We are Not Normal!

Thus, as per our understanding, we all are mostly normal and we don’t thinking about psychiatric consultation. It’s ok. But when it comes to personal finance or investment decisions also our understanding is same respectively.

Thus, we are very much normal.

We say we don’t need any professional advisor on this matters regards and that’s OK for time being. By the way which patient goes him for psychiatric treatments?

There are many events was happening in our financial life, what force us to take irrational decisions and what we known as behavioral bias truly. Like greed, fear, loss aversion, mental accounting, over confidence, conformation bias, optimism bias, gambler fallacy etc and come-out from these biases, taking the rational investment decisions and create wealth is most important. What we called behavioral alpha.

We could come-out from these all bias and take the rational decision only through right asset allocation strategy and must remembered asset allocation is only copy-right to an advisor!

If we wanted to be a successful investor than must have a financial advisor!

In investment practice financial advisor hand-hold all the time and organised our short-term, medium term & long-term needs. And our role is to follow his/her advisable asset allocation respectively.

Thus, every individual have different types of risk-profile, so every individual must have different asset allocation strategy and yeh involve behavioral biases also. So asset allocation is not a product, but it’s a behavior management tool for an advisor! So advisor able to gives unbiased advice all the time.

Yeh we could may argue on that, thus, many reading materials are available online as well as offline and by reading them we are equipped to handle our own investment behavior and taking the rational investment decision respectively.

Yeh we agree on it, but knowing these biases is enough? Than our answer is NO; we need to take some bold actions. Like heir an advisor or in personal case go directly to a psychiatrist.

Thus, for cold, cough or for viral fever anybody is aware about the medicines. Even our local chemist also helping us in many illness issues, but he couldn’t replace to a doctor by his free advise. Similarly, as much as effort we put, but couldn’t be a financial advisor truly.

Apart from above discussion there are two major behavioral biases exist, which resist to follow the right asset allocation.

1. Recency Bias: We reach at conclusion by recent events or trends into the unpredictable future. So we couldn’t re-balance.
2. Hindsight Bias: Here also we unable to re-balance because we see at price and comparing with last big draw-down. Like if invest in 2008 than. An end result is we lose an earning opportunity truly.

In with both two biases an advisor role is very important. In above situations advisor gave motivation, strength and education to re-balance the portfolio. Thus, we all are long-term investor, not by fundamental but by behavior truly.

We are at the end of the post. There is a question must be occurred here is that, after all financial advisor also a human being. So our advisor may also have some biases, what impacted my saving/investment?

Yeh absolutely and a great thing is that, it’s not his/her money! But if a financial advisor would manage his/her own money then may be some human error would be occurred.

Swayam Bichar Kijiye!

For any query or feedback please let us know below or mail us at: prabirsharma@gmail.com