The fact that I got away does not mean there was no risk at all …

Amit - python

In the photograph here, I have draped a live python around my neck at the night safari at Singapore. The fact that I am alive means that nothing happened to me – I did not lose life. Does it mean I did not take any risk at all?

Same thing happens with investments.

One tends to get confident when nothing untoward happens to the investments even when one has taken risks. this confidence soon turns into overconfidence. This overconfidence in one’s abilities leads to the search for even more risks. One tends to start looking at something that nobody is looking at – the adventurous in us want to seize this opportunity. And we leave the shores and dive into the deep seas.

#RidingTheRollerCoaster – 163


Imagination …

Humans are believed to be the only animals with the power to imagine. We can imagine situations that are not there yet, or events that have yet to take place. This ability has probably been one of the major factors behind all developments.

So when we are feared, we imagine the possibility of an event with unacceptable or bad outcome. And imagination of profit leads to en emotion known as greed.

#RidingTheRollerCoaster – 161

Overconfident Enemy In Mirror …

Came across this superb article by Larry Swedroe, titled Overconfident enemy in the mirror.

It highlights the folly of getting overconfident in a field that is full of uncertainties – investments.

Nothing can be achieved if one were not confident about one’s abilities, since lack of confidence would lead to a person not even trying new things. At the same time, it is also important to understand that success also eludes those who do not know about their own limitations.

It is for nothing that Warren Buffett says, “Invest within your circle of competence. It is not how big the circle is but how you define the parameters.” Do we even know the parameters? This is an important question to consider.

In the absence of the knowledge of the right parameters – what can lead to success, we wrongly assume the short term result to be the parameter of success. We mistakenly focus not on the process but the results – and that too short term results.

And that often leads to overconfidence if the short term results are positive, or in line with expectations. This leads to behaviour that is harmful to our own future. And that exactly is what Swede highlights in the article. Remember the words of the guru of investing, Benjamin Graham, “The investor’s chief problem and his biggest enemy is likely to be himself.

#RidingTheRollerCoaster – 159

Reposting: This is what Shital Shah has to write about the book

Amit, very nice book..Should help investor /advisor holding their horses during irrational exuberance..

Source: This is what Shital Shah has to write about the book

Financial illiteracy and overconfidence

“Mixing a decline of financial literacy with an increase in self-confidence is a toxic combination,” said John Howe, professor and chair of the Department of Finance in the Trulaske College of Business.

Essentially, the big problems that majority of people do not understand are:

  1. Ignorance about one’s own ignorance. We are often not aware of what we do not know.
  2. Assuming that expertise is fungible. It is assumed that expertise in one area is equivalent to expertise in another area – especially “management of personal finances”

Expertise or success in one area makes one confident and sometimes overconfident. Add a dose of ignorance to that and one does not even acknowledge that one could be ignorant in management of money.

Professor Howe further continues, “This opens the door for more honest mistakes as well as fraud. It’s widely known that older adults are very common victims of financial fraud. It’s important that as we age, we find someone who has our best interests in mind when managing our finances.”

Important to recognise our own inability, our own limitation and seek professional help.

#RidingTheRollerCoaster – 152

Hindsight is 20:20

Whether it is euphoria or panic, it is often only in hindsight that we can clearly see what it was. At the time, it often appears to be the truth. Every action appears to be rational and based on some fundamental factors.

#RidingTheRollerCoaster – 149

Mazda Industries Ltd

Harshad Mehta took over a loss making leasing company – Mazda Industries Ltd. The loss making company turned profitable immediately after the takeover. Was it the Midas touch of Harshad Mehta?

A small detail in the accounts of Mazda Industries was ignored. More than 90% of the total revenue came from stock market related activities.

Attention to details is a rare trait among many. It becomes even more rare when greed takes over and everyone is in a hurry to make money.

#RidingTheRollerCoaster – 141