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How to make losses less painful?

Psychology plays a major role in any decision making. There are ample studies to indicate that poor decision making can be attributed to a few key heuristics, leading to terrible consequences for the decision maker. One such heuristic is called loss aversion. It was identified by two Israeli psychologists, Daniel Kahneman and Amos Tversky. In Decision Theory, loss aversion refers to people’s tendency to prefer avoiding losses over acquiring equivalent gains: it’s better to not lose Rs. 100 than to find Rs. 100. Studies conducted by above mentioned academicians suggest that psychologically, losses are twice as impactful as gains. Some examples are as follows, We don’t want to throw away the stuff we don’t need We don’t sell a stock that is below our purchase price just because we don’t want to take a loss We don’t sell a house for less than what we paid If we lose the […]

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Hope Investing in Small cap stocks!

Often in Bull markets, Small cap stocks send retail investor into frenzy. Steep gains in matter of months lure them into allocating more and more funds on their next bet. Lets say, a newbie starts with 10,000 in a stock on friend’s advice and the stock doubles. He regrets betting just 10,000, next time he makes up his mind to bet more. Next 2-3 occasions tend to be equally rewarding. Then one fine day when he bets 10,00,000, a big chunk of his savings, the markets dooms and most of those stocks never seem to recover for years. This is typically happens near new all time highs. He gives up on equity investing calling it a gamble and equity since then becomes something close to social stigma. The joy of instant gratification is what we seek. However, investing is more about delayed gratification. You put away small sums now, and […]

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Nifty@MRP Dec 2016-1

Nifty@MRP Suggest Markets Are Overvalued, What Should Investors Do?

What is Nifty@MRP? As investors, we constantly track the Nifty movements. To make investing more profitable and not a game of mere chance, we need a solution, a solution which could help us identify whether the market is grossly depressed or irrationally exuberant. This is exactly what Nifty @ MRP is for! What is the latest value of Nifty@MRP? For Dec’16, considering the free float market capitalization at the MRP of individual stocks and the share price data as of 28 February, 2017, the Nifty@MRP is at 8693. On 28h February, NSE Nifty index closed at 8879.6, which is ~2% or 187 points above the Nifty@MRP. It indicates that the index is slightly overvalued. As of 7 March, 2017, closing index value of 8946.9, Nifty is ~3% overvalued. Future Outlook Nifty has gained almost 2.3% since we last released our last Nifty@MRP on August 31, 2016. However, with the December […]

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Did you enjoy Snakes & Ladders in childhood, then why not Equities?

Did you enjoy Snakes & Ladders in childhood, then why not Equities?

In our childhood, we all enjoyed Snakes and Ladders. Snakes and Ladders is a board game with 100 blocks numbered 1 to 100. Pointer is placed at 1st block. To win the game, one has to roll a dice to reach 100th block. Few Blocks in between have ladders and a few have snakes. Ladders help to skip multiple blocks and jump to a higher number. Snakes throw the pointer back to lower numbered block. But if one plays long enough, he would reach his goal i.e. 100th Block. We can draw an exact analogy in Equities. Markets are always volatile, going from new high to lows and lows to new highs. But what we believe is, if we hang around in equities for long term, we would certainly reach our goal. Why do we say that?  See the following table: (Source: BSE Sensex; HDFC MF) If we see rolling […]

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Multibagger returns for how long? What process? Is it repeatable?

Thousands of stocks have jumped to unjustifiable levels in last 1-2 years. ‘Experts’ or Social Media buffs come up with 10 new stocks every week or month and take pride in 5-10% price movements. On asking what they see, they confidently answer, “It is a value buy.” Most ideas are not exactly an outcome of a process. All that goes in is 10 minutes of financial statement analysis, that’s it. No management analysis or reading annual reports or history of business/industry. Lately the new fantasy is to track some ‘renowned’ investor and follow him into some small cap company. Everyone seems to believe that this will generate great returns for them. They buy it for a month or so, retweet every news related to recommended stocks and when the stock crashes, they simply claim they exited the stock long back! Classic pump and dump tactic. So much for long term investing? […]

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