When you are too close to a company or its promoters, it becomes difficult to judge. Or when you have too much knowledge about a business, you can keep wondering ‘why is this share going up so much’ – even when you realize that you are missing the opportunity.
In 2007 I lost a chance all my Tata Power and LnT shares – I sold of course – but not everything.
When a few IT companies and a few Finance companies came with an IPO – I was wondering what new are they going to do – and did not participate in their ‘success’. Insiders, it turns out, are often burdened by the curse of knowing too much.
Ditto life insurance. I am still wondering how an industry which has products that the world does not need have such a huge market capitalization. Two companies that are available for valuation by listing, are terribly over priced – according to me..so I will watch them soar, but will not participate. I know a doctor who wonders why drugs are priced so high – and I told him, blame the doctors!!
So when you know TOO MUCH you keep analyzing, and over analyzing. When the auto boom started in India fund managers abroad took a big stake in the boom. They saw the potential of investing in India where the cost of labor was so low. We missed it. So the FIIs have a 26% stake in Indian top companies – dramatically up from 12% about 10 years ago. Classically insiders with expert knowledge are supposed to have an edge on naive outsiders – so we the Indian fund managers should have known better than the analysts abroad or the fund managers abroad! However, the curse of knowledge works against us. We cannot un-know information, we’re unable to put ourselves in a state of un-knowing or not knowing what we know / knew.
We keep forgetting that a poorly managed company may have some assets – like land. So even if you did not like Larsen and Tubro -you will have to hold on to that share till some of the land parcels are converted to cash / rental income. When you see the management too closely, you miss the 800 lb. Gurreilla walking right across your room. Familiarity bias?
Post Footer automatically generated by Add Post Footer Plugin for wordpress.