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Vishal Khandelwal

‘Sunk cost’ madness on a massive scale

We learnt yesterday how the sunk cost fallacy leads investors to throw good money after bad.

Well, here’s what I read in a leading business daily that talks about the impending financial crisis in the western world:

“An apocalyptic Lehman-style moment seems unlikely right now, because US legislators will likely come to some sort of a deal that will allow the federal government to resume borrowing, while Europe has invested too much in the integration project to let things collapse in the first episode of stress.”

Note the words – “invested too much…to let things collapse”.

Now, this is a case of ‘sunk cost fallacy’ on a massive scale.

Pity the poor taxpayer!

What’s Your 12-month Target for the Sensex?

Have you ever wondered why the anchors and the stock market experts on business channels make so many predictions day in and day out? And why they are so happy to make these predictions?

Or what gives you a natural high while predicting the future of the stock markets, or stocks you hold or are about to buy?

Neuroscientists lay the blame on ‘dopamine’ – a chemical in our brains that helps us figure out how to take actions that will result in rewards at the right time.

It’s the release of dopamine in our brains that gives us that high to make the next prediction, and the next one.

It gives us the pleasure of expecting our predictions to turn out true in the future. Like the pleasure you’d derive from predicting the Sensex over the next 12 months, and also expecting your call to turn out true!
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Are You a Frog in Boiling Water?

One man who has had a deep impact on my thinking as an investor is Charlie Munger, Warren Buffett’s partner at Berkshire Hathaway.

I’ve read a lot about Charlie over the years. Among his writings and speeches that have impressed me the most is the speech that he gave at the Harvard Law School in 1995.

The speech was titled ‘The Psychology of Human Misjudgment’, and it contained his views on human behavior and how we misjudge events to make poor decisions in our daily and investing lives.
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“I can’t make money from stocks. I am not an expert.”

“You know Vishal. I have been investing in the stock markets for the past one year. And one thing I have realised is that if you are not an expert, you can’t make money from stocks.

“You have to be ‘in’ the market, and have to be very smart to become a successful investor. What’s your take on this?”

“Are you finished, Ravi?” I asked my friend who had till now given me a long sermon on how he lost a lot of money in stocks in the past 12 months, and why he thought the markets are only for people who are financially very savvy – Ravi calls them ‘smart investors’ – like analysts, fund manager, or brokers.

What Ravi was complaining about was not something new to my ears. I had heard such reasoning earlier as well, especially from people who had lost a bundle in the stock markets.
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Safal Niveshak Weekly Wrap

The first working week of Safal Niveshak comes to an end. Thank you all for your support. Hope you liked what you saw here during the week.

If yes, I’ll ensure that you continue to like what I write here in the future. And if not, I promise to make it a better experience for you going forward.

Anyways, here’s a wrap up of what happened this week on Safal Niveshak.
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Would You Prefer to Learn Investing Like This?

John Maynard Keynes and F. A. Hayek, two noted economists of the yesteryears, and with opposing views on most economic matters, fight it out in this rap video. It’s called the ‘Fight of the Century’ by EconStories, the brain behind this video.

Isn’t this an easy and wonderful way to make subjects like economics a little more interesting?

I wish this was made 16 years back when I was fighting hard to maintain my sanity during the economics lectures.

If you can’t see the video below, click here.

Anyways, would you prefer to learn stock market investing like this?

At Safal Niveshak, that will be my focus…to teach you the simple concepts of investing using simple ways.

Of course I won’t be making rap videos. But whatever I put up on this website will be simple, clear, and enriching for your mind.

Investing Isn’t Risky. Not Investing Is.

“I don’t invest in stocks. I find investing too risky!”

This is a common statement I have heard from many of my college friends who are yet to start investing. They feel they are better off without investing in stock market, and staying with the safety of bonds, and (mis-sold) insurance cum investment products like ULIPs.

It really amazes me when such educated people think that investing in stock market is risky.

This is especially when they are already taking much bigger risks by listening to their greedy advisors and wasting their money on financial products that are never going to make them any money!
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God Save The World…And The Investors

Imagine being father to a daughter who’s just cleared her entrance exam to get into the country’s best engineering college.

You are elated, and proud as your daughter would be your family’s first engineer, and that too from a coveted college.

Then you get the news that the college has decided to do a re-test for students who failed to qualify, and that the selection process would be done again.

Would that disturb you?

Now, what if you come to know that the re-test has been forced by a few politicians whose sons and relatives failed to qualify?

What justifies a re-test of those who could not qualify? How can the college support those who failed to clear the hurdle to get a place in it?
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Conversation with Charlie Munger

Some call him Warren Buffett’s alter ego. Some know him as Buffett’s quirky business partner. But whatever he is called, Charlie Munger is ‘the’ original thinker and the silent man behind the success of Buffett’s investment company Berkshire Hathaway.

Ask people about Berkshire Hathaway, and most will tell you that it’s Warren Buffett’s company, which is true as far as it goes.

But those in the know recognize that Berkshire’s success is actually the product of a tag-team effort by Buffett and Munger.

The small talk between Buffett and Munger during Berkshire annual general meeting has become folklore.
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