine reaction of your action on your portfolio.

4)      Ask yourself, if it’s done by someone, should you also do it?

5)      Frequent action leads to erosion of returns than otherwise.

6)      Consult your advisor before jumping guns. He is required to have your issues addressed.

MF Trivia: Because Investors are impatient, Investment returns and investors return are different. Choose equity MF for long term and stay committed to the asset class. Change scheme but not asset class.

If you find our blogs helpful, pls do like, share and comment

Author –

Bhavesh D Damania

Founder - Wealthcare Investments

EduPrenuer, TV show panelist and Blogger

You can reach him at 9833778887 and wealthcarein@gmail.com

"Risk comes until you know what, where and why you are Investing"

Information Bias

In the series of 21 behavioural biases we will discuss the 16^th bias “Information Bias”

We are living in world of information & Technology!! Cutting edge technology is been able to dish out information real time. Below are some statistics taken from Internet.

1)      Total world population is roughly 7.7 Billion of which 26% are below age of 15 yrs and 9% above 65. Currently there are 4.33 Billion i.e. 56% active Internet users in the world. India is among top 3 countries of Internet users.

2)      500 Million Tweets per day

3)      95 million photos are uploaded on Instagram daily

Can you imagine how staggering these numbers are!! Growth of internet use is going to grow rapidly in times to come. Extrapolate the amount of information overload we are expected to experience😢.

Earlier Information was conceived to be boon in decision making but not anymore. Our decision making is becoming ineffective with information overdose. We often confuse information with Knowledge.

Information is good only when it’s required and also from reliable and trust worthy source.

Would you like information about a product or services which you are not considering at all? Certainly NO. But still if that hits you again and again, you will, sub consciously, start to form an opinion about it!!

Information factories are manufacturing bad and useless information more than genuine/ true information. Needless to mention about hoax msg of death, natural disasters, beliefs and announcements etc that keep doing rounds on social media. In financial world too there are many hoax and scary msgs/ articles keep surfacing from time to time. That keeps investors in jitter.

In investing, our mind attracts sensational and contradicting information more than relevant.

Media houses are thriving on the same. They are not wrong at all. 90% + trade in exchanges are from traders and rest are from Investors. How good will it be for media house to not serve the 90% plus audience??

Investors are consuming news made for traders😉  Investors and Traders are different mind sets and thought process. You can’t consume their food, as investor.

As an investor, you must watch the personal finance shows rather than daily morning market shows.

Investors tend to become pundit with these news and override the advisor’s recommendation. If you have faith in your advisor, you must discuss your concerns with him and follow advisor!! Investor overriding advisor shows low confidence in relationship. Now a days Doctors are avoiding patients who are Google- educated as they find such patient are firm in their mind about their illness and prescription of medicine. Doctors feel helpless

When you tend to believe you are more aware and informed about Investing, you are victim of Information Bias. Not saying advisor will get his investment calls right every time, but his hit rate is likely to be more than your’s.

I too receive diverse views from variety of AMCs (Asset Management Companies) about their market views and product positioning. All diverse views will have their own valid rationale. After all they are paid for promoting their own company!! I have frizzed upon the AMCs I would like to work with and products I would like to distribute. We believe in dialog with the fund management team, their thought process, product attributes and consistency of performance. Among others, these are the check points we follow before we take AMC or product to our clients. This has given us good results since 10 yrs of existence of Wealthcare Investments.

What should you as Investor

1)      Do not pay attention to news and stories which can have impact on short term because you are long term investor. It will hardly matter to you in long run.

2)      Follow 1-2 expert (only) you like. Examine his/her past forecasts carefully before you select an expert.

3)      Recognise that information is not equal to Knowledge. Information may be true but the interpretation is perspective of the author.

4)      Find out facts from information and apply the fact on some models to conclude investing decision. Fact will have to be examined in conjunction with other factors at the same time.

5)      Have wise advisor and discuss various concerns you may have from time to time.

6)      Never think to outsmart the market. That’s job of traders. You are Investor!

7)      Social media is great platform for quick publicity. Be wary of such author/writer/promoters.

8)      In Investing less information is more knowledge. Less is more.

MF Trivia: Sterling long term wealth is created by Equity markets. Most of the Mutual funds have outperformed benchmark returns also. Chose equity as long term asset class and not as quick money making machine in short term.

If you find our blogs helpful, pls do like and share and comment

This article is written by Bhavesh D Damania founder of Wealthcare Investments.

You can reach him at 9833778887 and wealthcarein@gmail.com

"Risk comes until you know what, where and why you are Investing"

Status Quo Bias

In the series of 21 behavioural biases we will discuss the 15^th bias “Status Quo Bias”

Status Quo Bias is also known as default effect. Law of Inertia is at work.

We find comfort in everything “as it is” in other words we like to keep things (at home or work) at same place as we find them convenient to access. Convenience is key driver of this bias!! Are you taking the same route every day? Are you using the same product regularly? Aren’t you using same method of working daily? If the answer to such questions are yes than you have Status Quo Bias. 

Law of Inertia deters you to try new things/route/methods etc.

While many habits are good to have but few are dangerous for personal development and growth. Modern economics has powerful quote “Change is the only constant thing” Recall how many have lost their jobs and career when computer were introduced in India and they kept resisting change. What’s happening to our Kaali Peeli Taxis and Rickshwas with Uber and Ola? Online travel, Books, Food delivery and many time and labour saving devices are few of many examples which made people with status quo bias, fully redundant.

How many of you have bought latest Microwave oven and explored various recipes? 90% use it to just warm food or make Pizzas. Come on you didn’t buy expensive Microwave for just warming food😊😊 . Same is true for Mobile phones too. We buy latest device for its features and don’t use it ultimately.

Millennia are quite sharp and adaptive to change so most likely they will retain their Jobs and careers. Millennial try new things, new places and products. They are also more focused and target oriented hence they will have to be agile too.

Status Quo bias has significant impact on the Investment habits also. Like many prefer assured return products over market linked products, many prefer state owned LIC over other Insurance companies and “Property as safe asset class”. I know people whose wealth is distributed among Fixed return products and properties only. They preferred status quo of what parents/others did. End result- lack of liquidity, diversification and poor portfolio returns. They are still married to that Investment pattern and will continue to suffer over longer period of time.😢 Even in equity investing, few would prefer large cap or a particular sector only. They are also stuck with their prejudice.

I would also like to talk about the high interest paying corporate FDs, private debt placements and chit funds today.

There are investors who prefer to invest in corporate FDs, lending to private parties and chit funds. Word FD and higher interest rates drives their behaviour and decision. One must understand that few % extra return can be harmful to your capital itself. If you have 10 lakh to investments and you chose one of these, for extra 1-3% returns i.e 10000-30000 extra money you have put entire 10 lakh to risk. Than blaming Govt, RBI or SEBI helps little. Imagine the trauma and stress that you may undergo. I am strong believer of no dealing with small co-operative Banks also. Less is more in such cases✔.

Investor must move from perceived safety to perceived risky👍!! Ultra HNIs have their portfolio being well balanced into Real estate, Debts (not FDs) and equities (shares and MFs). Probably that’s the reason why they are where they are and have created wealth for generations to come.

Typical asset allocation of the Investors with wealth in the range of 5-10 crore would look like this- approx. 80-90% would be in property, assured return instruments (including PPF, PF, gratuity, Insurance etc) gold and maximum 20% would be in Equities. The equity allocation has scope to go up to 30-35%. The equity allocation is capable of generating extra return which is capable of beating Inflation and life style expns. One must sit with financial advisor to select percentage allocation into various asset classes.

Advantage of diversification are many. Few listed below:

1)      Liquidity

2)      Tax efficiency

3)      Mitigation of risk

4)      Optimization of return

5)      Quick and easy opportunity of leveraging

6)      Helps in building all weather portfolio

As an Investor one must challenge status quo and consider the benefits stated above and explore diversification in Investment. Start with simple Mutual fund investing instead of AIFs, PMS or Art etc.

MF Trivia: Do you keep money in Bank a/c or short term FDs for 1 week to 6 months?? Why don’t you explore liquid fund or Arbitrage funds for better Tax adjusted returns with any day liquidity? Speak to me on how to optimize the returns.

Greetings of Labh Panchami to you and your family

If you find our blogs helpful, pls do like and share and comment

This article is written by Bhavesh D Damania founder of Wealthcare Investments.

You can reach him at 9833778887 and wealthcarein@gmail.com

"Risk comes until you know what, where and why you are Investing"

Uncertainty Aversion

In the series of 21 behavioural biases we will discuss the 14^th bias “Uncertainty Aversion”

Uncertainty aversion is also known as Ambiguity aversion.

Human brain doesn’t like uncertainty. Therefore they avoid risk (which arises from uncertainty)

Risk and ambiguity are 2 different things. Risk itself is very complex and can manifest in any form, size and time. Risk is unavoidable, we can just mitigate it to best of our effort.

Otherwise there will be no accidents, injuries and failures.

Uncertainty is main factor in calculating/measuring risk. If we are relatively sure about the outcome of something (uncertainty) than risk calculation can be more precise.

Human being do take risk but when uncertainty flavour added to it, they chose risk over uncertainty.

Let take an example – There are 2 pots, Pot A and Pot B. Pot A has 50 Gold coins and Silver coins each and Pot B has 100 coins but how many of Gold and how many of silver is unknown.

If I ask you to draw a gold coin which pot will you chose? Most likely you will chose pot A since you know that it has 50 Gold coins which is more than (presumably) pot B. In second option, I ask you to draw silver coin. You are most likely to choose pot A again!! Note the error in thinkingJ. You didn’t choose pot B in both. Mind tricked you😉. In first draw you concluded that pot B has more of silver coins but despite that feeling you will chose pot A once again.

Equity investing is also perceived to be quite uncertain. It is in fact uncertain but if you invest well and mindfully, it rewards for the uncertainty very well. Equity investment has too many variables attached to it. Global and domestic economic conditions, domestic laws and regulations, changing consumption patterns and business models, Inflation, liquidity, Interest rates etc are few of many factors.

In fact, since there are too many uncertainties in equity investing, there are also great risk premium that this asset class offers. In equity investing, if you get it right, you are likely to make double returns than FDs or RDs. Albeit you must know when, how and why to Invest. Irony is property is perceived to be safer asset class where is there are risk of different types. Biggest risk which can wipe out entire capital is title of property and regulatory/municipal compliances and possession etc. Haven’t you (or someone known to you) is stuck??

FDs and RDs are the safest asset to invest in. No doubt. Unfortunately their safety feature has made it less attractive to fight inflation and rising costs.

At Wealthcare Investments, we recognise the period of extreme uncertainty/ambiguity and re-balance portfolios at opportune time. Our eyes are set on current and upcoming risk events. We are firm believer of the fact that RISK is what we should control, returns will surely follow. As Warren Buffett says “Rule # 1: Never lose money, Rule #2: Don’t forget rule # 1”.👍

What always matters in life (including investing) is your hits should be more than misses. We can proudly say that we have more hits than misses. Our existing investors are there to vouch for it. We endeavour to enhance our skills even further to give rewarding experience to our clients.

To summarise, uncertainty is part and parcel of all activities -known or unknown. Result of tasks with uncertainty are always rewarding. Adventure sports or business etc. are sufficient to prove the point. Have you seen anyone who did nothing unusual and was given big award/reward?

What should you do?

1)      Recognize that there will not crystal clear environment in Investing. Hence don’t wait for clarity to emerge.

2)      Observe and note sign of revival and start investing. Have risk lever in hand but keep investing.

3)      Great returns come from investing in most uncertain times. Don’t forget this.

4)      Appoint an advisor (if you don’t have one) who will walk with you thru entire journey. A good advisor will plan for the worst events also so that you don’t lose out on opportunity. Relationship Managers will leave you alone in some time.

MF Trivia: Mutual funds have been creating wealth for patient investors since decades. Pledge to invest more in Mutual fund in new year.

Happy Deepawali and Happy New Year – Samvat 2076

If you find our blogs helpful, pls do like and share and comment

This article is written by Bhavesh D Damania founder of Wealthcare Investments.

You can reach him at 9833778887 and wealthcarein@gmail.com

"Risk comes until you know what, where and why you are Investing"