Investment Insights: Navigating the Mind Games of Finance | Abhishek Kar | TEDxJSPMRSCOE

Good afternoon everyone well, whenever we are actually talking about Investing as a subject a lot of people actually think that one has to go through various Spreadsheets a lot of people think that a lot of quantifiable knowledge has to be with one in order to succeed in the world of Investing while a lot of people are so troublesome They think that until unless we don't understand what is fundamental analysis or technical analysis We can't invest and that my dear friend is obstructing Majority of our countrymen and women from investing into the stock markets. I need to tell you It's not just about stock markets in general. If I say that investing is not that difficult I know a lot of you sitting over here would probably laugh But let me tell you 80% of investing is not about numbers. It is not about Spreadsheets it is not about PowerPoint presentations It's only about two things one is common sense and another thing is psychology and today I'm going to get you through a lot of pointers which are going to help you out to build up your own psychology around investing Hello, everybody This is Abhishek a youtuber come educator and I want this endless Pursuit to educate people about the various nuances about finance and that's why I'm sitting over here standing over here for that matter To talk about various aspects of how you guys can actually improve your psychology around investing And what are the major issues which a lot of people face? Well, first of all, let's understand what this investing thing is in the layman's terms Investing isn't that complicated it is as simple as when you have some disposable income with you Something a scare resource which you want to grow eventually in the near future With which you probably want to build up well because there's one demon which is sitting over there called Inflation and if you want to build decent amount of wealth after a certain period of time Then you need to do investments now investing could be in any asset class. It could be into equities It could be into bonds. It could be into real estate. It could be for that matter into cryptos as well I'm not advocating any particular kind of asset classes, but there are kind of seven Psychological errors, which most of the first come investors actually come in while they come into the field of investing To start off. The first one is the mistake of doing mental accounting Let me help you with an illustration Which can help you to understand where a lot of people go wrong When I say mental accounting a lot of you sitting over here probably must be doing a job or must be to a profession Just imagine when you are actually getting your first bonus check How do you spend that money versus when you get a salary appreciation a Lot of people when they get certain bonus just like me a decade back when I was working for a corporate house My thing was the moment I used to get a bonus check My first thing instinct used to be either to go and party hard or second to buy that luxurious Motorbike or the super bike which I was long waiting to buy or that expensive gadget Which may not add that much of value in my own life But still I used to run behind that on the contrary Whenever people used to decide that on any 10% hike on my particular salary, I would actually increase my investment It could be into any asset class. It could be to fix deposit or equity I used to follow that rule so you can clearly see how we are trying to do a different sort of mental Accounting when it comes to the source of money, which we are actually receiving So next time always remember this is one big psychological hindrance Don't do a different sort of mental accounting treat all the money which you are receiving Irrespective of from whichever resource or source you are actually receiving it try to utilize it into the right fashion Rather than doing an impulse buy. The next one is very common, which we see in our fellow mates and that is regret aversion Let me tell you my own example like 7-8 years back when I used to buy a certain investment with a certain thesis I've done all my calculations. I've used my common sense And when I see that particular instrument or that particular stock falling by 10% I know that there is a possibility that the fundamentals have changed and yes deep within I have done my research that the original thesis on the basis of which I had actually bought that particular stock has completely changed But I used to continue holding on to that investment you know why because I always had this feeling that I would regret losing 10% of my capital in this particular tree and Eventually what we used to realize is by the next two or three years We lose 60% of our capital now regret aversion is one such psychological barrier Which stops a lot of people from scaling their wealth? So it's very important that you completely eliminate emotions when it comes to buying a particular asset It could be investment. It could be stocks. It could be anything Another area for which I guess most of us are very well known for because this particular psychological barrier is not just Effectively destroying a lot of wealth in the world of finance, but also doing similar in various careers and we call it herd mentality I know a lot of people they actually buy a lot of stocks because they are seeing that Yes, my friend my colleague my fellow friends are actually buying that particular stock or a particular asset class No wonder why a lot of people jumped into frenzy of so many things ever heard of the biggest manias Which have actually happened in the history 1920s Great Depression or even if you talk about the dot-com bubble which had taken place in the late 2000s Or even if you talk about the infamous real estate bubble Which had actually taken place in the United States of America If you try to look around a common thread amongst all of these that was because everybody was simply following the herd Everybody was not using their own intellect and they were just thinking that yes Maybe because these people have been investing into the markets for quite some time They must be smart but then you got to understand this is one of the reasons why most of the people who actually come into the stock markets or Various investment classes eventually lose money So third psychological barrier, which you need to remove from your mind is that you need not to follow the herd Have your individualistic thinking at max. You're going to lose some money, but that is going to give you some important lessons out there Another one is anchoring bias. Now, what is this? So, let's take an example during the pandemic the markets across the globe were falling like a deck of cards It was bleeding everywhere globally at that point of time a lot of stocks a lot of asset classes We're available at a value which nobody can see in the future I at least as of now we can consider that nobody can see in the future a lot of people miss the wagon They miss the bus of buying a lot of assets at that point of time Fast forward in the next two years people are still waiting that I'd actually seen those level of prices. There was work unimaginable at that point of time. So I'm going to wait for that amount of Efforts, I'm going to wait for that kind of disastrous thing or a black swan event to happen where I'll get those Asset classes for that dirt cheap prices, but you've got to understand that these are your anchoring bias You are actually looking around a biased mindset What you should be looking at is into the futuristic expectations For example If you want to buy a real estate and you know that yes a lot of development is going to take place in front of That a lot of corporate houses are going to come up over there Then you should not think twice that oh my god three years back It was so cheap Should I now buy this thing if you have the affordability and if you are really thinking from an investing perspective You should not think twice do your due diligence and start investing out there. So that's another mistake, which a lot of people do Another one is Risk aversion now what is risk aversion ever seen the biggest problem with most of the people we all can actually Withstand the pleasure of getting profits, but we cannot take the pain of making losses Let me illustrate with a very simple example Let's say if you are investing hundred rupees on any asset class if you make hundred rupees on top of that Which is almost 2x you would get some joy But of that hundred rupees Even if you lose 20 rupees, the pain is much bigger much much bigger than what you are going to get in terms of rewards of Making money So got to understand a lot of people just because of this fear that oh my god It is going to be very painful for me to hold on to this asset or exit this asset They continue to hold on rotten eggs into their portfolios. And that is one big problem The moment you realize that something has gone wrong There's no harm in booking that loss because eventually you will find more Opportunities in terms of investing and you can multiply your wealth henceforth So this is one more problem, which a lot of people are actually facing Another problem is confirmation bias. A lot of people they actually get into a confirmation. Let me give an example Let's say if you buy a piece of land and suddenly you realize that technically there are a lot of problems happening out there Maybe some sort of political issue. Maybe some sort of government issue. Something is happening out there Now deep within you probably know that yes Now this land which you took for the purpose of investing may not yield you the kind of returns which initially were Anticipating but still you continue to hold on to that investment you know why because then you suddenly move out in your circles and you start talking to a lot of people and All those people would be saying that oh my god the land you purchased over there Just hold it for 10 years. Just hold it for 5 years that is going to give you a return and you get a Confirmation bias without even realizing these people have never invested into real estate and you start seeking their advice It's very important that we don't get into that trap we have to do our due diligence at that point of time in order to come out of the psychological barrier and One final thing which is actually stopping a lot of people from making money in the stock market is over Confidence and again not just stock market but in general about investing So over confidence is something which has led to a lot of people to get into the process of under diversification for those people who don't understand diversification is basically you are trying to place out your bets or you're trying to place out your Investment into multiple circles so that if one gets hit because of one calamity you can make money out of others But because a lot of people become over confident They are stacking their entire life saving into a particular asset class in our country We have particularly seen a lot of people because they are fearful of the stock markets they are going to put all their sums of money into one single piece of land and Ultimately after their retirement either if there are disputes on that land or internally within the family There is a conflict and suddenly you become so frustrated because your entire money your entire life saving was spent on that owning that particular Land same happens in the stock market as well. A lot of people when they talk about the famous Stock market crashes the maximum number of people if you go and check out they lost money not because of investing but they lost money because they had very Concentrated investing into one or two shares which were actually going up at that point of time and by the time they realize they have gone Wrong, it's already too late. So these were looks those seven psychological errors Which mostly people actually do and this is what actually hinders the growth and the prosperity of a lot of people To conclude with I would like to tell you that investing isn't that daunting as a process All you need is as I mentioned in the start common sense Psychology you need to manage your risk You need to understand your own risk appetite if it can't sleep peacefully by investing hundred rupees don't invest hundred rupees Just invest ten rupees. You need to understand that everybody's risk appetite is different Everybody's capacity to invest is different So you are nobody to go and tell some person from your family that you shouldn't be investing in a fixed deposit because equity is the next big thing because maybe their Comfort level their risk tolerance is restricted to its fixed deposit. At least they are investing for that matter You are nobody to go and tell somebody not to invest into any commodity like gold and silver Maybe the risk tolerance is equivalent to that and same applies for future an option Also, if somebody's high big risk taker, it's completely fine for them As long as they know what are the various nuances and the risk allowed over there So as long as you're working on your risk management as long as you're working on your mindset As long as you're working on your common sense, my dear friends there's just one thing which is going to help you out to make the biggest wealth in the history of our mankind and that is psychology of Investing. Thank you so much