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Indian retail investors tend to lose in stock markets: ISB

  
Analysis, Education
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Retail equity investors in India systematically lose out to other categories of players because they sell the winning stocks too quickly and hold on to the losing stocks too long, says a study.

It found that individual retail investors in India, numbering 2.02 million – largest in the world – consistently chase a zero rate of return on their stock investments when they make decisions themselves.

The study attributed the recurring losses to these type of investors to the ‘disposition effect’ (selling the winning stocks too quickly and holding on to the losing stocks too long) and ‘overconfidence’ (taking credit for good decisions and attributing bad decisions to luck) for three categories of investors separately. (more…)

A few news books in Our Library

  
  Education
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● Market Sense and Nonsense: How the Markets Really Work (and How They Don’t)
By Jack Schwager
Excerpt via publisher, Wiley
Many investors seek guidance from the advice of financial experts available through both broadcast and print media. Is this advice beneficial? In this chapter, we have examined three cases of financial expert advice, ranging from the recommendation-based record of a popular financial program host to an index based on the directional calls of 10 market experts and finally to the financial newsletter industry. Although this limited sample does not rise to the level of a persuasive proof, the results are entirely consistent with the available academic research on the subject. The general conclusion appears to be that the advice of the financial experts may sometimes trigger an immediate price move as the public responds to their recommendations (a price move that is impossible to capture), but no longer-term net benefit. My advice to equity investors is either buy an index fund (but not after a period of extreme gains—see Chapter 3) or, if you have sufficient interest and motivation, devote the time and energy to develop your own investment or trading methodology. Neither of these approaches involves listening to the recommendations of the experts.

● Who’s the Fairest of Them All?: The Truth about Opportunity, Taxes, and Wealth in America
By Stephen Moore
Review via The Washington Times
Stephen Moore’s latest book, “Who’s the Fairest of Them All?: The Truth About Opportunity, Taxes, and Wealth in America,” fairly sets our liberal friends straight on the issue that seems to be confusing President Obama and the general American public a lot — economics and, in particular, tax policy. Mr. Moore, the senior economics writer for the Wall Street Journal’s editorial page, formerly president of the Club for Growth and a fellow of the Cato Institute and Heritage Foundation, has an encyclopedic knowledge of the tax fights of the 1980s. He condenses that nearly three decades in public policy in a slim 119-page volume that is an accessible and thorough guide to understanding economic growth. He understands that if we don’t learn the lessons of the past, we’re bound to repeat the follies, and so he has taken aim squarely at their chief originator, President Obama. While Mr. Obama may think of himself as Snow White — “the fairest of them all” — when it comes to taxing, he’s really Dopey, treating the world as if the Laffer Curve didn’t exist, as if food stamps and unemployment insurance actually grow the economy. (more…)

Thoughts from Legendary Investors

  
  Education
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On Waiting…..

Wait for the fat pitch. – Warren Buffett: comparing investing to a baseball game where you can wait endlessly for the perfect pitch before you swing.

I only go to work on the days that make sense to go to work…And I really do something on that day. But you go to work and you do something every day and you don’t realize when it’s a special day. – George Soros talking to Byron Wien

His first conclusion was that he won when all the factors were in his favor, when he was patient and waited for all the ducks to line up in a row. – from Jesse Livermore, Worlds Greatest Stock Trader

Profits can be made safely only when the opportunity is available and not just because they happen to be desired or needed. …Willingness and ability to hold funds uninvested while awaiting real opportunities is a key to success in the battle for investment survival.- Gerald Loeb

You make money on wall street by being very selective and being patient, waiting for those opportunities that are irresistible, where the percentages are very heavily in your favor.- Seth Glickenhaus

Unless, however, we see a very high probability of at least 10 percent pretax returns (which translate to 6 percent to 7 percent after corporate tax), we will sit on the sidelines. With short-term money returning less than 1 percent after-tax, sitting it out is no fun. But occasionally successful investing requires inactivity.- Warren Buffett

Many equity investors feel compelled to remain 100% invested in equities at all times. Bond investors are often similarly constrained.  We strongly believe that this mentality leads to pursuit of relative rather than absolute investment returns, a direction we certainly want to avoid…A smaller pool of funds seeking to avoid meaningful declines in market value at every point in time and seeking more aggressive return objectives cannot afford to be fully invested in the absence of attractive opportunities. – Seth Klarman

On Mistakes….

…if anything, I make as many mistakes as the next guy. But where I do think that I excel is in recognizing my mistakes, you see. And that is the secret to my success. The key insight that I have reached is recognition of the inherent fallibility of human thought. –George Soros

The only way you get a real education in the market is to invest cash, track your trade, and study your mistakes! – Jesse Livermore

On Psychology… (more…)

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