HOW NOT TO BECOME YOUR OWN WORST ENEMY.

Most stock investors have earned handsome returns in the past 2-3 years. But over-confidence in your stock picking ability can be ruinous. Here are five ways how investors become their worst enemies.

  1. Fear of missing out: The fear of missing out (FoMo) factor comes into play when you see everybody and his uncle making big money in stocks. Gripped by the regret of staying away and pushed by the desire to catch some piece of the action, fence sitters and newbies jump headlong into the market. Suddenly every stock  looks worth buying. However, even a good scrip is a bad investment at a high price. Just keep in mind that you won't miss an opportunity of a lifetime by not investing now. 
  2. Too much dopamine: Over-confidence is dangerous in the stock market. Investors who are less confident make fewer mistakes than those who are brash. Human biology plays its own tricks here. When a trade goes right and an investor makes money, the brain releases dopamine in the body, which makes the individual feel positive and more confident of doing well. The bigger the anticipated rewards, the more dopamine is released by the brain, pushing the investor into a vicious cycle. Remember this when you are placing your next 'buy' order.
  3. Mental accounting: Behavioural finance tells us that people are more willing to risk money earned the easy way. In gambling, this is known as 'playing with the house's money'. If an individual wins money in a casino, he is more likely to gamble with it than pocket the amount. The big gains earned over the past 1-2 years could make investors fall for this behavioural bias. A prudent investor, however, will overcome this bias and deploy his money in safer avenues.
  4. Anchored to a price: Investors can also hurt themselves by getting anchored to a price point. Many mid-cap and small-cap stocks have receded a bit, possibly 15-20% from the recent highs. This is a good time to book profits in these scrips. It will be a mistake if you wait till the stocks regain the lost ground and reach their previous highs. 
  5. The different this time: Lastly, beware of the five most dangerous words on the stock market. It is different this time. Even as stocks rise, small investors continue to make the small mistakes. Don't get misguided by the euphoria on the markets. The market cannot (and will not) continue on the same trajectory forever. The situation has not reached an alarming level yet, but many analysts have sounded notes of caution. Take heed if you don't want to become your own worst enemy.
--Challapalli Srinivas Chakravarthy--  
--------------------------------------------------------------------------------------------------

Comments

Post a Comment

Popular posts from this blog

VIEWS OF MANU AND KAUTILYA ON THE ADMINISTRATION OF JUSTICE.

The state performed its duty of protection of society and the individual through coercive enforcement of the standards of justice based on the concept of ' Dharma '. From the Vedic period onward, the perennial attitude of Indian culture had been justice and righteousness. Justice, in the Indian context, was a human expression of a wider universal principle of nature and if men were entirely true to nature, their actions would be spontaneously just. Men experienced Justice, in the sense of a distributive equity, as moral justice, social justice, and legal justice. Each of these forms of justice was viewed as a particularisation of the general principle of the universe seen as a total organism. Impartial administration of justice was always regarded as one of the main duties of the King and he was considered to be the fountain of justice. The ethical code of society and its cultural standards were inter-related. The cultural maturity and social amicability and even their det...
Read more

ARCHAEOLOGISTS DISCOVER TOMBS IN EGYPT DATING BACK 2,000 YEARS.

Egypt's antiquities ministry said on 14th August, 2017 (Tuesday) that archaeologists have discovered three tombs dating more than 2,000 years, from the Ptolemaic Period. The discovery was made in the Nile valley province of Minya south of Cairo, in an area known as al-kamin al-Sahrawi. The unearthed sarcophagi and clay fragments suggest that the area was a large necropolis from sometime between the 27th Dynasty and the Greco-Roman period. ---------------------------------------------------------------- 
Read more

ANCIENT INDIA'S LINKS TO TODAY.

You may not have heard of Shu-ilishu but he is a man of great significance. He reaches out to us from almost 4,300 years ago, through a small Akkadian cylinder seal now housed at the Louvre Museum in Paris. On the seal, you will find an image of him talking to two men. The inscription describes Shu-ilishu as the interpreter of the Meluhhan language. 'Meluha' was, in all probability, the term used by ancient Mesopotamians for the Indus Valley region, and the presence of an oficial 'interpreter' there indicates just how important the steady flow of good from the Indian sub-continent was.  Precious and vibrant lapis lazuli stones, carnelian beads, wood and even dogs would go across via old trade routes and ports like Lothal (in modern-day Gujarat) to Akkad, capital of the Akkadian Empire (03rd millennium BCE) and now in modern-day Iraq. There are also references to a settlement of Meluhhans in the city of Guabba in Sumer, in Mesopotamia.  The story of Shi-ilishu and ...
Read more