The path to your wallet is through your heart

Which of these sales pitches do you find more appealing?

1. A product which proudly states that had you invested in it since inception you would have earned a Compound Annual Growth Rate (CAGR) of 17.82%, thereby giving you a ‘Real’ return of 9.27%.

OR

2.A product which vividly depicts what it can do for you in the future if you purchase it today. This could involve images of you gifting an expensive cycle to your nine year old grandchild, you beaming with pride at your child’s graduation ceremony, etc.¬† Continue reading

S&P downgrade : Caution or an Opportunity?

– Parag Parikh

The current state of stock markets the world over have unsettled the minds of the investors. In such situations we are prone to behave irrationally. Equanimity is important and to maintain that it is important to analyze the situation.

We tend to make decisions based on the currently, readily available information vividly displayed. Open any newspaper or flip through a business channel, or go to a party, there is only one talk of the US being downgraded by the S&P. Why? Because of the high fiscal deficit and the high amount of debt. Is this really new? Did not the world know about it? So why the reaction? Well it is because of the availability bias. Today the downgrading is the centre of attraction. Go back a couple of months in the memory lane. The 2G scam, the Anna Hazare fast, the CWC games scandal. When they were the centre of attraction the newspapers, the TV channels concentrated only on those news. Although none of the matters have still been sorted out, how much reporting does one see? Over the next week the euphoria on the down grade will die down. Continue reading

The Sport of Investing

I have always wondered if investing is a sport or a profession. What I mean to say is that should investing be about competition or should investing be about generating good returns on investment. Although a lot that an investor does, especially a very public one, can be qualified as a sport when we use league tables to judge fund managers, private equity investors, etc. But is investing really a sport or just another professional activity?

Well professional sportsmen will surely differ here, saying, ‘hey, even we are professionals.’ Sure they are, but the context is different when emotions are involved. It is weird since both investing & sporting involve the same level of emotional demands from the player. (S)He has to make decisions in a cold and calculated way which can make the difference between glory & defeat. An investor faces the same emotional dilemma, but not with glory or defeat (entirely), but with money & worse – other people’s money. So the emotional motivation to get glory at all costs is the fundamental difference between sporting & investing, because an investor can’t bet the ranch when the odds are not in favour (at least that’s what should happen in a rational universe). Continue reading