February Newsletter - 2018
- Mitraz Knowledge
- Feb 28 2018
KNOWLEDGE-OVERCONFIDENCE BIASSymptoms - The self-belief that one has higher skills or an edge compared to others due to success in the recent past. A fallout of overconfidence bias is that we tend to remember winners and the effect of these winners on the portfolio. Overestimating the expected return and underestimating the volatility of the return in a shorter time-period, one tends to put more weight in whatever one feels more confident. An example could be: Holding a major part of ones' investments...
January Newsletter - 2018
- Mitraz Knowledge
- Jan 31 2018
KNOWLEDGE - CONFIRMATION BIASSymptoms - We don't argue any findings if it supports our existing view, whereas we tend to disagree more if the findings don't support our view.The entire chain of action follows: search, interpret, favor and recall, all in a way that confirms our pre-existing beliefs or hypothesis.An example could be: FD's are safe and better than Debt Funds. If this is our belief, then any short term negative performance by the debt funds in a client portfolio can make the client nervous...
May Newsletter - 2019
- Mitraz Knowledge
- May 31 2019
KNOWLEDGE - NEGATIVITY BIASSymptoms - Investors put more weight on bad news than good and react to negative events in a more than a proportionate way to good events.Examples - Investors do not feel confident to enter markets during/after a meaningful correction and fail to average out in that phase. They may also stop further exposure to a particular asset class/ instrument because of the past negative experience. Often, investors may feel overall unhappy about the portfolio even if the number of...
February Newsletter - 2019
- Mitraz Knowledge
- Feb 28 2019
KNOWLEDGE - NARROW FRAMING BIASSymptoms - Insistent focus on the performance of individual securities, looking at individual asset class performance in isolation.Example - Gold which is used to diversify the risk involved in high equity allocation is considered a bad decision once the equity part has performed good without considering that gold was a part of the portfolio and is looked in isolation on the basis of returns.Effect - A narrow framing bias leads to frequent exits or lower investments...
January Newsletter - 2019
- Mitraz Knowledge
- Jan 31 2019
KNOWLEDGE - SELF SERVING BIASSymptoms - The tendency to attribute favourable outcomes or successes to one's own skill/internal factors and attribute unfavourable outcomes to bad luck/external factors. Many times, outcomes can be bad because of our own wrong reasoning and not due to lack of luck. This is dangerous in the investment world because it stops us from improving our skills and creates overconfidence in our abilities to generate positive outcomes.Example - A Mutual Fund-Card always blames...
December Newsletter - 2018
- Mitraz Knowledge
- Dec 31 2018
KNOWLEDGE - ENDOWMENT BIASSymptoms - The tendency to place a significantly higher value on things when we already own them.An Example - The endowment effect was identified by economist Richard Thaler in the 1970's when he gave the example of a man who bought a case of wine in the late 1950s for about $5/bottle. A few years later, his wine merchant offered to buy the wine back for $100 a bottle and the man refused, even though he had never paid more than $35 for a bottle of wine ever. Similarly, people...
November Newsletter - 2018
- Mitraz Knowledge
- Nov 30 2018
KNOWLEDGE - INCENTIVE CAUSED BIASSymptoms - It is said that one should not ask the barber the need for a haircut. People with a vested interest will tend to direct you or make you eliminate every other route and guide you in the direction of their interest.An example - In a paper "Misled and mis-sold: Financial misbehaviour in retail banks?" by Monika Halan and Renuka Sane presented on 5th Aug 2016, auditors approach banks for advice on tax saving instruments. The private sector banks with high sales...
October Newsletter - 2018
- Mitraz Knowledge
- Oct 31 2018
KNOWLEDGE - HINDSIGHT BIASSymptoms - When finally after the outcome of an event, one tries to simplify the causes and effects of a complex situation (complex because the actual outcome was clearly not expected to happen) and starts to assume better predictive ability after linking something important before the event to the result.An example - R.Beyth and B.Fischhoff devised the first experiment directly testing the hindsight bias. They asked participants to judge the likelihood of several outcomes...
August Newsletter - 2018
- Mitraz Knowledge
- Aug 31 2018
KNOWLEDGE - INFORMATION BIASSymptoms - The tendency to collect more information beyond a point that the information collected ceases to affect the decision that has already been made. Financial News Channels and Websites present investors with plenty of information every day and it is difficult to filter the material, relevant info from non-material info.Examples - Getting worried or influenced by daily share price or market movements or random company developments that usually contain no information...
July Newsletter - 2018
- Mitraz Knowledge
- Jul 31 2018
KNOWLEDGE-LOSS AVERSION BIASSymptoms - Loss aversion refers to the tendency to prefer avoiding losses than acquiring gains. Some studies suggest that losses are psychologically twice as powerful as gains. This term was framed by famed psychologists Amos Tversky and Daniel Kahneman in the early 90s.Examples - A). Loss aversion has a very significant effect on Real Estate Investments, an asset class which is influenced by emotions more than any other asset classes. People are unwilling to sell their...
