Author - Kapil

May 2017

Behavioural finance, Behavorial finance, Outcome Bias, Investing

Never Judge a Decision by Its Outcome: Outcome Bias

Never Judge a Decision by Its Outcome: Outcome Bias

A quick hypothesis: Say one million monkeys speculate on the stock market. They buy and sell stocks like crazy and, of course, completely at random. What happens? After one week, about half of the monkeys will have made a profit and the other half a loss. The ones that made a profit can stay; the ones that made a loss you send home. In the second week, one half of the monkeys will still be riding high, while the other half will have made a loss and are sent home.

And so on.

After ten weeks, about one thousand monkeys will be left—those who have always invested their money well. After twenty weeks, just one monkey will remain—this one always, without fail, chose the right stocks and is now a billionaire.

Let’s call him the success monkey.

How does the media react?

It will pounce on this animal to understand its “success principles.” And they will find some: Perhaps the monkey eats more bananas than the others. Perhaps he sits in another corner of the cage. Or maybe he swings headlong through the branches, or he takes long, reflective pauses while grooming. He must have some recipe for success, right?

How else could he perform so brilliantly? Spot-on for two years—and that from a simple monkey? Impossible!

The monkey story illustrates the outcome bias: We tend to evaluate decisions based on the result rather than on the decision process. This fallacy is also known as the “historian error.” (more…)

February 2017

Budget 2017-18

Highlights of Union Budget 2017 – 2018

Highlights of Union Budget 2017 – 2018

GST – No changes in service tax & excise duty as GST draft will be launching soon

Fiscal Deficit – Seen at 3.2% (17-18) & 3% (18-19)

Current Account Deficit – 0.3% (16-17) 1st Half

FDI Investments – 1.45 Lakh Crores (16-17) 1st Half

Direct Tax – Tax to GDP Ratio is very low
Income upto 2.5 Lakhs – Nil Tax
Income above 2.51 Lakhs to 5 Lakhs – Reduces to 5% Tax from 10%
Income above 50 Lakhs to 1 Crore – 10% surcharge

Farmer – Double their income in 5 years

Agriculture – 10 Lac Crores credit

MNREGA – Allocation 48,000 Crores

PM Gram Sadak Yojna – Allocation 19,000 Crores

Sr. Citizen – 8% guaranteed pension for 10yrs by LIC of India scheme

(more…)

January 2017

The seven immutable laws of investing… James Montier

Value investing , James Montier, seven Laws of investing.

James Montier, a favourite among the readers of value investing, produced a white paper in March 2011, entitled “The Seven Immutable Laws of Investing”. In the paper he presented a set of laws to guide investors towards investing sensibly in stock markets.

“In my previous missive I concluded that investors should stay true to the principles that have always guided (and should always guide) sensible investment, but I left readers hanging as to what I believe those principles might actually be. So, now, for the moment of truth, I present a set of principles that together form what I call The Seven Immutable Laws of Investing.” ~ James Montier.

They are as follows:

1. Always insist on a margin of safety
2. This time is never different
3. Be patient and wait for the fat pitch
4. Be contrarian
5. Risk is the permanent loss of capital, never a number
6. Be leery of leverage
7. Never invest in something you don’t understand”
Source: GMO

Here is the complete text : The Seven Immutable Laws of Investing ….. By James Montier