Investors have the right to information – 2

We wrote about the investor’s right to information yesterday. Click here to read the post.

On interacting with someone, we realised that this can be misinterpreted as all the sellers of financial products are crook or frauds. A milder version of this interpretation could be that they are at least involved in mis-selling for their own benefit at the cost of the financial consumer.

Well, the intent of our post was not that.

Asking questions to understand the product one is investing in is very different from questioning someone’s integrity. Seeking information before investing is always the right approach and nobody can argue against that. This would mean while you trust your advisor, don’t do so blindly. This will also ensure that the advisor is alert and does not fall prey to the human emotions. If both the investor and the advisor keep doing their job, the likely outcome is going to be “win-win” for both.

#RidingTheRollerCoaster – 108


Investors have the right to information

Nobody can stop an investor from asking questions before investing. Nobody can force an investor to invest even after answering all the questions.

Questions are the best weapons in the hands of the investors.

#RidingTheRollerCoaster – 107

Tomorrow never comes …

There are many small stories in the epic Mahabharata. In one such story, a beggar comes to the Pandavas asking for some help. They are in the midst of a discussion, and Yudhisthira, the elder brother, asks the person to come the next day. Hearing this, his younger sibling, Bheema reminds Yudhisthira of the audacity of assuming that he would be alive tomorrow. This story highlights the importance of understanding uncertainty associated with the future.

However, we have always wanted to know the future.

Often, the experts get swayed by the same emotions and get their forecasts wrong.

To read more “On Forecasting and Expertise”, see the book “Riding The Roller Coaster – Lessons from financial market cycles we repeatedly forget”

#RidingTheRollerCoaster – 106

Too much money, where to invest? Don’t invite the Pied Piper

In bullish phases, often there is too much money in hand and the question is, “Where to invest?”. This is the time when a Ponzi operator appears on the scene and people follow him like the children in the story of the Pied Piper of Hameln.

Read more on this in “Riding The Roller Coaster – Lessons from financial market cycles we repeatedly forget”

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Mental shortcut

One of the shortcuts we use is to follow expert advice. There is nothing wrong in following an expert’s advice, so long as the person is really an expert. However, for many of us it is extremely difficult to know whether one is an expert in the field. We often confuse money, wealth, fame, or media appearance with expertise. We perceive confidence as expertise. Beware of such experts.

You may want to read this blog post about how marketers use various influencers – people as well as media. Please do not take this as my view against Infibeam or Twitter. These have only been mentioned in the blog post. The game is very old, e.g. celebrity endorsement for various products. It is just the ground and the players that get changed.

Important to understand is that we do not become victims of such tactics.

Especially in stretched times – extremely high levels of markets or very low levels – very high emotional state – we are likely to fall prey to such external influencers. Maintain a balanced mind. Maintain equanimity. That is the key to investing success.


#RidingTheRollerCoaster – 104

Eyeballs to footfalls

In the bull market of 1999-2000, many loss-making DotCom companies’s shares were valued based on the number of eyeballs visiting their websites. It was assumed that the higher number of visitors to the websites would result into (1) some e-commerce business, and/or (2) advertising revenue.

Roughly eight years later in 2007-08, in India, many retail companies were valued based on the footfalls in their malls. Once again, it was assumed that the footfalls would lead to higher sales revenue.

In both cases, the expectation of sales revenue turned out to be much higher than the actual numbers.

The expectation of higher sales in future reflected in the current valuations. The prices rose. When the purchase price is high, the future returns are muted – a simple law, forgotten often.

Read more on the Chapter on “Valuation” in the book, “Riding The Roller Coaster – Lessons from financial market cycles we repeatedly forget”

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Some smart people with quick minds came forward to oblige those with money

It is observed that in most bull phases of the economy, when there is too much money, people wonder what to do with the surplus.

They are in search for the next great money-making opportunity.

This is when some smart people with quick minds come forward to oblige those with money. As the famous lesson from the moral stories goes: “A fool and his money are soon parted.”

The Ponzi schemes, frauds and schemers bloom in boom times. Be careful. Especially when you don’t find money-making opportunities easily.

#RidingTheRollerCoaster – 102