Restoring Traders/Investors Faith into Investing

[Einstein]

Portfolio 2014

proper capital allocated

we have achieved(almost) our annual target of 30% in 6 months, with 6 more months, I am expecting 50%+ cagr growth from this portfolio 2014.

If I can sustain this performance, I can achieve 100 crores in next 14 years with my actual money invested. seems fine to me..no profit booking for next 14 years then.

 

[Einstein]

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[Einstein]

Cognitive Dissonance, Anchoring, Representativeness Heuristic, and Social Contagion

OK, let me go to another--how much time do I have--cognitive dissonance. This is another psychological principle. The term was coined by sociologist Leon Festinger in the 1950s, I believe. I actually met this guy. That's the nice thing about being in academia, you meet all these great names if you're in long enough, eventually.

But what is cognitive dissonance? It's a judgmental bias that people tend to make, because they don't want to admit they're wrong. Maybe I'm oversimplifying this mistake. It's painful to think, that I believe something and it was wrong, so people will cling to old beliefs and try to find evidence that supports their beliefs, because they have an ego involvement with the belief. And so, I will be biased.

The famous experiment indicating cognitive dissonance, done by some psychologist, had the following form. They got a list of people who had just bought a car and they knew what make of car. They got the list from car dealers, so they knew exactly what car they had just bought. And they called these people up and asked them to participate in a psych experiment. Or I think they said a marketing experiment. They didn't let them know that they knew what car they had just bought. And then, the experiment was the following. Let's go through a number of--what magazines do you read? And they said, let's get these out. They got all the magazines that were on the newsstand. And they said, let's look through page by page and tell us which ads you remember reading.

And what they found is that people read the ads for the car they just bought. And they avoided especially the car that they thought they might buy, but decided not to buy. So, after you buy a car, you want to confirm your belief in it. So, you selectively get information that confirms your belief. And so, this cognitive dissonance is another factor. It's been demonstrated. It's an error that people make. It doesn't mean that people--again, none of these errors is unviable. People will make the error and then they'll learn from their mistakes and they'll correct. They're not totally cognitive dissonant, but it's just a kind of error that keeps coming up.

 

[Vertigo_1985]

Cognitive Dissonance, Anchoring, Representativeness Heuristic, and Social Contagion

OK, let me go to another--how much time do I have--cognitive dissonance. This is another psychological principle. The term was coined by sociologist Leon Festinger in the 1950s, I believe. I actually met this guy. That's the nice thing about being in academia, you meet all these great names if you're in long enough, eventually.

But what is cognitive dissonance? It's a judgmental bias that people tend to make, because they don't want to admit they're wrong. Maybe I'm oversimplifying this mistake. It's painful to think, that I believe something and it was wrong, so people will cling to old beliefs and try to find evidence that supports their beliefs, because they have an ego involvement with the belief. And so, I will be biased.

The famous experiment indicating cognitive dissonance, done by some psychologist, had the following form. They got a list of people who had just bought a car and they knew what make of car. They got the list from car dealers, so they knew exactly what car they had just bought. And they called these people up and asked them to participate in a psych experiment. Or I think they said a marketing experiment. They didn't let them know that they knew what car they had just bought. And then, the experiment was the following. Let's go through a number of--what magazines do you read? And they said, let's get these out. They got all the magazines that were on the newsstand. And they said, let's look through page by page and tell us which ads you remember reading.

And what they found is that people read the ads for the car they just bought. And they avoided especially the car that they thought they might buy, but decided not to buy. So, after you buy a car, you want to confirm your belief in it. So, you selectively get information that confirms your belief. And so, this cognitive dissonance is another factor. It's been demonstrated. It's an error that people make. It doesn't mean that people--again, none of these errors is unviable. People will make the error and then they'll learn from their mistakes and they'll correct. They're not totally cognitive dissonant, but it's just a kind of error that keeps coming up.

Hi,
nice posts :thumb:, all the content by u only ?

I am not quite satisfied with the example, how do they know what other cars people thought of before selecting one ? before admitting being wrong comes the possibility of being wrong so i think here also its not correct to say that people dont want to be wrong... it's very much possible that they are not aware of possibility of being wrong.

 

[Einstein]

Hi,
nice posts :thumb:, all the content by u only ?

I am not quite satisfied with the example, how do they know what other cars people thought of before selecting one ? before admitting being wrong comes the possibility of being wrong so i think here also its not correct to say that people dont want to be wrong... it's very much possible that they are not aware of possibility of being wrong.

No, I just post whatever I like which is related to behavior finance or investment, anything userful from here and there, some text from youtube, university websites, books whatever says 'behavior finance'.(useful link: http://papers.ssrn.com ) I never took physiology seriously and I now I think I was a dawm fool.

They simply asked them series of question to get to their point.
and lets assume it was for the majority of people

 

[Einstein]

ENron: a nightmare for an analyst

Enron once was the most reputed fortune 500 company in USA with marketcap of over 70 billion and revenue of 100 billion$+. Suddenly in 2001 they declares bankruptcy and everyone was in shocked, it was later revealed that they were cooking their books by methods like called MTM which traders use to calculate profit/loss on daily basis, Enron used Mark to market method to manipulate the revenues based on future earnings.

its top management cashes out 1 billion$ just few months before they declare bankruptcy. out of them there was a CSO Clifford Baxter who made 30million$ personally by dumping enron shares. a week after bankruptcy he put a gun to his dead and commit suicide.. Why a man with 30 million$ would even through of committing suicide.. I read his suicide note which was later published. it says " I have always tried to do the right thing but where there was once great pride now it's gone". It reminds me one thing, its not the greed that drives the world but envy.

Anyways, from last half an hour I am looking at their annual report (1999 and 2000)and I really cannot tell if their is any fraud or not.
their CA was an 100 year old reputed firm 'Arthur Andersen'.(********) when people found out that enron is cooking their book, they destroyed papers related to enron of about 1 ton.

Enron is a true lesson to every investors in modern financial world, and remind us how true buffet is when he says 'buy what you can understand' and 'stay in your circle of competence'.

 

[aryan.]

ENron: a nightmare for an analyst

Anyways, from last half an hour I am looking at their annual report (1999 and 2000)and I really cannot tell if their is any fraud or not.

How can investors spot the next Enron?

 

[Mr.G]

It is very true that even avid investors forget to be suspicious of the management and act accordingly.

 

[amitrandive]

It is very true that even avid investors forget to be suspicious of the management and act accordingly.

Mr G

Can you please throw some light on "How to be suspicious of the Management?"

Are there some other indicators other than fundamental ratio's which are manipulated by the Management itself?

 

[Einstein]

coming to the point, I think it is auditor's sole responsibility to make sure that the numbers are correct and there is no fraud. How a investor suppose to know if the company is posting accurate numbers in their quarter/annually reporting.

only suspicious think about Enron one can tell is that they don't have a proper balance sheet statement, no notes at all, and no Cash Flow just estimations and estimations, how a fortune 500 don't have these basic things. this is enough for an investor to raise question about the company's performance and a good reason to stay out of such hideous company.