Investment
Biases That Stop You
From Getting Rich
It is not how well you can read the spreadsheets, but how you
behave towards investment that matters, says Deepika Asthana
L
et us start with a story of
two investors, neither of
whom knew each other,
but whose paths crossed
in an interesting way. Mrs Sharma
was a primary school teacher where
she worked for 35 years till she
retired at the age of 60. She lived
a comfortable, yet humble life till
she died at the age of 80. On her
death, her extended family was
shocked to learn that she had left `3
crore to charity. How did a woman
with such a meagre salary manage
to accumulate such a vast sum of
money?
On the other hand, there is
Mr Kumar, former vice president
at a leading investment bank. A
success by all counts, he had a
flagrant and debt-riddled life style.
On his death, he was bankrupt
and left outstanding claims for his
family. How did a man who had
accumulated such a vast sum of
money in his lifetime die in penury?
The answer would be intuitive
to most of us. While Mrs Sharma
followed a judicious approach
to investing and let the power
of compounding spin its magic,
Mr Kumar did just the opposite,
relying on heavy borrowing and
illiquid investments. But how is
that a woman with basic education
and little exposure could invest
better than a better educated, more
experienced man?
Bias is inherent
The answer lies in their behaviour
and approach to investing.
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Traditional economic theory will
have you believe that investing is all
about the study of finance, numbers
and spreadsheets. However,
investing is not necessarily about
how much you know. It is also about
how you behave and react to the
information and knowledge that
you have. “There is a tendency
sometimes to get unduly
influenced by our own
investment experience,”
believes Sandeep
Jethwani, Managing
Partner and Head
of Advisory at IIFL
Investment Managers.
Vidya Bala, Head of MF
Research at FundsIndia.
com, says: “There are some
biases that are unique or
specific to Indian investor.”
According to her these biases
include:
■ Tax aversion bias: the need to
avoid tax at all costs
■ Status quo bias: this bias
manifests itself in an aversion or
resistance to change. This could
be a resistance to change the
investment product, an aversion
to adopt newer channels of
investing or to losses.
■ Present gratification bias:
Increasingly, people are
demanding present gratification
and immediate consumption.
This leads to a philosophy of
‘buy now and save later’.
Prashant Mittal, Strategy at
Ambit Capital says, “Biases are
Outlook Money July 2018 www.outlookmoney.com