March 26, 2019

Are Your Investment Ideas Influenced By Analyst’s On TV? Well, Think Again, Know The Biases Of Markets

General Money   || Personal Finance   || Stock Markets  ||  Real Estate ||

You watched a celebrated analyst on TV giving you investment ideas on certain stocks & you invested only in stocks? An Analyst representing real estate forums on TV, gave you his views of soaring prices land parcels around the city & thus you have stuck to investing only in real estate for ever & never on stocks? Well, think again!

Investing means different things to different people. There is no one person who can possibly be an expert at the entire subject. A person who is good at Stocks will say – “Stocks are the best investment”. A person who loves real estate will say – “Real Estate is the basis of all wealth”. And someone who hates gold will say – “Gold is an obsolete Commodity”. All of this personal bias from so called experts, adds to the confusion to the subject of investing.

Same Market, Different Directions:

Please realise that everyone has a different opinion about the direction of the markets & the future of this world we are living in. If you watch the Financial News channels, they have so called ‘experts’ who will say, “The Market is over heated. It will crash in the next few weeks”. Ten minutes later, another expert on the same channel will come & say, “The market is perfectly poised to go up even further, as per technicals”. Well, you may ask – why so many views whilst it’s the same market? The answer lies in bias they would have picked that would seem more favourable to their context of thoughts motives.

Human brains are so neatly configured to pick up bias at their will, weather they like it or not. If an analyst is holding certain set of stocks in his portfolio for longer time, his mind will be tuned to focus only on ‘negative confirmation’ bias that gives a sell signal & vice versa in case he is looking to build a portfolio – he will look at all possibilities to add stocks to his portfolio & perceives only ‘positive confirmation’ bias to act. Well i don’t mean to question the ‘intent factor’ of the analysts, all that i am saying is – Take views from analysts & ascertain any biases that are evident & only then act to decide to buy/sell.

Quite often we can hear people saying – “Every time i hear of a hot stock on TV, by the time i bought it, the stock is heading down. I bought at the top because it’s the ‘hot popular stock & then a day later it starts heading down. Why am i always late to the party?”  Well, the problem with investing in something because it’s popular or rated as number one mutual fund over the last few years is that – real investors would have already made their money in that investment. They were in it early or got out at the top when you bought it.

Learning:

It’s good to realise – Investing is confusing because it is a very large subject. If you look around you, you will see people have invested in many different things. Simply put – just take a look at home appliances at your house & just give it a thought – what made you buy them. Those are all products  from companies people would have invested in. You receive electricity from a utility company, that people like you would have invested in. Well, once you understand that – then look at your car, tires, your home furniture, your favourite shopping centre.. etc. This is how you understand business & learn to invest – either directly in the company or through shares which ever mode you may understand better & suits you better.

 

–    Article by Suman Adithya Rao (SEBI Certified Research Analyst, Management Graduate in Entrepreneurship & Small Business Management)
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General Money   || Personal Finance   || Stock Markets  ||  Real Estate ||

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