Hello and welcome to NSE Presents: Invest – O- Cast (An exclusive investor podcast) Powered by MoneyControl. I'm your host Hrishi K and this podcast is all about getting your money to make better investments for you in the new financial year.
I mean we all make mistakes, don’t we? We have our share or wins and losses depending upon the choices we make. However, some of the mistakes that we make can definitely be avoided and the same goes with our investment as well. Making mistakes while trading in stocks is actually pretty common and by no means reserved exclusively for you alone. In fact, in some cases the investor may continue to make the exact same mistake many times over when they do not learn from the previous errors. The good news is the most of these mistakes can be avoided simply through awareness and the right amount of information. In today’s episode, we will take a look at the most common mistakes that investors make and identify ways in which you can stop the bleeding and even to turn those mistakes to your advantage.
Well, now’s your chance to sit down, relax and listen to the best of advice from industry experts on Invest – O- Cast, Because we are here to help you to avoid the most common mistakes when it comes to investments this year and while we help you to do this we are also going to help you make the most of your investments by helping you being a little more educated, a little more informed about your investment decisions and the market trends.
National Stock Exchange (NSE) with the help of Invest – O- Cast (An exclusive investor podcast) Powered by MoneyControl is committed to break the limitations of geographical boundaries and reach investors across the country. In today’s episode we talk about how you can avoid the most common investment mistakes to help us with this we have with us Vishal Dhawan, the Founder and CEO Plan Ahead Wealth Advisors. Vishal is a certified financial planner with over 2 decades of rich experience in providing personal financial advice to families, individuals and the businesses at various life stages. He regularly commits to spreading financial literacy through regular appearances on TV channels such as CNBC TV18. And he is also regular contributor to personal finance articles in business daily’s and general interest newspapers and magazines. Vishal great to see you! How you doing?
Mr. Vishal Dhawan (Founder and CEO Plan Ahead Wealth Advisors): Wonderful being here. Good to catch up with you.
Hrishi K: Your efforts behind financial education, awareness. Everybody needs to know about that. Let’s start with that.
Vishal Dhawan (Founder and CEO Plan Ahead Wealth Advisors): So we found that financial literacy is probably the biggest thing that we can give back considering that it is such a low hanging fruit that we can add value with. So we do this in multiple ways obviously the proliferation of social media, Facebook, Twitter all of that makes it so much easier today than it was 10 years ago. So a lot of our time is spent in being able to educate and talk to investors about what they should do or more importantly not do when they are dealing with their money. The other things that we do is we have been on some radio shows talking about exactly the same thing, we do lot of seminars with companies, trying to educate employees about what they should be doing with that money and last but not the least write in the national media or the financial media, helping people understand how they should better manage their money and avoid fundamental money mistakes.
Hrishi K: Well, since your primary responsibility is guiding people. I think it is only logical that I ask you, is there a way to avoid common mistakes in Investments Vishal?
Vishal Dhawan (Founder and CEO Plan Ahead Wealth Advisors): Yes, so essentially 2 things that I think people need to do one is stay away from the common cycle of fear and greed. I think we found that, that is the biggest challenge for most investors or when they are making investment decisions they are either really really scared because all the newspapers and television channels and everything else including their friends are telling them don’t do this. The second mistake that they make is that all their friends seem to be getting rich and they seem to be somehow missing the boat, so they just get kind of greedy and they want to start making money and then all kind of mistakes happens. So we typically say that the best thing that the investors can do is stay away from the Cycle of Eden of fear and greed, I think most investors will do very well if they can protect themselves from both these things.
Hrishi K: You know there is Hollywood cliche of all these things of all these film being made saying that greed is good about Street films, you know what I am talking about right? And you have to take that pinch of salt yeah?
Vishal Dhawan (Founder and CEO Plan Ahead Wealth Advisors): Absolutely.
Hrishi K: NSE presents Invest – O- Cast (An exclusive investor podcast) Powered by MoneyControl is all about helping people learn about their finances on the go…and we must have some advice from Vishal on avoiding the most common investment mistakes this year. So, Vishal tell us about some of the most common mistakes people make. Let’s take them one by one, what would be number 1?
Vishal Dhawan (Founder and CEO Plan Ahead Wealth Advisors): Number 1 in our view is procrastination. Procrastination is the most common thing that we come across which is essentially you keep waiting for that perfect moment to start your investing journey. It is a lot like finding a perfect girl to get married to you keep waiting, you keep waiting and then you finally say ok let’s go and many times you actually find she wasn’t the perfect one. So it is the same thing with your investment journey. I think you should start when you have the money, even if it is a small amount of money you just got to start right away. Don’t wait saying now I don’t have money (abhi paisa nahi hai) that doesn’t work. You got to just start, start small, be disciplined and procrastination will be kicked out of the window.
Hrishi K: I like how you liken it to relationships and marriage, lots of experience there Vishal.
Vishal Dhawan (Founder and CEO Plan Ahead Wealth Advisors): Just the one.
Hrishi K: Not just in the market. Ok common, let’s go with mistake number 2 people commonly make and how we can avoid it.
Vishal Dhawan (Founder and CEO Plan Ahead Wealth Advisors): So the second thing that we see is the lack of planning for emergencies and therefore not having emergency funds. A lot of people start their investment journey, they go to the stock market, they buy mutual fund, their journey begins and then they suddenly have an emergency, they lose the job, they have someone in their family fall sick and they say Oh! My god I need the money, so they pull it out and many a times they are pulling it out at the value lower than what they had invested, if only they understood that emergencies don’t come announced. Life would have been so much easier, so then you can plan for it. You actually build-up a separate buffer, you have money kept aside saying if there is an emergency this is what I am going to dip into and not touch my long term equity portfolio, just because I have suddenly had an emergency that has happened.
Hrishi K: Great! Point number 3 mistakes that we must take cognisance of and avoid.
Vishal Dhawan (Founder and CEO Plan Ahead Wealth Advisors): So one of the most common behavioural biases that we see is what is called an Anchoring Bias. Essentially we decide to buy or sell things because there is an arbitrary price that gets set in our mind. So for example, if we have bought a stock at 100 rupees and all of a sudden it goes to 140 and then there is some really bad news on the stock, it goes down to 120. We just refuse to sell it because we say, you know what I saw it at 140 3 days ago. Now the reality is the reason why the stock came down from 140 to 120 was because something changed about the company and therefore we have to avoid getting stuck to this price in our mind of a 140, we see this happen with stocks, we see this happen with houses, people look at a house they say it is worth 2 Crores, the buyer comes in he says that I am willing to pay you 1.9 Crores and you say no, no, no, no I want 2 Crores for it and he says why you want 2 Crores? He just says I want 2 Crores, why is that? Because a friend of mine got 2 Crores and then you are anchored to 2 Crores, the prices of property might fall 10% and you still want that 2 crores only. So avoid an anchoring bias because most of the times there is no rational on how that number was arrived at, it is just that number got created in the mind.
Hrishi K: So I would also re-phrase that as emotional attachment to a particular number and other than anchoring bias of course. Let’s go to mistake number 4 that people normally dive into and how we can avoid that?
Vishal Dhawan (Founder and CEO Plan Ahead Wealth Advisors): Loss of version is something that we come across very commonly as well. Essentially there is enough evidence from behavioural finance to prove that the pain that we associate with the locks is much much higher than the gain and the reward that we feel, when something goes up in the value. So whenever we lose value of a particular asset we get very sentimental about it, we find it very very painful and a lot of times we just hold on to that assets because we have got attached to that asset, as if it was our best friend. I think a lot of time the way to avoid this, you have to understand that there will be good decisions, there will be not so good decisions and then you make a not so good decision, cut your losses quickly and move on because that is how life is, it is a bunch of mistakes and a bunch of successes and if you can build on the successes that you make and avoid sticking to the mistakes that you have life is good.
Hrishi K: You are quite the philosopher. I think that is a good career back up as a life coach. Ok, final mistake that people tend to make and how we can at least be forewarned as far as that is concerned Vishal.
Vishal Dhawan (Founder and CEO Plan Ahead Wealth Advisors): So lack of knowledge of financial education is something again we come across very very commonly. A lot of people just make investment decisions based on something that they read or something that someone tells over a cup of coffee in office and really they have no understanding or knowledge about it. A lot of times it’s akin to gambling; in fact we tell a lot of people that you know just like kids have toys, adults use their money as a gambling machine to have fun. And the best way to avoid that is really to ensure that most of your money is actually put away in a very disciplined manner where you have no control in it, you look at it maybe once in 3 months or have someone professionally advice you on it, but stay away from trying to do things which you don’t understand. You probably do that in your profession right? You don’t go and tell your… you don’t go out and repair your own car because you probably don’t have the skill for it. You go out to a garage and get someone to look at it for you. In much the same way, if you don’t have knowledge of investments kindly stay away, just look at it monitor it, take professional advice.
Hrishi K: In the previous podcast we had an expert say that millennials suffer from what is known as I know everything that syndrome. You know, they Google stuff and they think they are experts, would you agree with that?
Vishal Dhawan (Founder and CEO Plan Ahead Wealth Advisors): So, Google is obviously very useful. I think all of us suffer from Google problems not just millennials, but the reality is that you know the important thing about making investment decisions is to put it into the right context, so what might be right for an ‘X’ person who is your best friend, maybe completely wrong for you as an individual because your goals are different, your needs are different, your time arisen is different and therefore, Google cannot give you answer of what is perfect solution for you or your friend. It can only give you some guidelines on what might be choices that you could possibly think about making after securing the help from the right person.
Hrishi K: Ok, we have had some really insightful mistakes and solutions listed out by Vishal Dhawan today and I am going to take you through it quickly in our “Wisdom in the bank” segment. So here are a few ways by which we can avoid some of the most common investment mistakes this year
Vishal Dhawan (Founder and CEO Plan Ahead Wealth Advisors): It was great being here, thank you so much for having me.
Hrishi K: I am sure all of you would understand and appreciate that there is a whole plethora of information that can help us understand investments better. All we need to do is, be more aware; never try to jump on the next big looking thing without being informed about it. Also don’t expect too much from a stock without diving deep into it. Let’s make sure we are more vigilant, we are a lot more informed and slightly more flexible with our investments to avoid common investment mistakes in the New Year.
And that is a wrap on our show NSE presents Invest-o-cast! I'm your host Hrishi K for the NSE Presents: Invest – O- Cast (An exclusive investor podcast) Powered by MoneyControl. To know more about our podcast, log on to moneycontrol.com and visit the podcast section. In case you would like us to address any of your investment queries on our show do write into us at: nseinvestocast@nw18.com, that’s nseinvestocast@nw18.com.You can also reach out to us on Twitter @moneycontrolcom or Facebook @moneycontrol.com , do remember to use #nseinvestocast
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