Cognitively Yours

  Raja R,  Author " Diversification is an admission of not knowing what to do, and our effort will be to strike the average - Better a steady dime, rather than a rare dollar " In the previous blogs,  we discussed how mental shortcuts though needed to take quick decisions do induce us to make errors in investing. In the last blog, how emotional reactions often drive our behaviour. "let every man divide his money into three parts and invest a third in land, a third in business and a third let him keep in reserve" - Talmud 1200 BC - 500 AD Quite aside from financial forms of risk management, merchants learned early on to employ diversification to spread their risks. Antonio, Shakespeare’s merchant of Venice, followed this practice: My ventures are not in one bottom trusted, nor to one place, nor is my whole estate, upon the fortune of this present year, Therefore, my merchandise makes me not sad. (Act I, Scene I). For most investors, the hardest part is not fig...

  Raja R,  Author " Our emotional reactions to risky situations vary from the cognitive assessment of risk as determined by calculations and in reality they often drive behaviour " In the previous blogs, we discussed how mental shortcuts though needed to take quick decisions as well as fear of regret may also lead to biases which result in sub-optimal investment decisions. We had also discussed how impatience and need for instant gratification make us hardwired to short-term results. We also saw how we react to events and announcements on a stand-alone basis. We had seen how our predictions cannot be right all the times and we should accept error in order to reduce error and we can never be error-free in our predictions. We also saw with the help of a story, how we prepare for near-term outcomes and do not venture to look far ahead. Then we saw that as emotional travel is not our forte, we cannot predict how we will behave in future in the heat of the moment, pre-commitment a...

Raja R,  Author " Investors must learn to treat even the gains from stock markets as a part of their own hard earned wealth and not as a windfall income " In the previous blogs, we discussed how mental shortcuts though needed to take quick decisions as well as fear of regret may also lead to biases which result in sub-optimal investment decisions. We had also discussed how impatience and need for instant gratification make us hardwired to short-term results. We also saw how we react to events and announcements on a stand-alone basis. We had seen how our predictions cannot be right all the times and we should accept error in order to reduce errors and we can never be error free in our predictions. We also saw with the help of a story, how we prepare for near-term outcomes and do not venture to look far-ahead. In the last one, we saw that as emotional travel is not our forte and we cannot predict how we will behave in future in the heat of the moment, pre-commitment and plannin...