Running and Investing

Action speaks louder than words. Take charge of your investments.

I have been running regularly for the last 1 year and had to stop it some 40 days back for some health reasons.  Its been some 2 weeks since I wanted to restart my running but couldn’t actually pull myself and start it.  I wanted the Christmas to get over then told myself to start by 01st Jan but didn’t do it.
I knew that I need to run to keep myself fit and healthy, but there was something which was stopping me.  There was a great deal of hesitation, indecisiveness, lethargy and lack of motivation.
I mentally tuned myself and today morning I managed to get up on time and went on to the join my runners group.  I was breathless with the warming up session and felt tired, but I was determined not to let go today.
I started running slowly but steadily and I finished with 8 kms.  A credible distance coming out of a long layoff, I guess.  Its a small beginning but I am happy I have already begun the journey.  Beginning is already half the battle won.
I realized that to start (or in my case to restart) something you need to have lot of will power, focus, guidance and action.
Thinking about it, I sensed that investing is also similar for most of us.
As running is good for physical health, investing is good for financial health.  But most of the people I speak to or meet don’t have any regular investments.  Unfortunately, investing gets pushed to the bottom of the “to do” list for various reasons like lack of time, knowledge, discipline or focus.  Lot of money is left idle in Savings Bank account or Fixed deposits.
A simple monthly SIP is more than sufficient to start your investments and bring in the discipline.  Can you believe, a small SIP of Rs10,000 per month can create wealth of Rs2 crores over a 20 years period.
Get over the inertia and start right now.    If you think, you would be better off with an advisor guiding you, take the help of one.  He not only helps you to identify the suitable investment options, he nudges you, prompts you and pushes you to take actions.  Action speaks louder than words.
Lets start the New Year with new determination to take charge of our finances.  All great journeys start with a first step.  Take the first step now!
Wish you all a very Happy and Prosperous New Year 2015!!

Information Bias in real life investing

I was reading the book, The Art of Thinking Clearly by Rolf Dobelli.  The book talks about various biases we as humans carry in our lives.  The one bias which caught my immediate attention is “Information Bias”.  Rolf Dobelli says that decisions taken based on bare facts have proved to be very effective compared to decisions taken after hours and hours of analysis of all available information.

I agree to his contention that most of decisions we take or don’t take in real lives is due to information overload.  We tend to collect and process too much information before taking a particular decision, let it be buying a refrigerator or a financial product.  Particularly, I have seen there is a greater tendency to collect so much information before buying a financial product or service, and finally take a very stupid decision.  This not only applies to investors but also to the Financial Advisors.

Take the example of choosing a mutual fund.

  • An initial filter is run to choose Mutual Fund Schemes which has provided better than category returns over different time periods like 1, 3, 5, 10 and if possible 20 year horizon
  • Then typically investors go for the risk adjusted return numbers like Sharpe Ratio, Sortino Ratio, Beta etc.,
  • Follow that up Analyse the portfolio of the scheme to determine the sectoral weightages and then dig little deeper to understand how the funds stack up across different market capitalisations
  • Then in addition to the information bias we are talking about, other qualitative inputs like the fund manager’s perceived capabilities are brought in to the picture

Finally, after analysing so much of data, you end up with little or no clarity as compared to the beginning of the exercise.  This phenomenon is exactly called the “information bias”.

I am not against analysing the various parameters before choosing a mutual fund, but it is better to stick to some basic fundamental concepts.  The success of a particular investment depends on how you implement the decision in a disciplined manner.

The same logic applies in almost all aspects of decision making.  We should learn to take decisions based on bare essential fundamental information.