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Ramalingam K
Psychology plays a part in whatever decision we make, including investment in stocks. Sometime our built in psychology is helpful and many a times it is not. When psychology is not helpful we call them psychology traps. Investment in stocks is also guided by few psychology traps which influences us in making bad investment choices and lose money.

Since on most occasion we are not aware of our psychological built up which guides us in taking bad investment decisions, chances are we keep on repeating such mistakes. If we are aware of them the probability of bad investment decisions reduces considerably. Let us look at some of these common psychological traps in which we unknowingly (most of the time) get entrapped.

Psychological Trap No.1: Becoming a Blind Fan

As people love to be in there comfort zone, they get attached to some of their choices of companies in which they have invested. In 1990s, UTI was the biggest mutual fund in India and its products were a rage. One of its products, ‘Master Share’, when listed, rose to unprecedented levels and many investors made money. Many investors have become the blind fans of the brand UTI.

UTI then came with their next product, ‘Master Gain’, people who were moored into UTI threw caution to the wind, forgetting it is a mutual fund product, invested in droves. When listed, it opened below par and remained so for long. All those investors who were hooked to UTI lost money. Today, UTIMF is one of the ‘also ran’ mutual funds companies.

To avoid this trap, an investor should be flexible and be aware that s/he is not getting attached to stocks/companies and keep on watching its performance dispassionately and know when to withdraw or reduce exposure.

Psychological Trap No.2: Falling in Love with Junk Stocks

Usually people fall in love with their investment decisions and cling to shares, whose market value has declined and immediate chances of recovery are remote, but will not take decisions either to withdraw or reduce their exposures.

They hold on to this belief that their past decisions of these investments were infallible, and the stocks will turn around. Most investors have such shares in their portfolio, which they keep on clinging to despite making losses with no chances of recovery in foreseeable future.

Remedy from this trap lies in taking a detached view while reviewing the portfolio, basing decisions on market reality and avoiding the ego trip.

Psychological Trap No.3: Seeking only for confirmation from Others

Many investors while deciding on a stock, consult fellow investors, and accept such views which approve their own choice and reject the contrary views. Such selective approval often lead to bad decisions, but the investor holds on to it as his/her choice has been confirmed by other investors.

Avoiding such traps will be possible if the investor while seeking approval from other fellow investors should be rationally looking into the background of these investors. Alternately, the investors may take into consideration both supportive and opposing views and then make the decision to invest or not.

Psychological Trap No.4: Copying Mindset

On occasions investors take investment decisions, based on performance of relatively successful investors, mostly within the friend circle. They try to follow the investment decisions of such successful investors. When such decisions go wrong they fail to understand why it happened. The reason is simple. People make investment decisions based on their own psychological makeup, investment goals and family/social obligations, which will vary from person to person. No two investors are similar on these counts.

One should, therefore, avoid investment decisions, which are made by blindly following successful investors.

Psychological Trap No.5: Swelled Head

Often people who are qualified in Finance (MBA-Finance and PhD in Finance) have a strong superiority complex (swelled head) about themselves as to their understanding about investment and feel their investment decisions will never go wrong.

The classic example is of Long Term Capital Management Company (LTCM) which went bust in late 1990s, which was founded in 1994 by John W. Meriwether, the former vice-chairman and head of bond trading at Salomon Brothers. Members of LTCM's board of directors included Myron S. Scholes and Robert C. Merton, who shared the 1997 Nobel Memorial Prize in Economic Sciences.

What do we learn from the above?

Human psychology is complex, and it may sometime lead in committing repeated mistakes. It is in the heat of the moment, or when subject to stress or temptation, an investor may fall into one of the above psychological mind traps. The wrong perceptions, self-delusion, frantically trying to avoid realizing losses, desperately seeking the comfort of other victims, shutting out reality and more can all may cost you dearly.

If we are aware of the nature and impact of these common traps and always try to be honest and realistic about ourselves we will be successful in avoiding these traps. Whenever, we seek advice it should be from competent and knowledgeable people of integrity who will bring us back to reality before it is too late.

The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Founder and Director of Holistic Investment Planners ( a firm that offers Financial Planning and Wealth Management. He can be reached at

Ramalingam K
I do not know what kind of shoes Warren Buffet wore. However, I am sure that a lot of people would definitely want to be in his shoes. I am not in a position to promise his shoes to the readers, what I can do is share a few timeless investment principles which if followed, will surely give the investor a firm standing, as firm as Buffet’s, no less.

Warren Buffet owed his financial grooming to his mentor and teacher, Benjamin Graham. Concepts like security analysis and value investing acquired a new dimension under Graham. His timeless books on investments – Security Analysis (1934) and The Intelligent Investor (1949) provide an insight into the realms of investment dynamics. In the following paragraphs the essence of his teachings are laid out for the modern day investor to reap its benefits.

Principle I: Invest with a Margin of Safety

Better be safe than sorry. In financial-investment parlance, ‘margin of safety’ signifies buying of securities at a discount to its actual worth or ‘intrinsic value’. This practice not only acts as a shield for the investor, but also provides high-return opportunities.

Graham favored such assets due to their immense potential for generating stable earnings and also the overall simplicity in providing liquidity. He consistently advocated the purchase of stocks of companies whose liquid assets depicted on the balance sheet (net of all debts or “net nets”) were worth far more than the company’s market cap. In simple terms what this means the ability to buy businesses at rock bottom prices.

The basic advantage of adhering to this principle is that the investment is likely to turn in profits when the market correction of the stock price occurs and it inevitably reverts to its fair value. One of the other essential advantages of buying a stock with a margin-of safety is that the chance of further slide in the price of the stock is usually unlikely.

Graham’s idea on the margin-of-safety acted as a safety net for a lot of his followers and investors can easily be in a win-win situation by following this principle.

Principle II: Use Volatility to earn profits

An average person will seek the nearest exit-way when his investments are hit by market down-turn. A smart investor will view the down-turn as a turn-around opportunity to make profits.

Graham used an interesting analogy to explain his point; an imaginary business partner, of every investor, referred to as “Mr. Market”. Based on Mr. Market’s assessment of business prospects he is expected to charge a high price when the business is expected to be buoyant and vice-versa when the prospects are not encouraging.

The stock market exhibits the same kind of reaction and for a prudent investor the emotions of Mr. Market are not going to hold sway on his investment decisions. Instead his decisions will be driven by hard facts and proper market trend evaluation. The primal truth remains that investors need to buy low and sell high. Volatility is the inherent nature of the financial market and is just as natural as thunderstorms during monsoon. Gearing to combat such situations is the hallmark of a good investment decision.

Graham suggested two sub-strategies to combat such volatility. His dictum has been modified to match the Indian context:

i. Rupee Cost Averaging: A systematic investment plan or an SIP is an ideal choice for investing fixed amounts at regular intervals so that the investor does not have to buy at a high, in effect the total investment averages out on the basis of the stock price or mutual fund NAV. This technique is ideal for those who are not too keen to follow the market on a regular basis or are passive investors by nature.

ii. Investing in stocks and bonds: A balanced approach is what is recommended as an ideal investment option. Dividing one’s portfolio equally between stocks and bonds is what Graham advocates. Preserve the capital and then aim for growth is the philosophy behind this investment mantra. Such a balanced approach will also ensure that the investor is not tempted to speculate.

Principle III: Be aware of your investment self

Graham urges investors to introspect and be aware of the type of investor personality category he or she belongs to. According to Graham, investors basically belong to either of two categories: “enterprising investor” or “defensive investor”. The first one has a dashing investment persona and the later a more cautious persona. He felt that investment returns are based more on the “work” element than the “risk” element.

People who are prepared to work hard and study the fundamentals of the market can gain more than the one who is prepared to put in much less work while making his investments. It is a natural corollary that the hard worker will reap bigger gains than the other category of investors.

The enterprising investor will invest in stocks while defensive or cautious investor will opt for investment in index funds. Graham also differentiates between an investor and a speculator; the former views his stocks as part of business while the later views it as an expensive paper. One should have the ability to realize whether he is an intelligent speculator or an intelligent investor.


Graham’s approach is methodical and views the stock market as a scientific field which is driven by a set of rules. Following Graham’s principle will guarantee that the stock market is a level playing field and not one with hidden land-mines.

The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Founder and Director of Holistic Investment Planners ( a firm that offers Financial Planning and Wealth Management. He can be reached at
Ramalingam K
“We provide sure-shot stock market investment tips. Enjoy the free trial for 6 months. If you are satisfied, you can enrol for the premium investment tips package anytime”

Have you received an Email or SMS similar to the above? Also have you wonder, how could anyone provide sure-shot tips? If they know a sure-shot investment tip, why do they reveal it, instead of investing and making money for themselves?
Let me reveal you today their trade secret. The secret behind the scam: “Sure-shot Investment Tips” and why you should not fall prey for this.

The Scamsters Strategy!!!

Scamsters, usually, pose as online stock market advisers. They somehow collect 1 lac contact details to start with. Once these scamsters have 100000 retail investors’ email id or phone number, their scam activities will start.

And how it works!!!

The modus operandi is simple. They give tips. Say in a particular month they will predict the market will go up or go down. Accordingly, their 100000 clients will react and invest according to the tips. It so happens that there is a 50:50 probability that the market will behave according to the tip. Either it will go down or go up. Hence these scamsters will inform half of their clients (say 50000 clients) that the market will go up and the remaining half (another 50000 clients) will be informed that the market will go down.

Developing satisfied clients!!!

As the market will either go up or down, one group of 50000 clients are going to be benefitted. The scamsters then will focus on the 50000 benefitted and satisfied clients and will give a tip for the next month. They will divide the remaining 50000 clients in two groups and to one group they will inform that the market is going up and to the remaining 25000 clients the market will go down. Again one group of 25000 clients will be benefitted from the tip.

Developing very satisfied clients!!!

The scamsters will then ignore the group who did not benefit but will now focus on the group 25000 clients who had benefitted. They will repeat the strategy by dividing them in two groups of 12500 each and give them two opposite tips for the next month. One group 12500 clients will be benefitted and the other 12500 will not. The scamsters will now focus on the benefitted group 12500.

They will further divide this group of 12500 satisfied clients in two groups of 6250 each and offer them two opposite tips. One group of 6250 will be further benefitted to which the scamsters will concentrate ignoring the other group.

Developing Devoted Clients!!!

They will again divide this group of very satisfied clients of 6250 in to two groups of 3125 each and repeat their strategy of giving two opposite tips for the next month. Again one group of 3125 will further benefit and become very satisfied clients.

The scamsters will divide these very satisfied 3125 clients in two groups and give them opposite tips. Out of the 3125 very satisfied clients, 1562 clients will be benefitted from this tip and will become devoted clients of the scamster.

Making Merry out of these Devoted Clients!!!

What has happened in this process is that there are now 1562 clients who have got 6 consecutive right tips from the scamsters and have made money in the process. They will be now greedier to earn more money. The scamsters are actually waiting for this opportunity. They will introduce the paid version of the so called “Sure-shot Investment Tips Package” to these 1562 devoted clients and sell the paid version to all of them for a lumpsum amount. These devoted clients will continue to stick with the scamster till they have lost considerable amount of money.

The scamsters will collect another 1 lac contacts and repeat the same scam again with the new contacts. Once their contact database is exhausted, they will create another investment tip website with a different brand name and start giving the trail package to the same database.

This is how the Sure-shot investment tips scams are devised and scamsters take advantage of the greed of the clients, who they have engineered to become devoted so that they can part with their money and these scamsters make hay!!!

Greediness and the desire to make quick money are actually the weakness on which these scams are built. Don’t fall prey for these traps. Remove those weaknesses and become stronger financially forever.

If you want to avoid these kind of financial and investment traps and be on the right financial tracks, then preparing an elaborate financial plan will be of great help. If you are serious about creating a financial plan for yourself, then you may want to check our financial planning process.

The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Founder and Director of Holistic Investment Planners ( a firm that offers Financial Planning and Wealth Management. He can be reached at

Ramalingam K
Ever seen a hurdle race? Noticed how the athlete concentrates on overcoming the hurdles? How they time their leap at the right moment to sail smoothly over them? For these people the barrier is just a physical obstacle and not a mental one. It is the mind which has to be geared to overcome barriers and this dictum holds true for investors too.

It is often that investors behave in a manner which is just the opposite of what they should be doing in the first place. Instead of concentrating on facts they are driven by rumors. They chase the elusive winning stock and trip on the hurdle, losing money as a result. These mental hurdles which the investors encounter can be overcome by identifying and eliminating them by following some simple rules.

Emotional Imbalance:

Emotion is a barrier which may look harmless and passive but it has the potential to wreck havoc and bruise the investor financially. ‘Buy low and sell high’ is a simple mantra which investors need to follow. They forget and instead often get afflicted by emotion, refusing to sell peaking stocks and ignoring potentially promising out-of-favor stocks. Holding on too long to losing stocks in the expectation that they will rise often never happens and financially the investor moves from a position of bad to worse.

Lack of Knowledge:

The reluctance to understand the working of the investment market can cost the investor dearly. Everyone wants to back a winner but sometimes this can be a malady; especially when such a winning streak is not sustainable. Investors tend to back a stock which is currently strong without examining the reasons for its rise. This will inevitably lead to the stock’s downfall.

Myopic View:

When the investor takes a myopic view, they lose the sight of the big picture. They may know that thinking long-term is the key to the success of their investment, yet they become drawn to the short-term movement of the stock and end up losing focus and money.

Killing the hurdles

Whatever the barrier or hurdle, it can be tackled and eliminated with a systematic and pragmatic approach.
Here are some useful steps which could turn investors to become agile and mentally fit hurdle runners:

I. Learn to monitor performances: ‘Those who forget their history are condemned to repeat it’. Learn from mistakes and keep a track of your performances. A rational approach would be to document the market and sector trend, the exit target and the trailing stop. This record is a useful manuscript for identifying barriers and getting around them.

II. Identify the weak behavioral patterns and rectify them: Introspection is the right action which the investors need to undertake in order to find out their own behavioral weaknesses. Specifically, examining the past investing pattern will help pin-point the successful as well as the unsuccessful endeavors.

III. Stay committed to the changes necessary: What is to be changed is perhaps easier to identify than making the actual change. Bringing about a change in one’s behavioral pattern needs unwavering focus. A half-hearted attempt will not yield the desired result hence a temporary break from the investment routine is advisable to regain focus.

IV. Gear up adequately to deal with losses: Coming to terms with losses is a point of maturity in the investor behavior index. How to cope with losses which are a part and parcel of the process of investment is something which the investor has to learn. Accepting the loss and moving on will augur well for the overall investment process.

V. Gather experience and expertise in one investing strategy: The data available on different investment strategies are overwhelming and can often become intimidating for the investor. Under such circumstances it is always better to avoid trying to become a ‘jack of all trades’, rather mastering one investment strategy is a useful policy to follow. It may result in the loss of some investment opportunities but will help the investor to gain confidence in the chosen process.

VI. Learn to weigh alternative possibilities: Assessing the market, learning the subtle nuances and taking action accordingly will lead to an enhancement of the risk-reward evaluation process. Making a learned judgment based on the probabilities and market behavior will yield positive results.

VII. Adopt an objective approach: Often investors feel that the market will behave in a manner that they expect it to behave, however more often than not, it is not so and the market behaves on its own terms. Investors will be best served if they stick to an objective approach.


A hurdle racer becomes a champion because he is disciplined and follows the successful strategies. An investor too can be a winner by training himself to form and follow the successful investment strategies.

The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Founder and Director of Holistic Investment Planners ( a firm that offers Financial Planning and Wealth Management. He can be reached at

Ramalingam K
It is said that money makes life simpler!! However, when it comes to manage that money people just run –away from it. As far as money management is considered, there are a few tasks like evaluating a stock that needs deep understanding and a specialised skill. There are few other simpler tasks, which everyone can do.

At the outset, they may appear harder. However, they are simpler if you understand the basics and you start practicing it.

It is our attitude at the beginning of a task which, more than anything else, will affect its successful outcome.

1) Budgeting:

“Every young man should have a hobby. Learning how to handle money is the best one.” Jack Hurley.

Budgeting, simply means being aware of where you are spending your money. If you want to learn about this concept then there are no. of books, blogs and tutorials dedicated to this topic. There are certain other websites also which freely guides you about every detail of budgeting. But take a minute to think, just apply your common sense. Do we need to refer a book or website for creating our own budget?

For creating a budget, you first need to have income and expenditure list in your hand. Add all those details in a simple excel file and see if the money going out is more than coming in. Once you learn to tally it, you can add things like setting financial goal etc.

To project the expenses for the future, you can take the clue from your past expenses. So you need to refer your old bank statements and credit card statements. Also don’t forget add the annual expenses like car insurance, property tax, festival expenses.

2) Taxes:

“The hardest thing in this world to understand in Income Tax” This is a wrong notion to have.

Most of us think, the tax planning and tax filing are complicated things and we need to have more knowledge to do so. Actually it is not so.

For a salaried person, tax planning is much easier. You need to pay close attention to your form 16 to understand more about where and how to save tax.

Now a days, you can file the income tax return online. The process is completely easier and user friendly.

3) Estate Planning:

Estate planning is nothing but planning about how your assets need to be shared between your legal heirs after your death.

• If you have not created a will so far, create one now. List down all the assets, movable, immovable, financial... Also decide which asset needs to be passed on to whom and mention that.

• Update all your investments and insurance plans with nominations and beneficiaries. You need to review this periodically.

• Make sure the nominees or beneficiaries registered in the investments and person to whom you want the proceeds to go after your death needs to be same. This will make the entire asset transmission process easier.

Estate planning will help your legal heirs to get the transmission happen not only faster and also makes sure the transmission happen without a conflict.

A best estate plan is the one which will not leave the heirs with conflict, confusion and cost.

There is no complication in doing these tasks. The complication is there only in our mind. So if we could remove that, these tasks will become simpler. In short, make use of these smart and handy tips to simplify seemingly complicated financial tasks.

The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Founder and Director of Holistic Investment Planners ( a firm that offers Financial Planning and Wealth Management. He can be reached at