So sad we do not have a Dalbar (an US based research firm that compares returns of stock and bond markets with those of individual investors) research on Indian investor returns! Just released in the US it has 2 startling facts:

Over the last 20 year period the Standard& Poor Index returned an annualized gain of 9.1% – which means SIP returns should be superior. The Individual Investor got a return of 3.8%.

The Bond Investor got a 1% yearly return vs. an annualized return of 6.9% of the Barclay’s Aggregate Bond Index.

Why do retail investors under-perform by such a HUGE MARGIN? Well many readers of this blog may have different views, but the retail investor, in general is a poor investor.

What are the normal mistakes? – Behavioral Investment experts have their reasons, the Media has its own reasons, and I have a combination of all of this!

1. Overconfidence: So many investors think it is easy to beat the index-it is not funny.

2. Amazingly stupid half investment lessons: – ‘If you invest in a good company, it will always make money in the long run’. Orkay, Nirlon, Mafatlal, Silverline,…are all companies which were once upon a time in the index. Now they are not. This is called survivor bias.

‘My father made money in Infosys, so will I’ – replace it with ‘Nirlon’, ‘Orkay, ‘Patheja Forgings’ – and you will understand what I mean. History repeats itself, sure – we do not know how often, that is the problem.

3. I cannot see ahead, so I will look in the rear view mirror and drive: God bless the driver/investor – considering that we are driving around in a mountain.

4. Recency effect: ‘Market is going down’ – actually what they mean is ‘Market has gone down’ – now will it go up in the recent future? The true answer is I DO NOT KNOW. However retail investors will tell you ‘Market is going down…I think it will go to 15,000 on the Sensex…..what do you think Subra?’ If I keep quiet it gets reported as ‘Subra also kept silent…he must be in agreement’. Vow, actually I am not in agreement, I am wondering how people can make such statements, dude.

5. Herd Mentality: My brother in law just sold all his shares, and mutual funds and bought a flat….and the price has already gone up by 10%!! He tells me nothing will happen in equities for the next 3 years, SO I AM BUYING A FLAT. Oh! I forgot to add – he is a real estate broker.

6. Looking at the market everyday and getting confused. Listening to the experts and wondering who is an expert.

7. Running a 42km marathon like 420 races of 100 meters!

8. Fear – ‘My father lost Rs. 3 lakhs in Harshad Mehta scam’, ‘My brother lost Rs. 5 lakhs in Ketan Parekh scam’, ‘My uncle’s broker cheated him off Rs. 5 lakhs’…- all ‘fear indicators’ . Actually look hard enough.

The guy to be blamed is the same guy whose face you saw in the mirror this morning while shaving. Not Harshad Mehta, not SEBI, not the Prime Minister, not your wife, not your advisor…..just the bloody guy whose face…..LOL!!!

 

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  1. As I said many times.. these so called experts do only one thing.. when market goes up.. suggests to buy every share and when market goes down… suggests to sell every share…

  2. Subra,

    I think when you say “However retail investors will tell you ‘Market is going down…I think it will go to 15,000 on the Sensex…..what do you think Subra?” and keep silent it shows that you are yourself not sure about market scenario and hence prefer to keep silent thereby showing a lack of knowledge regarding the same. A person who sticks his neck out and provides the right guidance is an expert(although there are only a handful) rather than someone who sits on the sidelines

  3. We humans are simply not hardwired for proper behavioral conduct when it comes to investing in stock markets.

    However, if we can become aware of our limitations as a member of a rarely rational but habitually emotional species, it will change our thought process and get us on the right track of investing success.

    But then, it’s a big IF!

  4. “Knowing that you dont know” is much better than ‘Not knowing that you dont know’, which is worse than ‘Thinking that you know but actually you dont know’.

    Subra has already stuck his neck out some days ago.

  5. Come on Subra do not make it so tough for us – tell us what to do like all experts do. There are people here who have commented that you should take a stand – do not teach us. We will not learn, we will want to be spoon fed, and that too with a nice silver spoon. We will then put in the money.

    If things go wrong…we will say …’that site subramoney said market will go up’…HIS FAULT, not ours.

    Ha ha ha…Rupesh you have come to the wrong blog for tips and market timing. As Subramoney does not edit, he has let your commment appear here !!

  6. “Running a 42km marathon like 420 races of 100 meters”!!!!
    Is this a comparison between Long term investing & f&o’s 🙂

  7. If someone is following this blog – he is 100 times luckier than anyone in the street in his personal finance.

    If someone is following the ways as it is 10000 times luckier than anyone in the street.

    What more i can say – i loved 100mtrs sprints and it took years to understand the logic of a marathon through the hard way even after getting to know the very few good blogs as my ego was challenging the points above. I hope i will stick to the ways now but the struggle continue to teach my better half the logics of the wonderful book “Retire rich..” Hope she will READ it the sooner as many many more.

    I am eagerly waiting for the new book :).

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