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I Regret…

Here is what a Safal Niveshak tribesman, Sanjeev Bhatia, wrote in the latest Facebook Jam last Saturday (sorry Sanjeev, but it’s your turn to claim the fame ;-))…

I have a particular Behavioral Problem. You recently wrote somewhere that pain of seeing your picks down 15% is more intense than pleasure of seeing your picks go up 15%. But in my case, it seems to be different. I am now seeing BHEL going up to 232 level, did not buy at 200 because my buy price was 180. Opto Circuit, my buy price was 140, it bounced back from 147 to 155…and with market going up and in strong upward momentum, it does not seem likely to come down soon although you can’t say that with certainty in this market. How to let go off this “being left out” syndrome?

What Sanjeev thought, and as I understood from his question, was that he was suffering from a “unique” behavioral problem – something like the “Alice in Wonderland Syndrome”, which is a neurological disorder that can effect a person’s perception.

But then, as I mentioned in the jam, and experienced investors would vouch for this, is that Sanjeev suffers from nothing more than a “common cold”, like most of us investors.

This common cold, in terms of behavioral finance, is known as the “regret aversion bias”, or “action paralysis”, where an investor does not act because of the potential fear he or she remembers from prior experience.

Like in Sanjeev’s case, he might’ve feared that BHEL would continue to fall after he bought it and he didn’t wanted to regret his decision (regret aversion)…though in his case it was more to do with “risk aversion”, or his discipline to not buy stocks above intrinsic value.

———–Art of Investing Workshop In New Delhi—————
Just 3 seats remain to be taken for Safal Niveshak’s Art of Investing Workshop in New Delhi on 28th July, 2012 (Saturday).

If you haven’t already done it, click here to register now!

Nobody loves a loser
Here is what Jason Zweig wrote in his “Your Money and Your Brain”…

Imagine that you can choose between winning $3,000 for sure, on the one hand, or a gamble with an 80% chance of winning $4,000 and a 20% chance of winning nothing. If you’re like most people, you will pick the sure thing.

Next, imagine that you can choose between losing $3,000 for sure, or a gamble with 80% odds of losing $4,000 and 20% odds of losing nothing. What would you do now? In this case, people reject the sure thing and take the gamble 92% of the time.

You would be better off taking the gamble in the first example and the sure thing in the second one–the opposite of what you probably chose. On average, an 80% chance of winning $4,000 is worth $ 3,200 (.80 x 4,000 = 3,200). So, in the first example, the gamble has an “expected value” $200 higher than the sure thing. By the same rule, an 80% chance of losing $4,000 leaves you $3,200 poorer. An in the second case, you logically should favor the sure loss of $3,000; on average, it will leave you with $200 more.

But it’s hard to be strictly logical in these choices, because the idea of losing money triggers potential regret in your emotional brain. If you take the 80% gamble of winning $4,000 and win nothing instead, you will kick yourself for missing out on the $3,000 sure thing. And a 100% chance of losing everything feels a lot worse than the risk of an even bigger loss coupled with a small shot at losing nothing. Doing anything – or even thinking about doing anything – that could lead to an inescapable loss is extremely painful.

What’s your regret?
“Sometimes I wish I could turn back time.
Impossible as it may seem.
But I wish I could so bad, baby.”
~ Backstreet Boys

Regret is a negative emotion that we experience when realizing or imagining that our present situation would have been better, had we acted differently.

It is an unpleasant feeling, associated with self-blame, the wish to undo the regretted event and a strong tendency to kick oneself.

Like you must have kicked yourself for some (or all) of these things in the past…

  • I should have caught this stock when it was low.
  • I knew this stock was going to rise.
  • If only I had followed my signal, I would’ve avoided this disaster of a stock.
  • I knew the markets were too expensive in 2008, but I failed to act.
  • I knew stocks were for the taking in March 2009, but didn’t act.

Now if you read these statements carefully, beneath every point of regret lie what behavioral scientists call “hindsight bias” – or the exaggerated sense of predictability in retrospect.

So the reason Sanjeev is regretting his decision to not buy BHEL and Opto Circuits is most likely due to the hindsight bias he (like most investors) suffers from – that he “knew” that BHEL and Opto Circuits were going to rise.

By the way, another bias Sanjeev suffers from is ‘recency bias’, which we recently discussed in the “Return of Uncertainty” presentation.

You can know this from his statement – “…with market going up and in strong upward momentum, it does not seem likely to come down soon although you can’t say that with certainty in this market.”

Anyways, let’s focus here on just the “regret bias” and keep the other biases aside (not you, Sanjeev!)

Here is how an investor “regrets” at various levels of a stock, just because his “hindsight” tells him that he was foolish to be sitting tight…or in Warren Buffett’s language – “sucking his thumb”.

Data Source: Ace Equity

By the way Sanjeev, if you are feeling wrecked at knowing how bad your situation is by not acting on your gut that told you to buy BHEL, take hope from what Buffett has to say on the “regret” of missing out on opportunities (which he calls “mistakes of omission”)…

We’ve made lots of mistakes, but they don’t bother me. We’ve had no regrets. We are in the business of making many decisions and there are bound to be mistakes.

Here’s another…

In my personal life, there are always things I could’ve done differently. But so many good things have happened. It just doesn’t pay to dwell on the bad things. Finding the right spouse is 90% of it. If you are lucky on health and lucky on your spouse, you are a long way home. Getting turned down by HBS (Harvard Business School) was one of the best things that could have happened to me (because Buffett then got a chance to study under Benjamin Graham at Columbia), bad luck can turn out to be good.

Wait, here’s one more from Buffett…

The most extreme mistakes in Berkshire’s history have been mistakes of omission (noy buying a great stock). We saw it, but didn’t act on it. They’re huge mistakes – we’ve lost billions. And we keep doing it. We’re getting better at it. We never get over it.

And here’s a final one…

You’re going to make mistakes. You can’t play in the game without making any mistakes. I don’t think about it, I just move on. Most business mistakes are irreversible setbacks, but you get another chance. There are two things in life that you don’t get another chance at – marrying the wrong person and what you do with your children. Business, you just go on. It’s a mistake to dwell on mistakes, it’s unproductive. It’s like Mark Twain’s story about the cat that sat on a hot stove – he never sat on a hot stove again, but he never sat on a cold one again either.

The gist of the story is that questions like – “How could I miss BHEL when it was so low?” or “How could I let BHEL slip from my hand?” – make no sense in hindsight, as the answer was not so obvious when you made the decision (remember, not to decide whether BHEL was a ‘buy’ at Rs 200 was also a decision).

What is more, if Sanjeev is not able to keep this “regret” aside, he call fall into what is known as the “mistake of commission”…by buying BHEL as soon as it falls back, and not to his “buy price” of Rs 180, but to Rs 200 that is now “anchored” in his mind.

So, here’s another bias called “anchoring bias”, which could lead Sanjeev to either…

  • Refuse to buy BHEL today at Rs 230, just because he has recently seen the stock “cheaper” at Rs 200, or
  • Buy BHEL as soon as it falls to Rs 200, just because he has recently seen the stock “expensive” at Rs 230.

You must notice how our brain leads us from one behavioral pitfall to another, and that is the danger of not keeping our emotions under control while investing.

Our brain is a leaking boat, so we must know how to plug the holes before it drowns us (we don’t have the option of changing our boat – our brain – with anyone else anyways!).

So Sanjeev, and all you investors out there, regrets about the past (in hindsight) are not going to lead you to anywhere, except to mistakes of commission and subsequently bigger regrets in the future.

You see, it’s impossible to invest without making mistakes of omission (that lead us to regrets), but it is possible to stop kicking yourself when you make them, so that you don’t make bigger and more dangerous mistakes of commission.

Here is a chart that explains the difference between mistake of omission and mistake of commission in a better manner.

Data Source: Ace Equity

I mean, I regret missing buying stocks like Asian Paints, Titan, and Yes Bank when these were at 10-20% of their respective current prices, despite knowing that these business had tremendous values (you see, I was sucking my thumb while being busy recommending such stocks to others).

But that must not lead me to regret that “Ah! I knew that…”, and that must not led me to buy these stocks at today’s expensive valuations.

Better safe than sorry
Here are some habits I’ve developed over the years to stop my regret to turn my mistake of omission into a mistake of commission.

Now since these habits have improved the investing life of a cynic like me, it can easily do wonders for you if you practice them with discipline:

  • Admit your mistake and face it, without regret.
  • Turn you loss (from omission or commission) as a lesson.
  • Talk about it with someone you trust. It’s much healthier to kick your mistakes over to others, then to kick yourself in private shame.
  • Have rules, and follow them come what may…like Sanjeev was disciplined with his intrinsic value calculations for BHEL, and stood his ground.
  • When a stock you own gets cheap or expensive (and you know this but are feeling a bit tizzy to act assuming that the stock might fall or rise even further), get help in pulling the trigger. It is lot easier to admit that investing in a stock was a mistake if you are not the person who made the mistake.
  • Cut your losses on bad stocks, but avoid “stop-losses”…for you can get sold out of good stocks taking short-term dips on their way to long-term greatness. (Plus you pay your broker an unnecessary commission). So don’t sell because the stock is dropping, but because your research tells you something is wrong with the underlying business.
  • Stop looking at those stock tickers in good times and bad. When you see a stock you own tumble in real time, your regret (of buying it) magnifies. Also, when you see a stock you didn’t buy surge in real time, your regret (of not buying it) compounds.

You are not alone!
Here’s what a study on “regret” on Olympic athletes shows – Silver medalists have greater regrets than bronze medalists. Why? Because silver medalists “missed” the gold, while those who won the bronze “just missed” earning no medal at all. 😉

The mistaken feeling of being the only one with regrets can tempt you into taking investing risks you normally would avoid (Sanjeev, you are still reading this…right?).

It’s important to remember that everyone makes mistakes, and that everyone who makes mistakes has regrets.

When you make a mistake, don’t regret and call yourself ‘stupid’.

You are not stupid. You are just human!

“Forget regret,
Or life is yours to miss,
No other road,
No other way,
No day but today.”
~ Jonathan Larson

Now, as a regretful human, let us know in the Comments below the biggest regret of your investing life, and the lesson(s) you have learnt from it (if any).

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About the Author

Vishal Khandelwal is the founder of Safal Niveshak. He works with small investors to help them become smart and independent in their stock market investing decisions. He is a SEBI registered Research Analyst. Connect with Vishal on Twitter.


  1. karthik says:

    Nice One vishal… everyone of us seem to have this bias…

  2. Stock Markets are called “Market of regrets, if you dont buy you regret and if you don’t sell you regret.” Easy to say so hard to practice !

  3. Sanjeev Bhatia says:

    Ha Ha Ha…. You got me there Vishal. There must be some sort of magnet in me…. I mention Thermax in comments to a post, and we get 20 comments on Thermax. Now I mention BHEL and I get the full post devoted to me..WoW. I am sure getting popular…LOL.

    Well, you got me wrong there. Having been investing all through 2000 – 20012, and even before that, having seen lots of ups and downs, upward and downward freezes, I am now beyond that Regret Part. In fact the only certainty I have is that I am NOT going to chase stocks. I don’t trade in my core portfolio and I still have mutual funds/shares from 90’s. (Titan bought at 90/- PRE SPLIT AND PRE BONUS, Bharti @80/- PREBONUS, and you get the idea). The period of regret is long gone. I have had good multibaggers, though by luck, not by design and my more than my share of mistakes too. My belief is that if you have anchoring or regret aversion bias in your mind, you can’t weed out the duds in your portfolio, and I have been very ruthless in weeding out them irrespective of loss to me or whatever their buying price was.

    The part about BHEL and Opto had more to do with MY safe buying price. If you remember, you had helped me in arriving at safe buying price of BHEL and Opto was covered in Stock Talk. My idea of putting it in jam was in a way, to ask whether we should tweak our MoS to some extent as stock reaches near the buy price. BTW, I had bought small quantity at 197, so there is no regret on that part too. Similarly, I have bought some Opto at 144 too…..LOL Call it bias or whatever, my experience is that sometimes it is better to buy some initiation quantity maybe at 2-3% more, then to entirely be rigid on buying price. My standard practice in such cases is to nibble at small quantities near to my buying price and buying full quantity if it reaches my safe price. In fact, despite my GUT feeling screaming that BHEL looks good at 197, I didnot buy not bcoz of any regret aversion but I wanted to stick to my safe buying price. After all, this is what value investing is all about… isn’t it? BTW, I will still not buy more of BHEL even at 197 because it would be 10% more than my buying price, way above my comfort level. Opto, I can buy at 143-144 since it will be just 2-3% above my buy price. So the core idea is to stick to our MoS as close as possible.

    Still, it is very, very interesting post since Behavioral Science is one of my favorite topics. It doesnot harm to brush up on these things and remove the cobwebs that can cloud your mind inadvertently.

    Great Post, as always.

    • Indeed Sanjeev! But I don’t “regret” writing about whatever discussion you start (Thermax or BHEL), because you have been one amazing contributor to the Safal Niveshak initiative, and the discussions we have, I believe, help everyone who read them.

      So, even if I got your wrong on BHEL, I’m sure there are many Sanjeevs out there who’ve read today’s post and must have said to themselves – “Yes, this ‘regret bias’ is exactly what I feel while investing!” So that solves my purpose for writing this post. 😉

      By the way, thanks so much for sharing your inputs on how you’ve controlled this bias from ruining your portfolio. I’m sure this would serve as a great lesson for all new investors out there, who’ll know that “regret” is not something unique to them but is a widely prevalent bias in investing.

      Another lesson you’ve offered is that of discipline, which I duly mentioned in the post – about your discipline of sticking to your intrinsic value calculations…which is something that’s so important to become a sensible investors. So kudos to you!

      Yes, you’ve raised a good point about buying some initiation quantity of a stock that has fallen to near your intrinsic value calculation, then to be rigid on the buying price. So thanks for the same as well!

      In all, Sanjeev, you rock! And I’m proud of that, for such are the discussions that make this community thrive 🙂

    • vikrant says:

      @sanjeev: Question from me to you, In your comments you mentioned that you wanted to know weather we should tweak the MOS, and at the same time you actually did tweak then and bought small quantity of BHEL and OPTO, so what was the purpose of asking the question. I am not questioning your question but just wanted to understand the reason for the question, that’s because it looks like you are investing for quite sometime and you are a mature investor.

      And yes, i am just learning and a starter and i too actually tweaked the MOS for Opto C, and bought some at 146, looks like i am learning fast 😀 I haven’t studies BHEL so didn’t even think about it.

  4. Nitin Shetty says:

    Your today’s post abt REGRETS was simply awesome. It’s the most common worry with all investors ( even i am a victim of that) and the clarity in which u have explained is highly .It was a clear eye opener for all of us to realize that ‘ Past is past and wat learn from the past will build our future’.

  5. Sanjeev Bhatia says:

    BTW, I am proud of being the catalyst of today’s wonderful post… 🙂 😀

  6. R K Chandrashekar says:

    Thanks for Sanjeev’s query and as usual Vishal’s through reply!
    A few points to be noted. There are many a times a disconnect between the price of a stock and its value. We wish to buy when the ”Price” is less than the ”Value”, but human emotions, greed, demand and supply, are also factors, besides the fundamentals of the company, that decides the price of the stock. So you would see, the price rising or falling from its intrinsic value. That’s the fun or the beauty of the stock market. Mistakes are the stepping stones to success. All our picks cannot be multibaggers- we are humans only! For every missed opportunity of a Page Industries or a Colgate, I have a Asian Paints , HDFC Bank and yes, BHEL!!
    If you are in it for the long haul, you would at times pay a small premium to the value to pick that stock- Vishal may disagree here.

    • Manish Sharma says:

      Very well said, Mr. Chandrashekhar !

    • Very true, Mr. Chandrashekar. In fact, stock markets are almost entirely about human behavior and how we perceive things. So it is indeed a good move to buy a good stock if it is available at a price that is close to your intrinsic value calculations, even if the price is a slight premium.

      In fact, this is a crucial lesson Buffett learned from Philip Fisher and Charlie Munger. Whereas Buffett was still searching for Graham-type ultra cheap opportunities, Fisher’s teachings and then Munger’s arguments convinced him to pay a premium for high quality businesses.

    • Sanjeev Bhatia says:

      Agree completely Mr. Chandrashekhar. In fact, reality flies in the face of those espousing Efficient Markets Theory. I real life, market is never efficient, there are always knee-jerk reactions either way. Value Investors thrive on this situation only, trying to find gems at bargain prices. How can the entire mass of humanity be on consensus on one thing when even two brothers don’t think alike. As an example, just watch CNBC and see two analysts, recommending Buy and Sell respectively, for the same stock on the same day. So much so for the analysts.

      Psst.. by the way, don’t tell Vishal I said this thing about analysts. The poor fellow 🙁 has been an analyst in the past but is now recovering very fast…. 😛

      • Great idea, Sanjeev!

        My next post (seriously) will be on “biases that analysts suffer from and how you can safeguard yourself against such “disasters of the universe” 🙂

        In that post, I’ll also share a funny/serious incident that made a mockery of this entire profession of security analysis.

    • karthik says:

      True Sir… Sometimes it happens …

  7. Manish Sharma says:

    By writing this post you have done a great favour to everyone, as a lot of people including me often succumb to such ‘biases’. Explaining behaviour finance concepts like regret bias, anchoring bias, risk-aversion bias etc. in this fashion will link the core concepts behind such psychological trappings to the intricacies of investments.
    One feels that you must write about other biases as well, but I think it will require a facebook post of Sanjeev to inspire you into writing one 😉 😛

  8. shankar patil says:

    That was a wonderful post Vishal..:) Thoroughly enjoyed our last facebook jam session and your following post on ‘Regret’…Good one..

  9. Nice post Vishal. While I agree with all your points but I think stock picking is an art. And like art it must come from within. There are many people who study music, but there always be one and only one Bhimsen or Balgandharv or Lata Mangeshkar. Luck plays out major part. Does anyone here know about Pt. D.V. Paluskar? or Roshanara Begum. These two were great artists but Paluskar died at very young age and Roshanara moved to Pakistan. The point is you can know all these things and try to learn them but I believe it is a gift. One can always learn or know these things but to master and make it into success is a different thing.

    • Thanks for the feedback Salil, and thanks also for sharing the ideas from the field of art. Indeed luck plays out a major role in investing, and I’ve always believed in this. Just that, you get lucky only when you practice and do the hard work. Like you can control your biases (it’s difficult, but you still can) only when you know about these biases and practice hard to avoid them. Regards.

  10. Hi Vishal, yes hard work is important. I think we are simply fed with stories how Warren Buffet made money, How Rakesh Jhunjhunwala is great and then it shown how these great investor spend their time. etc. But I believe these guys work really hard and they really follow their heart. I think as a musician creates a new DHUN or melody or notes, i.e. they just see it coming. They have a vision similarly great businessmen have this vision. We can definitely try to emulate them but it’s a gift. One can learn to a extent but ultimately one will succeed in what one likes or one is good at.

    • I agree to your point Salil, that one can succeed in only what one likes pr is good at. And that’s also true of investing. You need to like doing the hard work to learn the tricks that can make you a smarter investor, and then you need to like practicing the same. Just getting into the game without any intention to learn and play it well will only lead you to despair.

  11. Reni George says:

    Missed the jamming session..would like to get involved in the next one….The reason for such a bias is the preconceived notion,our brain works more than we expect,when we look at a figure and value a firm at that figure,then that figure becomes the base figure for my future decision,these is irrespective of the markets and it holds true at all the avenues where transactions take place.For Example I have been buying (coal india) since last one year at various prices in small quantities and my average price comes to 330 now,by now my brain has made a base price of 330 for the purchases,but here my brain does not calculate the time value,which increases the stock price of the stock which is constantly throwing up cash.So we need to train our brain also, to accept multiple data.One of the book that has thrown out many per-conceived notions is the book that i have read….FOOLED BY RANDOMNESS-By Nassim Nicholas Taleb.

    Thanks and Regards

    Happy Investing

  12. vikrant says:

    This is the first post where i enjoyed and learned more from Sanjeev and your comments than from the post itself, and that’s because if you are reader of safal niveshak then you know that you need to have discipline, confidence and ability to take risk on the right stock.

  13. vikrant says:

    Oh there is another thing that i observed, and i feel very happy about this. I usually read the blog or new post by you when i get time, however looking at the Comments it looks like reader wait for your post and as soon as you post they read it, that’s awesome and shows that what interest level you have created for the readers, Congrats.

  14. Premal Thakkar says:

    Hi Vishal,

    Really nice mail (as usual). Well the mail has been a sothing balm on my frayed nerves too, I too suffered from “regret aversion bias”. You do feel like kicking yourself but, its not all that sever at all…I guess all the time in the markets have trained me to live with them. The important thing I think though is to be aware of these things, what happens by becoming aware is that at some level in the subconscious, these mistakes get registered and the possible solution strategies as well to avert their recurrence, so it is important to have awareness about them. One should learn to let go off the regret though, its pointless brooding over the spilled milk, in any case the markets are still open and opportunities are galore so what I have taught myself is this. Do not fret over the past mistakes (and I am still learning to do this), but instead look at them as opportunities, for, by missing out on those opportunities, you still have cash on hand to capture the newer opportunities that lie ahead of you.


  15. Mansoor says:

    SANJEEV – Congratulations, you have made it. Man, all along you were complaining and have been using all types of biases to accuse Vishal of being biased about his readers. I hope you are relieved and your perception about Vishal has changed, I only hope 🙂
    Excellent article Vishal, as usual. This past few post has been more on biases, I don’t know which are all the bias I suffer from, lol. Actually, I was thinking of the same thing about BHEL last week that the price has gone up, but then diversification saved me from this bias, I already have other stocks in this sector that were bought below IV with proper allocation. Mistakes will happen, otherwise we will not learn, as long as we learn from others, nothing like it. Good to know about all these biases. Thanks.

  16. Reni George says:

    Hi Vishal
    Was doing some research on some companies,and i came across these company,where there may be investors who may be regretting and many who may regret latter by not getting out.Well this company used to fly in GOOD TIMES.Yesterday i came to know one of the lenders had sold all their portfolio worth $72 million to another finance company.That means that bank has washed of its hands from this company.If i calculate the worth of this company,i would not able to buy even peanuts worth some rupees,then also you would not believe this company commands a market value of 975 Crores at today’s valuation.The promoter has pledged all his holdings,his net holdings after removing the pledged part is just 30 crores out of 975.This company is into a debt of 8000 crores and i don’t believe that the promoter will bring in more equity for the sake of just 30 crores.If any company turns bankrupt,the last in line of receivables are the shareholders and that too equity,there are nearly 160000 retail shareholders in this company who may lose everything,in company period.But they can move out with little bit of money even if the sell out right now.But i will vouch that majority will hold onto this firm,expecting some miracles or some FDI announcement etc etc……I have seen people leaving their winner stock in a short period of time,but holding on to the losing one till eternity.sooner or later the HINDSIGHT Bias is going to work in these stock.Cognitive bias structure will also take place.Check out some investors from the 1999-2000 era,you will find lot of them still holding onto the famous K10 stocks,even if they know that even if they take 7 births,they will not get their investments back. ASHA AMAR HAI(Hope is everlasting),so first Kill the hope…………..

    • That’s indeed a good idea Reni – first kill the hope. That’s why it’s always important to enter a stock after a great preparation but still with the expectation that things might not out the way expected. Investors also need to take note of the sunk cost fallacy that leads them into this trap of staying put with losing businesses.

  17. Anil Kumar Tulsiram says:

    Again a great post Vishal

    I guess this problem will be faced by most investors whether amateur or professional. Just a month back, I myself was committing the mistake of trying to buy at lowest price, inspite of knowing that one cannot time the stock market. I missed some stocks trying to pick absolute bottom, when all of a sudden they rallied 20-30% in a couple of days and no longer offers my required margin of safety. Off late I have decided that once I feel that my chosen stock has atleast 50% margin of safety, then I will not bother to wait for it to fall further even if whether the stock or market is already in the declining mode. Ofcourse I will invest only 60% of committed sum and keep some buffer to buy more in case price declines further by 10-20%.

    • Thanks Anil! What you mentioned is a good strategy to invest in falling markets. Investing in such times is akin to catching a falling knife, and thus if you need to protect your hand from getting the cuts, you must take your hand down while catching the knife. In the same way, buying good stocks at good MoS (even if they are falling) is a better strategy than searching for the bottom. Regards.

  18. vishal,
    while catching up with confessions of stock analyst, Reni’s comment on king of good times attracted me.
    I believe auditors of this company have long forgotten the golden principle (or say fundamental assumption) of going concern concept. this is a classic case where this assumption has been put to test for the last few years…how it escaped the radar of auditors is big will be difficult to skip this because there is specific query on CARO itself…
    anyway for small investors, it has a message. first look whether the company will survive on this assumption then look other parameters..
    otherwise be prepared to lose your capital…

    • Indeed Sri. The auditing profession (like credit rating) faces a big conflict of interest. I get my auditing fee from the company whose accounts I’m auditing, so I’m bound to make the picture look good (or cover up the crimes) in return for a higher (or under-the-table) fee.

      Everywhere you look, and you can see shades of gray in company accounts, and despite that, the auditors are not blowing the whistle! In such a scenario, as your rightly mentioned, investors must be very careful about the capital protection while investing. Capital growth will follow if you ensure that the capital will be protected.

      • Sanjeev Bhatia says:

        Just add another rule to your stock screener list:-

        I will not enter into any stock audited by PwC…LOL (and keep on expanding the list)

  19. @sanjeev,

    I will not generalise .. it is caveat emptor..
    when you study business prudently for making investment, you need to consider among others….certain basic foundations on which everything depends…
    knowing certain basic knowledge is always helpful….but most forgot basics including few auditors…unfortunately the few are covering 80% of the listed companies

  20. As usual another awesome article Vishal. We await your analysis on BHEL as the stock seems a good buy at current levels of about 200 odd for medium term. Although we have a few concerns coming on its way recently. But then these news kind news come and go. What do you say on this 😉

  21. Jayant RT says:

    Thanks Vishal for a wonderful knowledge base ;

    it’s been a year+ since I entered into Equity market & it’s been a good experience so far, seen lot of ups & downs & all the “Behavioral” patterns you have mentioned;
    “I Regret…” i felt this in my early (& before also ) few months because my ‘trading a/c’ wasn’t opened on time by Broker; this happened in Nov/Dec 2011 & at that time TATA MOTORS was quoting below 170 level & my Trading a/c got activated in late Jan 2012 by that time TATA MOTORS crossed 230 🙂

  22. I cannot believe that you really quoted Backstreet Boys in the article about investing! 🙂 But ignoring this cultural stumble, I really like the article. I generally like reading your posts. Financial Euphoria review was awesome!

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