Biases That Stop You From Getting Rich

It is not how well you can read the spreadsheets, but how you behave towards investment that matters, says Deepika Asthana.

- Deepika Asthana

Let us start with a story of two investors, neither of whom knew each other, but whose paths crossed in an interesting way. Mrs Sharma was a primary school teacher where she worked for 35 years till she retired at the age of 60. She lived a comfortable, yet humble life till she died at the age of 80. On her death, her extended family was shocked to learn that she had left ₹3 crore to charity. How did a woman with such a meagre salary manage to accumulate such a vast sum of money?

On the other hand, there is Mr Kumar, former vice president at a leading investment bank. A success by all counts, he had a flagrant and debt-riddled life style. On his death, he was bankrupt and left outstanding claims for his family. How did a man who had accumulated such a vast sum of money in his lifetime die in penury?

The answer would be intuitive to most of us. While Mrs Sharma followed a judicious approach to investing and let the power of compounding spin its magic, Mr Kumar did just the opposite, relying on heavy borrowing and illiquid investments. But how is that a woman with basic education and little exposure could invest better than a better educated, more experienced man?

Bias is inherent

The answer lies in their behaviour and approach to investing. Traditional economic theory will have you believe that investing is all about the study of finance, numbers and spreadsheets. However, investing is not necessarily about how much you know. It is also about how you behave and react to the information and knowledge that you have. “There is a tendency sometimes to get unduly influenced by our own investment experience,” believes Sandeep Jethwani, Managing Partner and Head of Advisory at IIFL Investment Managers.

Vidya Bala, Head of MF Research at FundsIndia. com, says: “There are some biases that are unique or specific to Indian investor.” According to her these biases include: