The TOP most Investor mistake
Let us call it the #1 Investor mistake that destroys returns. This is called HEADLINE investing. When the headlines of a newspaper encourage you to invest. The worst thing is this is worse compounded by CONTINUING the same.
Let me explain. The day the government announces A very big solar project and tells you that the business is very big. Exactly on that day YOU go and buy some solar company’s shares. THIS is exactly the professional wanted you to do. He was waiting for this headline (which sometimes he can even manipulate).
Or take the case when the Macro news is poor. “When employment is so low, why would you want to own shares” . Very smart sounding, but very very stupid article. Or another article saying “the rainfall is inadequate in Andhra Pradesh’ – which will soon be followed by an article saying “Coromandel International sells most of its fertilizer output in AP. Your mind conveniently reads this as “Sell Coromandel”. This is again YOUR problem.
Similarly when the mood is good they urge you to buy. When the mood is bad they do a stupid article like “over the past 7 years it is the lowly public provident fund which has given better returns than equity” . Your mind reads it as “For a conservative 55 year old like me it is better to be in debt rather than in equity immaterial of what Subra has to say. And EXACTLY at a time when you should be buying equity, you end up selling equity.
So be careful when the newspapers carry an investor’s statement like “why invest in equities when the economy is going nowhere” – this could perhaps be a great buy signal. When Na Mo was sworn in I was told “he will work magic on the PSUs” I sold BHEL and NTPC. I got a chance to buy back both these shares, I chose to buy only NTPC and have benefitted by that decision.
And after urging you to sell in 2017, 2019, 2022, and 2024 they are likely to do a heart burning article saying “If you had done a SIP from 2014 to 2024 in the following 10 funds you would have got returns in excess of 20% CAGR. And you will wonder why did you react to their articles all this while.
Who creates Headlines? MSM.
To avoid headlines avoid the press. Do not watch. I am doing one better – stopped coming on Tee Vee. Yes it helps.
George
On the same theme, there was an article on how american airlines shares tumbles after someone read an old article from the internet in 2008.
http://www.wired.com/2008/09/six-year-old-st/
bharat shah
it is the same for indian long term gilt funds’ investments, advocated by the experts in end Jan. 15, citing low oil prices etc. etc. , and investors (INCLUDING ME!) still searching benefits after one repo cut and differing the hike of interest by central bank in U.S.A.
Shankarnarayan K
Wah. Basic tenetes of behavioural finance 🙂
IamNoSpecial
In this age of internet, it is difficult staying away from financial noise. The experts on TV will say everything that generates TRP.
Instead of watching such business news or channels, I prefer watching CID. ACP Pradyuman and Daya are much more sensible and entertaining to watch.
Babar
Ha ha, very good Subra. Mea culpa.
Shivsankar
Subra, I know for sure you and I were best friends in some previous life! Though in this life, you are old enough to be my uncle. 😀
In the past week, I’ve read at least 100 of your posts and plan to read through your entire blog of the past 8 years.
Of course, if I tell you my financial habits, you will beat me black and blue with your sarcasm, because I am one of those youngsters in their “20s” (29 to be precise! 😉 ), whom you “like very much.” But I have already become your ardent follower. Thank you so much for all the learning you are spreading through your blog! 🙂
Rajeev
Does not make sense.
if the top most mistake is to believe what you read, then we should be doing exactly opposite of what Subra says here.
It does not work like this. Read anything but use your own common sense before you act. For me, this article does not make any sense at all.
subra
Babar Me Culpa is ok as long as there is no Mens Rea 🙂