Testimonial from Mr. Mukesh Dedhia

Mr. Mukesh Dedhia, a reputed figure in the financial services industry has this to say about the book:

“A singular book that gives information on all the past market highs and crashes, the human biases that lead to extravaganzas and how mental stability helps you protect these roller coaster rides.”

Thank you Mukeshbhai for posting this review on http://www.amazon.in

#RidingTheRollerCoaster

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The blame game – whom to blame?

Yesterday I wrote about “The blame game“. It is a common human trait. However, there is another pattern if you consider who gets the blame. In “Beyond Greed and Fear”, Hersh Shefrin continues:

Of course, for this to work, the person to whom responsibility gets shifted must be seen to have expertise. Otherwise, the client will feel just as much regret for having relied on a novice for advice.

 The person to be blamed must be known as an expert, else the blame comes back in a different form, “How could you trust such a person?” But with an expert, there is a comfort that there is no mistake in trusting the expert.

It’s all in the mind, after all.

#RidingTheRollerCoaster – 258

The Blame Game

In his book “Beyond Greed and Fear – Understanding Behavioral Finance and the Psychology of Investing” ; Hersh Shefrin explains a particular human behavior as under:

One way people attempt to shift responsibility is by playing the “blame game”. This game, whereby a client picks someone regarded as an expert and relies on him or her for advice, is usually set up in advance. If things go well, the client takes the credit, attributing the success to his or her own skill. But if things go badly, then the client can attribute the blame to the expert, thereby reducing regret by shifting responsibility for the negative outcome.

Compare this blame game with the following excerpt from “Riding The Roller Coaster – Lessons from financial market cycles we repeatedly forget”

After every crisis, there is a post-mortem process. We all want to know whom to blame for our miseries. Hence, after every market crash, a committee is set up to investigate the reasons for the crash. No committee has ever come up with the conclusion that the rise itself was the reason behind the crash.

Even the governments and the regulators are not left behind in this finger-pointing exercise.

There seems to be a deep psychological reason behind such thinking.

And the need to lay the blame on someone else.

Failure is a part of life for those who try. It is unavoidable and in many cases, even when one has made the efforts to win, victory eludes one and failure stares one in the eye. It is not easy to embrace this situation for most. In almost all such cases, when you do not get the desired results and the enemy is not visible (market forces in this case), one is considered either a fool who got to the situation on account of some stupid decisions and actions; or a victim of the circumstances.

#RidingTheRollerCoaster – 257

Happy Dussehra

Raavan was a very learned man and a great warrior. Though he abducted Sita, he never once touched her and paid due respect to her. In spite of all these qualities – wisdom, bravery and a strong character, how come he lost to a small army led by Lord Ram?

Maharishi Valmiki indicates in the Ramayana that it was his ego that caused Raavan’s downfall.

In the world of investing, there are many experts – highly qualified, skilled and experienced – and yet unable to see certain obvious risks. The ego and overconfidence blind these wise men. This is an important lesson from the book “Riding The Roller Coaster – Lessons from financial markets we repeatedly forget”.

While this applies to the experts, even the laymen get swayed by overconfidence. Under the spell of ego, we start believing in our invincibility. And then as the popular phrase goes: “Pride cometh before the fall”, meaning pride often causes the fall from grace.

Learn from the story of Raavan. Check your ego. Stay grounded.

Dussehra is also known as Vijayadashami (a day of victory). May you win all the battles and wars against your own emotional Raavans this Vijayadashami.

May this Dussehra bring lots of prosperity in your life.

#RidingTheRollerCoaster – 256

Stupid or victim?

Very interesting article regarding how Deutsche Bank is being positioned as a victim rather than one who committed a mistake:

Deutsche Bank’s Troubles Touch a Nationalist Nerve

The following line is especially interesting:

“Instead of parceling some of the blame on Deutsche’s management, many Germans are circling the nationalist wagons. The idea that Deutsche Bank is in large part a victim feeds into an increasingly popular narrative that Germany’s traditions, standards and institutions are under threat from outside.”

Read that in line with the point we made in the book:

After every crisis, there is a post-mortem process. We all want to know whom to blame for our miseries. Hence, after every market crash, a committee is set up to investigate the reasons for the crash. No committee has ever come up with the conclusion that the rise itself was the reason behind the crash.

Even the governments and the regulators are not left behind in this finger-pointing exercise.

There seems to be a deep psychological reason behind such thinking.

And the need to lay the blame on someone else.

Failure is a part of life for those who try. It is unavoidable and in many cases, even when one has made the efforts to win, victory eludes one and failure stares one in the eye. It is not easy to embrace this situation for most. In almost all such cases, when you do not get the desired results and the enemy is not visible (market forces in this case), one is considered either a fool who got to the situation on account of some stupid decisions and actions; or a victim of the circumstances.

It is better to be known as a victim rather than a fool. A fool would get ridicule; whereas a victim would get sympathy – the latter appears to be a better choice.

#RidingTheRollerCoaster – 254

Is this the right investment?

Once again, I came across this question from an investor, “I have invested in such and such avenue. Is it the right decision?

On probing further, one gets the answers, which have by now become highly predictable for me.

In almost all cases, the investment avenue has a lock-in provision, which means the investor cannot get out of the investment even if one realizes that it is not a right instrument. Why, then, this question keeps surfacing after one has locked-in the money? Is it ok to assume that one did not ask this question before signing the cheque?

Doesn’t it make sense to ask questions BEFORE signing the cheque?

We learn from the story of Abhimanyu that it was easy to get into the chakravyuh, but without knowledge, it was difficult (sometimes impossible) to get out of it. Same applies to an investment with lock-in. Buying is easy, getting out is not.

#RidingTheRollerCoaster – 249

Why understanding investor psychology is important – 2

Continuing from yesterday’s post:

While the various assets would generate various kinds of investment returns, be it current income (in form of rent, interest or dividends) or capital growth over the years, it entirely depends on the behaviour of the investor as to how much of it one takes home.

This gap between what an investment generates and what an investor gets depends on costs (transaction costs, holding costs, maintenance costs, etc.), taxes and investor psychology. To some extent, the former increase due to unstable mind of the investor.

#RidingTheRollerCoaster – 247