WHY ‘LAST CHANCES’ MAKE US PANIC Fear of Regret

Posted on June 5, 2022 by Jimit Zaveri under Behavioral Finance

The fear of regret can make us behave irrationally. To dodge the terrible feeling in the pits of our stomachs, we tend to act conservatively, so as not to deviate from the crowd too much.

When he/she refuses to make any decision because of the fear that the decision will turn out to be wrong and then may later lead to feelings of regret. The emotional process behind this is pretty simple. Regret causes emotional pain. Hence, the brain tries to avoid making decisions that cause regret.

Regret is an emotion, and it is also a punishment that we administer to ourselves. The fear of regret is a factor in many of the decisions that people make (“Don’t do this, you will regret it” is a common warning), and the experience of regret is familiar. Intense regret is what you experience when you can most easily imagine yourself doing something other than what you did.

Investment – Due to regret, investors keep chasing fancy and hot stocks so that they do not remain outside of the crowd from earning good returns. Also, they run for catching every available opportunity so that they do not regret missing out on an opportunity. People feel that it’s the last chance and if they do not buy right now, then they will miss an opportunity. This fear creates panic and makes them helpless to buy whatever is available.

It’s your last chance! This thought races through head, you give in and buy the last plot at an exorbitant price. The fear of regret tricked you into thinking this was a one-time offer when in reality, an opportunity will always come on the market.

Due to regret, the fund manager tries to maintain a similar kind of top holding to match the broader market return. If they are not able to match, then they feel regret for being left out.

People generally try to take profits available with their investment so that if the price falls, then they do not have any regret of not taking profits. For reducing regret, we should prepare a circle of competence and prepare an investment philosophy so that opportunity that falls outside of it can be easily avoided and help to reduce regret. We should understand that Mahendra Singh Dhoni cannot sing like Late Lata Mangeshkar. So that we should define our area of competence and outside of it never bother us.

This entire series will be reviewed with various examples from books which are “Thinking, Fast and Slow” and “The Art of Thinking Clearly“.

WHY PROPAGANDA WORKS Sleeper Effect

Posted on May 29, 2022 by Jimit Zaveri under Behavioral Finance

If we get any information then we might not remember the source of information for a longer time but we have that information remaining in our memory. We keep believing in it.

Solutions for getting saved from sleeper effects are –

First, don’t accept any unsolicited advice, even if it seems well-meant. Doing so, you protect yourself to a certain degree from manipulation.

Second, avoid ad-contaminated sources like the plague. How fortunate we are that books are (still) ad-free!

Third, try to remember the source of every argument you encounter.

Investment – When we read something about a particular stock then it remains within our memory that can be a WhatsApp forward or someone just tried to illustrate it. But due to the sleeper effect, we cannot remember the source of the information for a long time.

For overcoming this bias, whenever we get any stock information that is in the tracking list or we have invested, then keep writing down a source with the information. Also, try to take information from reliable sources only. We should not believe in any casual messages we received.

This entire series will be reviewed with various examples from books which are “Thinking, Fast and Slow” and “The Art of Thinking Clearly“.

WHERE’S THE OFF SWITCH? Overthinking

Posted on May 22, 2022 by Jimit Zaveri under Behavioral Finance

When we think too much, our mind left our wise emotions. Not all our emotions are irrational, some help us to process rational thought.

Overthinking makes people think that they are working on a problem, but not only does overthinking not produce solutions, but it also exacerbates the problem. All that thinking takes up time and energy individuals could spend fixing the problem.

Overthinking is less likely to take action on a possible solution, makes them more pessimistic about the future, and pretty much guarantees a bad mood. It will forcefully drop us into the depression.

It undermines your intuitive ability to solve problems. The same applies to decisions that our Stone Age ancestors faced – evaluating what was edible, who would make good friends, and whom to trust. For such purposes, we have heuristics and mental shortcuts that are superior to rational thought. With complex matters, though, such as investment decisions, sober reflection is indispensable. Evolution has not equipped us for such considerations, so logic trumps intuition.

Investment – we all know that the stock market moves in a cycle. So, when we have invested during the worst time, we have reaped juicy fruits. Overthinking stop us from making wise decision. When the worst arrives, our overthinking inspires us to find out worst can happen from here and we do not think rationally that the cycle can move from worst to great and great to worst.

This entire series will be reviewed with various examples from books which are “Thinking, Fast and Slow” and “The Art of Thinking Clearly“.

WHY NEW YEAR’S RESOLUTIONS DON’T WORK Procrastination

Posted on May 15, 2022 by Jimit Zaveri under Behavioral Finance

Procrastination is the tendency to delay unpleasant but important acts: the arduous trek to the gym, switching to a cheaper insurance policy, and writing thank-you letters. Even New Year’s resolutions won’t help you here.

When we keep self-control, it uses our Willpower, and willpower to get depleted over some time so that after using lots of willpower, it will become difficult for us to perform a mental task that requires huge mental efforts. We have to keep saving ourselves from energy-drained distractions so that we can put proper effort into the necessary things.

“While we waste our time hesitating and postponing, life is slipping away.” – Seneca

A lot of the time we hear the excuse that people often love leaving things to the last minute. They justify their actions by claiming that they are most productive under pressure.

However, scientific studies show that the opposite is true. Putting things off until the very last moment creates fertile ground for stress, guilt, and ineffectiveness.

Investment – When we have made an investment philosophy, it will become difficult to follow. Because when outside of our philosophy stocks keeps generating returns then it uses our willpower to keep self-control. And when we need to deal with stocks that fall under our philosophy, we are not able to make efforts.

The good news is: to achieve this, all you need to do is refill your blood sugar and kick back and relax. We can refill willpower through good sleep, and by doing things that we like.

This entire series will be reviewed with various examples from books which are “Thinking, Fast and Slow” and “The Art of Thinking Clearly“.