Catalysts of Conviction
Dale Griffin and Amos Tversky – in a very interesting paper, ‘ The Weighing of Evidence and the Determinants of Confidence’ – state that intuitive judgment is explained by the hypothesis that people focus on the strength or intensity of available evidence with insufficient regard for its weight or importance. For instance, many believe that […]
Risk Aversion – Loss Aversion
A recent meeting with a friend brought up a topic of risk aversion, and loss aversion in investing. I was reviewing his portfolio. He had purchased stocks with an opportunistic mindset and many of those had failed to generate expected returns. I suggested that he should liquidate the positions and book a loss. He was […]
Are investments in real-estate and equites similar?
I was speaking to Ravi who has significant investments in real-estate. Ravi owns several properties that he rents out. Ravi said that his investments in real-estate are like investments in equity. He said that investments in real-estate like equities have 2 sources of value Rent – which is like dividends from equities Capital appreciation of […]
Smart Answers vs. Right Answers vs. Simple Answers
Recently I met up with a friend, he had closed a large deal and had significant amount of money that he could invest. He asked me what was the best he could do with the money with an investment horizon was over 5 years. I suggested that he should invest this money in an Index […]
Good players understand the ODDS
Understanding the odds is key for making purdent bets in any process (investments, games) that deal with uncertanity. Based on the above data the people who understand odds will quickly realize 2 things All games are favorable for the player (a player who is ready to play many games has a good chance of coming out ahead). […]
Dealing with information asymmetry and misaligned interests
Let’s say I am buying a used car, I will have no information if the car has a problem or if it was involved in an accident. The seller has this information but has no incentive to disclose this information to me. In our lives we make decisions based on incomplete information, sometimes we don’t […]
Our beliefs could be our blinders
I had a couple of meetings with a group of people, who got interested in trading in equities. They reached out to see if they could leverage some of our research ideas. During the conversations I asked about the profitability of their trading operations. They believed that they were doing very well. When they sent their […]
Investing – Skill vs Luck
Imagine that you receive an email saying “Follow our system that guarantees to help you swim like Michael Phelps or run like Usain Bolt”. Most of us would have a hearty laugh and delete that email. Now imagine you receive an email that says “Follow our system that guarantees to help you invest like Warren […]
User Guide
Every product we buy comes with a user guide, this is not the case for services. We thought we should create a user guide to assist our clients to make the best use of our services. We felt it is best to start off with “Don’ts”, then go on to the “Do’s”, then follow it […]
Trading is tricky
Brokers visit us to pitch that they will be able to generate regular income for us by trading. I understand that this is one of the most common pitches made to clients by some brokers. A recent article gave some interesting insights into equities market. It stated that 50%-60% of the equities belong to “controlling stake […]
3-M framework for Managing Investments
In this era of data, I guess, all of us will agree that having a data driven, well-defined, and disciplined approach helps achieve goals. This works for dieting, fitness, managing a company, as well as managing investments. 3-M framework for managing investments is about Measuring, Monitoring, & Managing. Measure: Identify a benchmark for performance review […]
Betting with the house could be a good idea
Casino’s are always interesting places. People going to a casino are either trying out their luck or believe they have the skills to beat the casino. There is always a lot of excitement and activity going on for all gamers in the casino. Some people win big, some people lose big, some people have modest wins, […]