Some Investor behaviors that are intriguing

Swinging like a pendulum

Sometimes we meet investors who have been investing in safe products like FDs, Bonds, Gold, etc. After we present to them other products and give details, we find the investors invariable choose the highest-risk product. I often wonder what makes them go from a very safe low-risk product to the highest-risk financial product. You may say Greed, but what happened till then? How come they were fine with the low returns and now suddenly they have become greedy? You may say, they don’t understand risk hence choose the highest risk product. Not true again, because till then they had chosen the safest product. Maybe they do this to overcompensate for the lost time and money, not realizing that this does not work in investment. When you try to do this, you are risking it further. Balance is the way to go.

Simple is boring

We also see that the moment we tell the investors about effective investment techniques like SIP, STP, they find it boring and too simple. Additionally, we show data to justify and demonstrate the success of this methodology yet some clients are not convinced and want something new and exciting. Why do people look for excitement and thrill in investment. Personal finance and investments are not meant to entertain you, they need your serious inputs and engagement for the plan work for you.? Simple and boring investments are the most difficult to follow but the most successful.

Naya kya hai (What’s new?)

We get this question very often, just like how every shop owner in India receives this question – Aur dikhao (show us more). It is funny because the investment universe is small, so Asset management companies are constantly introducing new funds with various permutations and combinations so that investors have an array of funds to choose from. Basic asset allocation is enough for more than 90% of the clients.

Maybe this need to try something new and exciting is what led to the success of products like crypto and F&O in India and world over.

Everyone is an equity expert (or so they believe.)

Stock investing requires deep-dive research across sectors and businesses. More importantly time and effort to monitor it, instead investing in Mutual fund is simpler, you are hiring the best minds to do all the research and decision-making for you. Despite telling this in my investor education programs, people want to try their hand at investing in stocks directly. Probably because any gains they earn from the stock chosen by them make them feel smart and clever. And this may happen a few times, but to perform consistently across different market cycles requires special skills and knowledge.

Social status over financial stability

Indians’ fascination for real estate and gold just doesn’t fade. Recently I read an article that NRI grooms from Andhra and Telangana are not getting a match because they don’t own property or real estate in India. In India social status has such a premium that people are willing to make irrational decisions like spending lacs on a wedding, or buying multiple properties, just to keep their social status ‘acceptable’ in society. To the extent that we are even willing to take loans for the wedding and of course, are paying home loans till the age of 60 and more. The same goes for Gold as well. No amount of gold seems to satisfy us, Dil maange more (Heart needs more) Year after year, Festival after festival, we fill our gold coffers.

Same coin – two sides

Investors keep flipping in their behavior. On the one hand, they show a lot of patience in asset classes like real estate and gold. The prices for real estate and gold may not change for a long period, but that doesn’t faze them at all. But the moment they see stagnation in the financial asset, they become restless, scared, and impatient. Maybe because real estate and gold are tangible, that gives them comfort versus financial assets that are intangible and measurable. This visible measurability can be disconcerting leading to unnecessary decisions.

Getting carried away by social media wins.

This is a recent one, social media tends to amplify everything. With the advent of AI, it can be very tricky and convincing. Obviously, Failures are not talked about, which could probably account for 90% of the stories. As investors, we are oblivious to the failures and believe all that is shown and fall prey to these stories. The need of the hour is to be cautious and tread carefully, question the authenticity of every piece of information that is shared on social media.

It is but natural that we would have displayed some or all of the above behavior at various points. The only sage advice one can give is to separate entertainment and investment. Do not follow the herd, copy-paste doesn’t work in investments. Do what’s good for you, if you don’t know how, seek advice.