When are an investor and with a reading and ‘intellectual’ arrogance, you end up having some problems! You need a comprehensive plan to counter them. This article is partly autobiographical and part learning from friends who are far better than me.

What are the biases…and how to counter them?

1. Bracketing oneself: If you have read Graham, Buffett, Fisher..it feels great to call yourself a ‘Value Investor’ and even today it is sexy to call yourself a V.I. because it feels very intellectual. It is not easy being a V.I. in a market on steroids and which is not giving too much of an opportunity for the past few years! Look at the BFSI valuation, if you are a VI with a Graham kind of a process will you be able to buy anything at all? and how long will you hold?
2. The Peter Lynch bias: PL is a person who increased my contempt for worrying about Macro. It is true that you cannot control the macros and it is of no great use worrying about the macros, but ignoring it totally makes no sense.
3. Value Investors are superior to others bias. Bullshit argument, but most of us wear it on our sleeve.
4. Trading is for the lesser mortals! Most investors (even wannabe ones) will quickly say “we are not traders we are investors”. I have no clue why this intellectual superiority. George Soros runs a good Wealth Business where he does a lot of trading – and believe me his business is far less opaque compared to the richest man in the world. In fact far more open. As a student he is a better person to track especially if you are worried about world macros. No. Not for the small investor.
5. Over-researching: The missing of the obvious is a huge, huge mistake which intellectuals do. I remember the Liberty-Coromandel International deal. The ratio was overwhelmingly favoring Liberty (price wise because CI had moved up but L had not). We kept doing the deals WONDERING why the big investors were not catching on to the transactions. Not even alert HNI did the deal (remember LTCG was nil) and I replaced my whole CI portfolio with L shares. I still do not know how some of my Hni friends and super Hni friends missed the deal. THEY KNEW ABOUT THE DEAL, it was public knowledge and these people had the shares in their portfolio.
6. I HAVE to do something different mind set. How can I just buy more of Cummins, Siemens, Nestle, Hdfc,….etc. THIS IS KNOWN. I need to look for something far more exciting. Sadly, such research is very tough, and in most cases UNNECESSARY. We can always leave this to our friends who are VCs. Let them do it. We can ride them one year before the IPO!!
7. Not removing the cobweb of poor management: I have had poor experience in the past dealing with Shriram group (South), have had poor investment returns from Aditya Birla group, did not like Hyderabad and Delhi based promoters (my equity research days), …and it continues. I have not been able to participate in Shriram group ever after that experience in 1993/4..or maybe even earlier. Such strong biases hurt badly if you are a fund manager. I cannot over come some of these biases.
8. Home bias. It is only recently that I have some US $ denominated assets..otherwise I have a fully domestic portfolio. This flies in the face of my longer term view that Indexing will work. For Indexing to really work, only 2% of my portfolio should be Indian!

these are my biases, and I struggle with them. Some fit into the behavioral finance books, some do not. Hopefully I will do a post on how i handle some of them and how I have given up on worrying about some of them. Not all biases need to be fought. For example I have lived (and can live the rest of my life) with management and geography biases.