Cognitively Yours

  Raja R,  Author " One doesn’t need to know everything about how something works to be able to use it, or more appropriately, to benefit from it " “All that glitters is not gold” is a saying that refers to a line in the Shakespeare play, The Merchant of Venice, read from a note in act 2, scene 7. The phrase “All that glitters is not gold” expresses in a beautiful metaphor, the idea that the things that seem most valuable on the surface – like gold – are often deceptive: that frequently, the more modest-looking things in life have the kind of substance that makes them more valuable.   Using a substance like gold as an image of the thing that is most valuable in the material world, recognising its shiny appearance, and pointing out that there are other things that are also shiny, then concluding that because they are shiny doesn’t mean they are valuable, makes a universal statement about our values. We could so easily be taken in by shiny objects, both ...

  Raja R,  Author " A  tendency to judge things by their believability rather than their validity is a clear evidence that logic goes out of the window when beliefs are strong " In the previous posts, we have used stories and analogies to make the understanding of complex financial problems in an easy way. In this blog, let’s start with a popular story: "The Verger" short story by Somerset Maugham Maugham's "The Verger" is a simple tale about a simple man who does his duties with great joy and dedication. Albert Edward Foreman has been the verger of his church for sixteen years, doing all the menial and manual duties of the vicarage. He loved his job and there were no complaints about him until a new pastor arrived and made a startling discovery; Foreman cannot read. While that fact has never interfered with his duties, the new preacher is appalled and immediately fires the verger. And so, he loses his low-paying job as a verger because it is discovere...

  Raja R,  Author " Planning “to the retirement” is important but equally important is planning “through the retirement ” .  Systematic Withdrawal Plan (SWP) help you to achieve the objective of regular cash-flows post retirement " In the previous blogs, we discussed how mental shortcuts though needed to take quick decisions do induce us to make errors in investing. We also saw how diversification helps us reduce risk and how it is almost a free lunch in minimising risk without reducing the returns. In the last post, we saw the benefits of a Periodic Investment Plan or Systematic Investment Plan (SIP). Periodic Investment Plans are loosely called as Systematic Investment Plans. Investing regularly to create a nest egg is an important leg of financial planning and is a necessary requisite for a successful wealth creation. But, it is not sufficient. To make the Periodic Investment Plan systematic, one has to have a proper asset allocation to achieve the goals, evalua...

  Raja R,  Author "An effective strategy need not be effective in every single instance. SIPs work on this principle and each instalment need not be profitable but on the whole it aspires to strike an average and be successful" In the previous blogs,  we discussed how mental shortcuts though needed to take quick decisions do induce us to make errors in investing. We also saw how diversification helps us reduce risk and how it is almost a free lunch in minimisng risk without reducing the returns. In the last post, we saw the benefits of an advisor who can help you navigate you across the emotional cycles without amplifying your greed and fear. This is IPL time. But, let us focus on building an innings in Test cricket. Building a Test innings is akin to building a nest-egg. In a Test innings, there will be plenty of dot balls, times when one has to be patient waiting for the loose ball or juicy full-toss times when it looks a long grind and boring like “watching the pa...

  Raja R,  Author " We need someone who could modify the behaviour and moderate the fear-greed cycle and help the investor navigate across the various emotional cycles " 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, we saw how diversification helps us reduce risk and how it is almost a free lunch in minimising risk without reducing the returns. In this blog let’s start with reference to a short story, "How much land does a man need?" by Leo Tolstoy The protagonist of the story is a peasant named Pahom, who overhears his wife and sister-in-law argue over the merits of town and peasant farm life. He thinks to himself “if I had plenty of land, I shouldn't fear the Devil himself!”. Unbeknownst to him, Satan is present sitting behind the stove and listening. Satan abruptly accepts his challenge and also tells that he would give Pahom more land and the...

  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...