Availability Bias
In the series of 21 behavioural biases we will discuss the 8th
bias “Availability Bias”
Availability of data, information and experience is the base
of the decision being taken by anyone.
Human mind prefers information which is
easily available.
Nothing seems to be wrong here!! Isn’t it??
If you note, what is missing is –We do not seek out for
information or knowledge which is relevant.
Rather we rely on what is available to us. In other words we don’t seek ways of doing things differently. The new
data, information and other’s experience is not given more importance. The
hunger of appropriate and new solution is missing. Law of inertia!!
Don’t we hear people say and do “Hum to aise hi karte hai” or “Aisa hi sikhaya hai”
“Hamara tareeka hi sahi hai” or “Jyada hoshiyaar ban raha hai”
Lots of people lost their job and career because they didn’t
acquire new skills and methods. They didn’t re-invent themselves and became
redundant.
Same applies in Investing also. Large population of Indians
are Investing in traditional Investment vehicles like Gold, Property, FDs, LIC
and Post office. They follow it as their elders were doing it. Elders were right because, those days, that
was the only option available to them.
If one continues to do that in future, he is certainly mitigating capital risk but increasing other risk (although
property and gold does carry capital risk)
1) Inflation risk.
2) Concentration
risk. No or low diversification across asset classes
3) Inability in Meeting
with ever increasing cost - Lifestyle ,Health,
higher education cost etc
4) No or low
retirement fund
5) Liquidity
With technology and sophistication, new products and options
are available but one is not willing to adopt to it. Many have adopted to it
with borrowed conviction.
There has been transformation in Investment landscape since
few yrs. Many time tested research, Investment styles and quants are available
now that aim to make investing smooth and rewarding. Albeit, you should know
what you need and look for solution to that.
Someone who is averse to risk and prefers no/low risk of
default and steady returns can certainly consider Banking & PSU debt fund
or high quality short term bond funds. These funds can easily give better
returns over FDs with tax efficiency if invested for 3 yrs plus.
Someone who is seeking returns more than Debt fund but can’t
digest volatility of equity, can consider asset allocator funds.
Someone who prefers Gold, equity and debt in portfolio to
avert risk or wish to diversify – Mutual fund has it.
For HNI and Ultra HNIs, there are sophisticated products
based on quant and derivatives too along with start-up investing etc.
I met lot of people who are not able to recognise the evils of
Inflation and its effect on his corpus. They will surely fall short at the time
of major expenses or retirement.
What should you do?
1)
Recognize what you have not considered in your
thought process.
2)
Think of products that are not in your basket of
Investment.
3)
Avoid tilt to physical assets like Gold and
Property. Have open mind
4)
Evaluate taxation and liquidity in your
Investment decision. Look for products with enhanced tax efficiency and liquidity.
5)
Don’t rely on easy information. Dive deep into
subject and evaluate. Easy is hardly
rewarding.
6)
If you are beginner, start with simple products
than gradually move up the ladder of complexity.
7)
Gain perspective from someone who is doing it
successfully since years.
MF Trivia: Besides Equity and debt, Mutual Funds can also
invests in Gold and Real estate (thru REITs and InvITs). So it has basket of
all asset classes that appeals to all Investors.
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"
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