Wealthcare Investments

Behavior and Investing

There have been empirical evidences of behavior influences our life and progress. The same is true for investing also.

People are not rich and successful because they are lucky, god gifted or they have legacy. It’s a myth. Look around and see how many have risen from rugs.

In this series of “Behavior and Investing” I will cover all “thinking errors” that influences our decisions and therefore our financial life.

First in the series is of 21 is “Social Proof”

Social Proof commonly known as herd mentality. We usually walk a path that’s known or referred by others. So true for investing also. Large part of Indians prefer FDs, post office, Insurance, Pension, PPF and property. Because that’s what our parents, relatives have done!! We think little to move from there and explore the other investment vehicles.

Like in anything, comfort is utmost important for an individual in investing also. Human mind finds comfort in known. Mind believes more people are doing it so we should also do it more. That’s what leads to poor returns as most have got poor returnsJ

Bright example of Social Proof is Harshad Mehta, Ketan Parekh and Subprime period. Everyone came into party at last moment and lost heavily. Recently in 2018 also people thought Small & Midcap are going to give good returns and what it turned out to be 20-25% loss in portfolios.

HNI and Ultra HNIs preferred AIFs, a new product positioned for greater Alpha, hasn’t done great as yet. Time will only tell about their fate. 

Rational approach:

1)      Think why I should invest now when everyone is investing. Be it particular stock, MF, Property or Gold.

2)      Choose uneasy path of avoiding social proofing.

3)      Do your own research or consult qualified person

I wonder why people don’t try other products like MF for investing. When we try a new product, we buy a trial pack and then decide about using it regularly.

Similarly try out Mutual Funds with as little as 5-10% of your assets and experience it for yourself. Proof of pudding is in eatingJ. Try Mutual fund ka chhota packet.

MF Trivia – Data suggest close to 80% of equity flows come I when markets are overvalued or at peak. Thus the Investing experience is poor/subpar.

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

He can be reached at 9833778887 and wealthcarein@gmail.com

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