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Determining Your Risk Profile For Investments

  • Anup Bansal
  • Jul 27 2012
Estimated reading time: 2 minutes 56 seconds

When the markets are going up and up, everyone goes on the bandwagon irrespective of adequate understanding of financial goals, risk appetite and investment objectives. However, when the markets turn around and head downward, the investors are in for a rude awakening. Even the most daring of the investors realize that their risk appetite is lower (and much lower in many cases) than what they perceived it to be.The process of investments-making should not be started without determining the risk appetite...

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Competence and Wealth Advisory

  • Anup Bansal
  • Dec 31 2012
Estimated reading time: 3 minutes 6 seconds

It is a given that competence is required to produce anything valuable, to service clients and in general, to be successful. However, the question that needs to be asked is, is competence demanded and valued by everyone in a profession. Having been trained as an engineer and technology professional, competence and continuous learning are traits that are taken for granted in the engineering and technology industry. Is this true in the Financial Services Industry where an insurance agent and a mutual...

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June Newsletter - 2018

  • Mitraz Knowledge
  • Jun 30 2018
Estimated reading time: 8 minutes 32 seconds

KNOWLEDGE-OUTCOME BIASSymptoms - The Isolation Effect (The Von Restorff Effect) is likely to be exhibited when people value a thing differently depending on whether it differs from the rest and whether placed next to an inferior alternative. Hedwig von Restorff recognized the Von Restorff effect in 1933. She conducted a set of memory experiments around separate and distinctive items, concluding that a different thing, in a list of otherwise related things, would be better remembered than an item...

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February Newsletter - 2018

  • Mitraz Knowledge
  • Feb 28 2018
Estimated reading time: 7 minutes 13 seconds

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...

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January Newsletter - 2018

  • Mitraz Knowledge
  • Jan 31 2018
Estimated reading time: 6 minutes 15 seconds

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...

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June Newsletter - 2019

  • Mitraz Knowledge
  • Jun 30 2019
Estimated reading time: 10 minutes 40 seconds

KNOWLEDGE - DISPOSITION EFFECT BIASSymptoms - This refers to a tendency to label investments as winners or losers on the basis of unrealised gains and loss.Effect - Investors tend to sell their winners too fast and hold on to their losers. Studies have shown that on an average, the winners have performed much better than the losers. The portfolio return suffers over the long term because of selling the winners in an attempt to protect short term return. Also, the investor loses the chance to balance...

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May Newsletter - 2019

  • Mitraz Knowledge
  • May 31 2019
Estimated reading time: 11 minutes 29 seconds

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...

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February Newsletter - 2019

  • Mitraz Knowledge
  • Feb 28 2019
Estimated reading time: 11 minutes 51 seconds

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...

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January Newsletter - 2019

  • Mitraz Knowledge
  • Jan 31 2019
Estimated reading time: 12 minutes 6 seconds

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...

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December Newsletter - 2018

  • Mitraz Knowledge
  • Dec 31 2018
Estimated reading time: 11 minutes 59 seconds

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...

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