The Intellectual Odyssey: Navigating Your Enlightened Future

            In the land of peace and harmony, there lived a farmer who planted his entire farmland with bananas. One day, a storm hit, and all his banana plants were destroyed. The farmer was devastated by the unfortunate event. All the effort and investment he made in planting bananas went in vain. Learning from this experience, the next time he planted a portion of his farmland with bananas, another portion with root vegetables like potatoes, and the remaining land with pumpkins. Unfortunately, another big storm hit the farm, but this time only the banana plantation was affected. The root vegetables and pumpkins survived, and the farmer made a decent profit and stayed happy. The same lesson should be applied to our investments. When we invest in any asset classes, we should not invest the entire amount in one particular asset class or sector. Imagine if someone nearing retirement invested 100% of their money in the stock market, and the market ...

  Let’s start with a classic river problem. The average depth of the river is 5 feet, and your height is 6 feet. Would you cross the river by walking? A person with a good understanding of averages would likely not choose to cross the river. Here’s why: When we say the average depth of the river is 5 feet, it means that at some points, the depth may be only 1 foot, at other points, it may be 2 feet, and in some areas, it could be as deep as 15 feet. Now, imagine stepping into a spot where the river’s depth is 15 feet. This is the danger of relying only on averages. This analogy applies to investment data as well. When returns are presented as averages, it’s crucial to rethink the information. For example, consider this: The average return of the Nifty 50 is 12% over 10 years. On the surface, this looks like a reliable and stable investment strategy: invest in the Nifty 50 and expect a 12% return per year. But this average hides a lot of crucial information about the volati...

            When I first started investing, I witnessed a lot of herd behavior surrounding hot stocks. More specifically, I saw people rushing to subscribe to IPOs. When news broke that a particular IPO was oversubscribed, many, driven by the fear of missing out (FOMO) , blindly jumped in without understanding the company’s business model. They believed that since everyone else was doing it, it must be a smart move. Following the herd is a natural human tendency—people feel safer and more comfortable when they align with the majority, especially in uncertain situations. We can learn from history: During the early 2000s, in the midst of the dot-com bubble, many investors bought stocks simply because technology companies were seen as "the next big thing." The herd mentality drove stock prices to unsustainable levels, and when the bubble burst, many lost their investments. However, this is only part of the story. Some investors, observing the bubbl...

      Have you ever been in a heated argument and suddenly pulled your phone from your pocket to search for something on Google that supports your argument? That’s confirmation bias at play. Confirmation bias is the tendency of the human mind to search for, interpret, and prioritize information that confirms our preexisting beliefs, while ignoring or undervaluing information that contradicts those beliefs. When I started investing, I found myself focusing on positive news articles that supported my viewpoint. I simply ignored the rest of the data and facts. Anything that contradicted my perspective caused cognitive stress, and it was so uncomfortable. This behavior led to significant losses. Fixation: We should not cling to the same viewpoint. If something goes against our perspective, we need to consider it and validate it. We must develop a mindset that acknowledges we can't always be right and accept that we are flawed. Overconfidence bias  is when peo...

  Do you know that humans are naturally in "loss aversion" mode? Loss aversion in humans is often considered to have evolutionary roots. our ancestors were in  a harsh environment where resources were scarce, loss could mean a significant disadvantage, while gains might be less immediately impactful. Loss aversion refers to the psychological phenomenon where people tend to prefer avoiding losses over acquiring equivalent gains. This means that the pain of losing something is typically felt more intensely than the pleasure of gaining the same thing. For instance, people would prefer a certain gain of $50 over a 50% chance of winning $100, but they would take a gamble to avoid a loss of $50. As an investor, I often hold onto losing stocks for too long, hoping to avoid the psychological pain of realizing a loss. This is known as the " disposition effect, " which is a clear manifestation of loss aversion. I am more likely to sell a stock that has gained value than one...

  I read the book Thinking, Fast and Slow  written by Nobel laureate Daniel Kahneman in 2019. I started my investing journey in March 2020, after the stock market crash. Despite knowing many of the cognitive biases we are prone to when investing in the stock market, I made the same mistakes. Experiencing it in real time is a whole different matter compared to just reading about it. Of course, we can't learn everything from experience; sometimes, experience comes with a heavy cost, from which we cannot fully recover . I will share some of the cognitive biases I encountered during my investing journey and how I overcame them.   The first and foremost cognitive bias I faced was Anchor Bias . Anchor Bias is the tendency of the human mind to fixate on a particular number and make decisions based around it. In my stock market journey, I got anchored to stock prices multiple times. For example, I first bought Infosys stock at ₹600 and became anchored to that price. I kep...

  Savings and Investment Savings refers to keeping money at home or in a savings account so you can use it when needed. Saved money is for immediate expenses and emergencies. It involves low risk and low returns but offers high liquidity. Investment is the process of buying or creating assets. These assets will generate money over multiple time intervals. Investments are typically for long-term goals, such as retirement or your child’s higher education. Compared to savings, investments carry higher risk and the potential for higher returns, but liquidity is lower. How to Start Investing? Identifying the asset class. Understanding the rules of the asset class. Making mathematical calculations. Analyzing supply and demand. Understanding these four aspects is known as financial literacy. To start investing, one must gain financial knowledge. If not, you can also hire experts to manage your money. How to Invest: A Step-by-Step Guide Identification of Asset Class: An asset class can be ...