Indians love real estate & gold. Why do I say that?
I say that because even the visibly poor people have acres of land in their name and kgs of gold. Why don’t they liquidate it and become rich? Because of the land asset’s emotional value and it’s complex and illiquid nature prevents them from doing that. Why is that? Because of their behaviour towards the land asset.
This is called Behavioural Finance.
The very basis of investments is your behaviour towards your investment. People blame stock markets and other assets for their losses, but little do they realize that it is their own behavioural folly which led to these losses. Why do i say that? I say that because while people only see the upper layer of the financial world and the returns and the losses on news channels, there is a vastly important behavioural aspect that they miss out on. This is true for all types of investors, be it amateurs, experienced ones or the so called ‘market experts’.
To put it simply, all types of investments are driven by greed and fear. But the one behavioural kind that makes consistent returns is the one who is not driven by both these behaviours and who consistently stays put irrespective of the market cycles and controls his/her impulsive behaviour. Sounds simple… Isn’t it! Not so. Had it been so simple we would’ve had lots of Warren Buffett’s.
So what should one do to overcome behavioural biases while investing? Nothing. Just two mantras will do the trick for you 1. Have lots of patience and give TIME to your investments to grow. I fail to understand that when Indians can give endless years to real estate and gold to grow why is that approach not replicated for the stock market. Why this behavioural difference towards equities?
2. Just attempt to be greedy when others are fearful and fearful when others are greedy — Buy when everyone is hell scared and sell when everyone is damn euphoric.
Implementing both the above mantras is no child’s play. It is easier said than done and requires lot of courage in these times. However even if you take a small step towards transforming your behaviour towards your investments, you will be amazed to see the massive wealth that you would have created and the financial goals that you would have reached over the long term.
Happy Investing!
