Envy: An (Un) necessary evil

Warren Buffett has apparently said in jest that out of the seven deadly sins, envy is the worst….because at least we enjoy while committing the other six sins. In case of envy it is only pain and no pleasure.

Despite this, I notice that envy is widespread in our society. Here are a two instances:

  • A client of mine met me last week. I noticed that he was not his usual chirpy self. When I inquired about the reason for his despondency, he explained that he was perturbed to note that while his Portfolio Management Scheme (PMS) Account with our firm had given him a return of 12% over the past year (no mean feat, considering the the broad indices were actually down by 17%). It perplexed me that instead of being ecstatic he was downcast but I soon knew why. Apparently, his friend had invested in another PMS account which also invested in Gold Exchange Traded Funds. Hence his friend had earned a return of 21% on his investment, which apparently gave him bragging rights over my client.
  • Every year once the annual bonus is distributed among colleagues at my company, I always notice a few glum faces. In most cases, they are not glum because they feel shortchanged, but are dejected because a few of their colleagues have received slightly more than them.

How do we deal with this debilitating feeling? While I do not profess to be a psychologist or psychiatrist, here are a few options that work for me. 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

Pause for the Cause

The market fell by 500 points today & the reason was (pause for effect) (some drumroll) we have absolutely no idea.”

I wish it would be that easy. Whenever I scan the newspapers & there’s a commentary about the market performance of the day before, it always has a cause associated for the rise & fall in the market. Even if the movement is as insignificant as 0.5%. There has to be a cause.

The most recent reasons that I have been reading are, “The Greek crisis”, “Slow pick up from US”, “QE3, or not (depending on what you want to prove)”, “Corruption”, “Fiscal Deficit” & so on. Are these reasons incorrect? Well, we don’t need to jump to such conclusions, but we need to ask, are these the only reasons because of which the market fluctuates? The reasons also vary as per the seasons, the headlines emphasize whatever is in the news recently.

There are several theories about how & which information is incorporated in the market. There are research papers upon research papers trying to decifer the process of finding the true cause of any market reaction. There are algorithms fed into computers which constantly search for exactly the same information predicting the next market reaction (or sometimes even causing the reaction). So after numerous citations in these papers & gigabytes of commentary by writers & jouranalists, what do we know about “the real reasons” to what do markets respond to? Zilch. We know nothing. That is, we know nothing conclusively. We can ask immediately about the latest global headlines & attribute those as a cause for the market reaction. But that is classic Recency Bias.

Continue reading