13 Must-Watch Movies for Aspiring Entrepreneurs

Entrepreneurship will make you cry and hope for a happy ending. Just like a good movie.

Many excellent movies have been made about entrepreneurs and the pioneering spirit they embody. These movies can encourage, exhilarate and, of course, entertain us.

For all the aspiring entrepreneurs out there who are looking for some movie inspiration while cozying up with some popcorn, here are the top 13 flicks about the entrepreneurial experience.

Wall Street

The iconic Wall Street centers on an ambitious young stockbroker, Bud Fox, and a charismatic and ruthless investor, Gordon Gekko. Fox, who is desperate to succeed, idolizes Gekko, who operates under the mantra “Greed is good.”

Fox becomes absorbed in the financier’s glamorous lifestyle, only to get entangled in a vicious web of insider trading. The film is a cautionary tale of how the pursuit of power can lead us down an unethical path. While it’s easy to be lured by greed, it’s never worth it to sell one’s integrity for the sake of money and ambition.

Office Space

This film speaks to the challenges, frustrations and absurdities of corporate office life. Office Space satirizes the soul-crushing monotony of the modern cubicle worker, but also reminds us that it’s up to us to find a way out.

Don’t let work, with its tedious corporate culture and petty bureaucracy, suck the life out of you. You have to balance your work and life and ensure you’re working for effective and positive managers. As the movie so hilariously depicts, unhappy workers aren’t the most productive, and toxic bosses and poor management can do untold damage to morale. The bottom line is that life is too short to spend huddled in a cubicle.

Erin Brockovich

Based on a true story, Erin Brockovich follows a struggling single mother who finagles her way into a job as a file clerk for a law firm. She begins investigating a case that eventually leads to a class-action lawsuit against a multibillion-dollar company. Through the course of the investigation, she learns some hard truths and faces plenty of hurdles.

Against the odds, she helps to win the largest settlement ever paid in a direct-action lawsuit. Erin Brockovich embodies female empowerment and underscores the importance of being independent-minded and unafraid to stand up for what you believe. It can also be a great inspiration to female entrepreneurs who face a male-dominated corporate world.

The Godfather

Widely accepted as one of the best films ever made, The Godfather, at its core, is a story about a small family business growing into a large and powerful organization in New York, while fighting off the opposition.

The movie offers insight into what it takes to become one of the most influential and dynamic family businesses in the country. In the movie, Vito Corleone grants favors and helps people with their problems, highlighting the importance of relationships and building networks in any business. The Godfather will make you think about competitive strategies, alliances, mergers and business diversification.

Joy

In business, you must always be ready to fight battles on multiple fronts, and the more successful you are, the more others will want to tear you down and get a piece for themselves. These are among the many lessons behind this biographical film about New York native Joy Mangano, who went from single mother to millionaire in the 1990s.

She got her start by inventing the Miracle Mop, a self-wringing mop that required less effort to use than traditional mops. Joy details the ups and downs Mangano faced with her fledgling business. The movie shows how belief in yourself, your product and your business are key if you’re going to survive and succeed.

Glengarry Glen Ross

In the cutthroat Chicago real estate market, lying, cheating and stealing often decide who comes out on top. Glengarry Glen Ross is about four real estate salespeople whose jobs are on the line when a competition is announced — all except the top two men will be fired.

The film takes a stark look at the underbelly of sales culture, including the lies, betrayals and manipulation people will resort to in order to survive in the business. It showcases how not to manage a sales team and how a high-pressure job with never-ending demands to perform will eventually lead one down a dark path. Extremely competitive high-pressure environments can bring out the worst in you and those around you.

The Pursuit of Happyness

This inspirational film is based on the true story of Chris Gardner, who faced homelessness as a single father while working a grueling unpaid internship as a stockbroker. Through sheer force of will, Gardner persists through impossible circumstances after his wife leaves him and the IRS garnishes his wages, leaving him in poverty. Gardner struggles to sell medical scanners and is living in homeless shelters while pursuing a full-time, six-month internship, hopeful that it will pay off with a permanent position.

The Pursuit of Happyness shows how a diehard work ethic coupled with an unflappable belief in yourself and a willingness to do whatever it takes to reach beyond your circumstances can pay off when you achieve your dreams.

Steve Jobs

This movie showcases pivotal moments in the rise of Steve Jobs, the co-founder of Apple Inc., and takes a hard look at the entrepreneur’s personal and professional struggles. There have been a handful of movies and documentaries detailing the life of Jobs, but this 2015 version is perhaps the best. It takes a behind-the-scenes look at Jobs during three key product launches.

Jobs could be coldly dismissive of the people closest to him and often micromanaged even the smallest details of his presentations. He experienced tremendous failure and made ugly mistakes before finding success. Yet entrepreneurs watching this film will undoubtedly be motivated to stay true to their vision when facing tough challenges and weighing competing opinions.

The Social Network

The Social Network offers a behind-the-scenes glimpse into how Mark Zuckerberg created Facebook and the cutthroat world of the startup. As the trailer for the movie says, “You don’t get to 500 million friends without making a few enemies,” and this point is underscored throughout the film as Zuckerberg navigates lawsuits and hurdles in funding.

Through it all, Zuckerberg must be flexible and evolve his product to suit the needs and desires of users. He also learns a painful lesson on the importance of having a binding contract in place. This movie offers several important insights for aspiring entrepreneurs, including that it’s not about who has an idea but who can execute it. But perhaps the big takeaway should be that you’re going to have to ruffle some feathers if you want to fly.

Catch Me If You Can

Based on a true story, Catch Me If You Can exemplifies the entrepreneurial journey. The main character, Frank Abagnale, is a con man who earned millions before he was 19 years old and successfully impersonated an airline pilot, doctor, lawyer and history professor. While Abagnale’s swindling tendencies shouldn’t be replicated, there are some wonderful insights here for the aspiring entrepreneur.

Abagnale knew how to create new opportunities out of bad situations. He achieved tremendous success in tough environments and under a great deal of stress. The movie also touches on entrepreneurial themes including creative problem solving, perseverance, personal sales techniques and finding funding sources.

Jerry Maguire

This is a story about Jerry Maguire, a man who, at the top of his game, has become disillusioned with the soulless corporate structure of his business. When he takes a step back and questions it all, it costs him everything he has achieved up until that point. In Jerry Maguire, he is fired from his job and everyone turns their back on him, except for one volatile client.

Maguire is forced to examine what is really important to his business and life as he works to bring the pieces back together. There’s a compelling and satisfying payoff, showing that striking out on your own and seeking to change something for the better has its own reward.

The Aviator

Howard Hughes was a man with lofty dreams and undeterred ambitions, until it all came crashing down. The Aviator, which depicts Hughes’s early years as a director and aviator in the late 1920s to mid-1940s, shows the obsessive attention to detail that both set him apart from the competition and, ultimately, led to his undoing.

As an undiagnosed sufferer of obsessive-compulsive disorder, his life began to unravel as he fell into a dark mental state, and yet he was able to pull himself together just in time to defend himself. Aspiring entrepreneurs can see flashes of Hughes’s spit-and-vinegar and also the fear and foreboding that embodied his personality.

The Big Short

The U.S. housing crash and global financial crisis play a starring role in The Big Short, which tells the story of a group of Wall Street fund managers and investors who predicted and were able to profit from the collapse of the country’s overheated housing market.

The movie is full of important lessons for entrepreneurs and anyone who has invested money in the stock market: understand what you’re investing in, follow your gut and never take another person’s advice without fully understanding what you’re getting yourself into.

 

Please share some great movies on entrepreneurship in the comments section below, as I learn just as much from you as you do from me.

KNOW YOUR BEHAVIOURAL BIASES – Making Better Investment Decisions During Turbulent Times

Foreword :- 

Global markets,India being no exception, have  taken  a  significant  beating  following  the outbreak of Covid-19 pandemic. While an erosion in value of investments does worry an investor, it brings to the forefront two pertinent questions:

  1. Can you control what is happening in the market?
  2. Can you control how you react to what is happening in the market?

The  answer  to  the  first  question  is  “No”.  As  far  as the second question is concerned, the answer is “Yes”, but it is easier said than done.

Most  conventional  economic  theories that were path-breaking discoveries  of  the  20th  century made a fatal assumption that people are rational, thereby overlooking a key aspect governing human behavior.

Over  the  last  30  years,  a  lot  of  ground  has  been covered  on  this  subject  suggesting  that  it’s  time to   accept   that   humans are  emotional and are subject to cognitive   biases. These biases, from time to time, come in the way of effective decision making  concerning  each  and  every  aspect of our life, including personal finances.

In  this  edition  of  ‘Know  your  behavioral  biases’ , we have tried to elaborate the biases that individual  investors  commit,  thereby  endangering their  hard  earned  wealth.  As  with most complex problems,  the  solutions thereof  are  often  simple, and dealing  with  behavioral  biases  is  no exception.  Herein,  we  present  simple  yet  effective and easy methods to know, accept and overcome these biases.

Index :-

  • How to respond to market cycles.
  • Loss aversion bias.
  • What is mental accounting?.
  • Herd Mentality.
  • Emotional attachment to inherited wealth: Endowment bias.
  • Availability bias.
  • Recency bias.
  • Unable to bring discipline in investing.
  • Is short term thinking a disease?
  • Conclusion.

How to Respond to Market Cycles?

Greed and Fear in Market Cycles

Investor’s experience in the markets is one of the most important factors that determines his/her investment  decisions.  For  example,  someone  who  began  investing  during  the  negative  phase  of the markets (e.g. year 2001 – IT Bubble, 2009 – Global Financial crisis) will prefer to avoid equities compared to an individual who has had a good investment experience (year 2010)

Typical Reaction of an Investor – Joining the Dots

Below  chart  shows  how  greed  and  fear  overrides  investors  emotions  and  how  an average  retail investor  behaves during the ups and downs of the market cycle.

Currently, as the markets have fallen sharply from highs & in the process of again rising , it may not be a right thing to sell-out, instead adopt a long term approach to equity investing. It may even be prudent to go contrarian and make fresh allocations to equities in a staggered manner.

Our emotions often entice us to time the market, while, to make such decisions, we are no more equipped than a gambler before the roll of the next dice. More often than not, these actions driven by emotions are counterproductive. Simply adopting a buy and hold strategy for a long period of time can be more rewarding instead.

Understanding Market Cycles –

Markets are not linear and move in cycles.

Along  with the economy   and   business,   markets   also   go   through   periodic   expansions   and contractions.  Periods  of  expansions  are  characterized  by  business  optimism  and  increase  in business profitability. Conversely, periods of contraction are characterized by business pessimism and decline of business profitability. Markets anticipate these fluctuations and move ahead.

The long term average trends across cycles are typically upward sloping in a growing economy as economies, corporate profits, consumption levels, etc. grow at positive rates in the long run.

From  an  investors’  perspective,  the  turning  points  in  business  cycles  are  hugely  important. Investors who can position their portfolios in line with the cyclicality of the markets can make a fortune. This is different from timing the market, which can be fraught with risks. Understanding of cycles can help an investor position the overall portfolio with varying allocation to different asset classes. When it comes to individual investments, adopting a systematic Investment route would be ideal.

What to see around you?

Peak of a cycle

  • Economy is strong; reports are positive
  • Earnings beat expectation
  • Media is full of good news
  • Everyone around you is confident, optimistic and greedy
  • People are ready to take risks
  • Defaults are few Skepticism is low Euphoria everywhere
  • Di cult to imagine things going wrong

This is the time for caution!

Bottom of a cycle

  • Economy is slowing; reports are negative
  • Earnings are flat or declining
  • Media report only bad news
  • Everyone around you is worried, depressed and fearful
  • People are not ready to take risks
  • Defaults soar Skepticism is high Panic everywhere
  • Everyone assumes things will get worse

This is the time for aggression!

Is it time to be aggressive or defensive?

Loss Aversion Bias

Losses are felt much more than gains of similar value. People do not treat gains and losses in a linear way. It feels better to not lose Rs.100 than to gain Rs.100

I hate losing more than I love winning . Loss aversion is the tendency to avoid loss over maximizing gains.

Lets consider 2 scenarios:

Scenario 1:

While  you  are  walking,  you  find  a  Rs  500  note lying  on  the  ground.  You  pocket  it  and  feel happy about it.

Scenario 2:

While you are walking, you find a Rs 2000 note  lying  on  the  ground.  You  pocket  it and  subsequently  someone picks your pocket  and  you  loose  Rs  1500  (say  from other pocket)

Which scenario will make you happier? Payoff from both the above scenarios are same but the emotional outcomes are different. A loss of Rs 1500 gave you more pain than gain of Rs 2000.

Similar experience is observed in investing; consider the below scenarios:

Scenario 1 :- Investment with cost price of Rs 1000 is sold at Rs 2000

Scenario 2 :- Same  investment  has  touched  a  high  of  say  Rs  3000  and  is  now  trading  at  say  Rs  2000,  the pain  from  notional  loss  of  Rs  1000  will  be  much  more  compared  to  the  overall  gain  on  the investment.

An investor with net worth of Rs 1 cr looks at loss and gain of Rs 1 lac as

This  is  evident  from  the  fact  that  investors  prefer  Fixed  Deposits  over  instruments  with  variable returns but with an ability to beat inflation more effectively.

Pain or Joy, We Remember only Extreme Cases

We all prefer pain to be brief and joy to last longer. Lets consider the below example where you are under medication and have to undergo either of the two options below:

Scenario 1 :- An injection every day for the next 20 days

Scenario 2 :- An injection, which is 20% more painful, everyday for the next 12 days

Individuals  tend  to  remember  the  intensity  of  the  pain  whereas  duration  of  Pain  /  Joy  is  often ignored. Since under option 2, pain is 20% higher, most individuals will prefer option 1.

Similarly,  in  investments,  time  correction  does  not  affect  emotions  as  much  as  price  correction. Investors  often  remember  negative  events  like  “Black  Mondays”,  “Tragic  Tuesdays”,  etc.  Investors often ignore the fact that a big fall in markets on a single day followed by a slow recovery is similar to markets staying flat/ remaining range bound mode over a year.

EMI schemes, Personal Loans, Women’s Kitty Party all follow similar concept.

How to Deal with Loss Aversion Bias?

  • Free yourself of emotions as much as possible
  • Do not invest directly in volatile asset classes like equity
  • Choose a professional fund manager
  • Also take the help of an Investment Advisor
  • Adopt  a portfolio  approach  and  do  not  focus  too  much on  each  individual  investment.  Leave  the  job  of  product/scheme selection to the Investment Advisor
  • Investing is better left to experts.
  • Mutual Funds (MFs) are cost effective and convenient.

What is Mental Accounting?

It shows how individuals separate their budget into different accounts for specific purposes.

Mental Accounting : Money Jar Fallacy

Mental accounting, a behavioral economics concept introduced in 1999 by Nobel Prize-winning economist Richard Thaler, refers to different values people place on money, based on subjective criteria, that often has detrimental results.

The  concept  of  mental  accounting  is  beautifully  explained  by  Thaler  and  Cass  Sunstein  in  their book Nudge: Improving Decisions About Health, Wealth and Happiness through the example of Hollywood actors Gene Hackman and Dustin Hoffman .

Mental Accounting and Investments :-

People also tend to experience mental accounting bias in investing. When it comes to investing, mental accounting can also cause people to make illogical decisions.

Investors  invest  their  wealth  based  on  the  source  of  income.  Higher  weight-age  is  given  to hard  earned  money  like  salary  as  investors  usually  prefer  to  take  lower  risk  while  investing their salary income. An investor who is young should ideally have a higher portion of his/her wealth in equities. However, since there is a emotional attachment to hard earned money; he may not be willing to invest a larger portion of his salary income in equities. (as equities are perceived as risky asset class). The same investor when faced with windfall gains tend to take higher risk with that amount.

Value of money remains the same for an investment made on the advice of a distributor or through own research. However, when evaluating a loss making investment, investors tend to hold on to the same forever if the initial decision to buy was that of the investor himself / herself (as booking a loss hurts his ego). The emotion of regret is in play here. On the other hand, if the initial decision to buy the investment was as per  the recommendation of another person,  say,  the  advisor,  the  investor  would  be  willing  to  sell  the  asset  at  some  point  and move on. This decision to sell is taken at the cost of diversification.

To avoid the mental accounting bias, individuals should treat money as perfectly fungible when they allocate among different accounts, be it a budget account (everyday living expenses), a discretionary spending account, or a wealth account (savings and investments). But it is easier said than done.

Other Examples of mental accounting :-

Overspending on credit card rather than cash

More  impulsive  buying  on  a  shopping  trip  could  be  attributed  to  the  use  of  credit  cards  as compared to giving away cash. However, ‘money’ is ‘money’.

Tax Refunds

Tendency to treat tax refunds as a windfall gain and use it for discretionary spending.

Categorizing money as “Safety Capital” and “Risk Capital”

Investors often categorize portions of their wealth as “Safety Capital”, something that they can never afford to lose (example – salary) and “Risk Capital”, money that they OK to see depreciate, (example – windfall gains).

Money that you “don’t mind losing”

Investors, at times, invest in safe instruments and transfer the appreciation thereof to riskier asset classes, with the mindset that this component is something that they don’t mind losing?

Yearly bonus

Habit  of  treating  yearly  bonus  differently  to  monthly  salary  and  spending  it  lavishly.  This behavior is like that of a kid spending birthday money on immediate gratification.

Would you spend your EPFO corpus on a foreign holiday?

There is a guilt factor associated with spending money earmarked for an important goal like retirement planning on a lavish need.

Use Mental Accounting to Your Advantage

Invest with a Goal!

Once you attach a goal to a particular investment, you mentally allocate that money to a particular purpose. Further, it:

Mutual  Fund  schemes  are  available  for  specific  financial  goals  like  Retirement  Planning  and Children’s Education, as defined by SEBI in mutual fund categorization.

Herd Mentality

It  is  the  phenomenon  where  investors  follow  what  other investors  are  doing,  rather  than  following  their  own  analysis  and  risk appetite and is often driven by the fear of missing out

Fear of Missing Out – Have you felt that?

It is normal to get tempted by prospect of becoming rich quickly. When the markets are on their way up, it gets very frustrating for an onlooker to see people create wealth just by being invested in  the  market.  More  often  than  not,  a  prospective  investor  gets  enticed  to  invest  when  he  sees quick gains being made by others around him.

This mentality is often the result of a reaction to peer pressure which makes investors act in order to avoid ‘feeling left out’ or ‘left behind’ from the group. In the quest to earn quick gains from his investments, investors often chase returns by following the herd.

In the process of following the herd, investors usually end up with the portfolio that is more risky and may not be appropriate as per his/her risk appetite. The outcome has always been a disappointment in terms of returns.

A  classic  example  of  herd  behavior  occurred  in  the  late  1990s.   Investors  followed  the  crowd and invested in stocks of IT companies, even though many of them were loss making and were unlikely to generate significant revenues in the foreseeable future.

Herding = Lazy Thinking :-

It is often observed that investors confidence level, index level and equity allocation usually move in  tandem  and  the  result  has  been  the  largest  chunk  of  their  wealth  is  invested  almost  at  the peak of the cycle.

Investors that follow the herd are left disappointed to see negative returns at the end of the cycle. This is mainly because investors focus turn to the conduct of the herd in search of  earning quick returns instead of fundamentals of the economy, company, etc. that might be more relevant.

Let Asset Allocation Guide You to Overcome Biases :-

Who is happiest during this current episode of equity market volatility?

The answer to this question would be the one who had done asset allocation to some extent. An investor with higher than required equity exposure, obviously, has reasons to worry as the value erosion in portfolio would be felt the maximum. On the other  hand,  even  an  investor  with  zero  or  very  low  equity  exposure  has  little  reason  to  rejoice,  as  it  is  difficult  to  take  the emotional  decision  of  entering  equities  in  these  volatile  times,  in  fact,  the  investor  would  strengthen  her  resolve  to  never touch equity, an asset class that potentially erode in value in such quick time.

An investor with a more balanced allocation to various asset classes including, equities, fixed income, real estate, gold, etc. is likely to be happiest despite one particular asset class decreasing in value. The very reason to do asset allocation is the uncertain nature of each asset classes and is acknowledgment of preparing for rainy days in a particular asset class.

Source: Bloomberg. Data for last 20  fiscal years. Mar ‘98 to March ’20.

Proxies used for asset classes: Equity – NIFTY 50, Debt – NIFTY 10 year benchmark G Sec, Gold – Spot Rate ₹10 /Grams

Emotional Attachment to Inherited Wealth: Endowment Bias

causes  individuals  to value  an  owned object   higher, often irrationally

How to treat Inherited Investments?

You recently inherited a flat worth Rs 3 cr from your grandfather.

Investors  are  emotionally  attached  to  the  inherited  asset  and  give  a  higher  weightage  to  such asset in their portfolio and without considering its usefulness in the overall asset allocation, they continue to hold on to the asset.

In the above example, an investor had inherited a flat worth Rs 3cr from his grandfather; continuing to hold on to the flat changed its asset allocation significantly.

Investors  should  treat  the  inherited  investment  under  one  portfolio  and  “gradually”  change  the asset  allocation  as  per  his/her  risk  profile.  Investors  should  ask  “Would  they  make  the  same investment with new money today?”

Asset Allocation is Key to Financial Success

  • Asset  Allocation  helps  overcome  emotional  attachment  to inherited assets
  • Each asset class has a different Return-Risk-Liquidity profile
  • Diversification  is  needed  to  achieve optimal  balance between rewards and risks
  • Asset  allocation  decision  is  the  most  important  factor  for long-term wealth building
  • There is no “one size fits all” formula for asset allocation. One needs to take professional help during this important step of financial planning.

Availability Bias

is a mental shortcut that

  • Relies heavily on information that is easily available to the investor or
  • Places undue   emphasis on immediate examples that come to mind when evaluating a decision.

Availability bias

Availability  bias  is  the  human  tendency  to  think  of  events  that  come  readily  to  mind;  thus making such events more representative than is actually the case. Naturally, things that are most memorable  can  be  brought  to  mind  most  quickly.  People  tend  to  remember  vivid  events  like plane crashes and lottery wins, leading some of us to overestimate the likelihood that our plane will crash or, more optimistically — but equally erroneously — that we will win the lottery.

A  study  by  Karlsson,  Loewenstein,  and  Ariely  (2008)  showed  that  people  are  more  likely  to purchase insurance to protect themselves after experiencing a natural disaster than they are to purchase insurance before such a disaster happens.

Similarly, in investments, negative events that have led to severe market corrections are always at the top of investor’s mind. However, investors tend to ignore market performance post the sharp correction.  Few  examples  of  such  events  –  DoT  com  burst,  2004  crash  after  formation  of  new Government, Global Financial Crisis, Greece Sovereign Crisis, Chinese devaluation in 2015.

‘Perceived Risk’ is often higher than ‘Real Risk’ during such events.

Implications of this bias

Investors tend to stay away from markets during such scenarios which leads to:

 

How to deal with such bias?

We  have  seen  a  significant  fall  in  equity  markets  over  the past  few  weeks  as  Covid-19  has  become  the  single-point matter of focus among investors. These are, no doubt, tough times  as  entire  humanity  is  battling  the  virus  pandemic deploying  every  tool  at  its  disposal  to  save  lives.  With  a significant  chunk  of  the  human  population  in  lockdown, the global economy is expected to take a major hit, and the impact of which is being felt across global stock markets.

This is neither the first time or nor will it be the last time, the Indian stock markets are undergoing such sharp corrections. 1992, 2001 and 2008 were years in which, markets saw even sharper   crashes,   with   underlying   reasons   different   from one another. However, one common variable among these instances  was  the  bounce  back  witnessed  by  market  in each of these occasions over a period of time. This leads us to a question.

Do we expect Covid-19 to grab headlines one year from now like the way it is doing now?

As  the  virus  scare  alleviates  over  a  period  of  time  with  the economy  coming  back  to  normalcy,  the  stock  markets  are also expected to stage recovery. This makes a strong case for investing  in  equities  by  spreading  them  over  the  next  few months.   Investors   should   use   such   events   as   buying opportunities and invest with a long term view.

As a case in point, an investor who simply invested through SIPs throughout the ups and downs of the 2008 crisis and subsequent  recovery  would  have  performed  well  without undergoing much of the emotions.

Investors  should  consult  their  financial  advisors  on  how  to deal with such events.

Missed best days !!

The above chart shows that if you had stayed fully invested in stocks (as measured by the S&P BSE Sensex) from January 1, 1990 to March 310, 2020, you would have earned compounded annual returns of 12.73%.

However, if you had tried to time the ups and downs of the market, you would have risked missing out on days that registered some of the biggest gains, and the CAGR would have dropped drastically: 9.06% if you missed 10 best days, 6.56% if you missed 20 best days, 4.46% if you missed 30 best days and 2.56% if you missed 40 best days during this period.

CAGR – Compounded Annual Growth Rate

Best days means the days on which the markets have given highest returns. Daily returns are considered for determining best days.

Recency Bias

is the tendency to weigh recent events more heavily than earlier events.

How Recent events overtake our investment decisions?

Investors often overemphasize more recent events than those in the near or distant past.

Thus,  shifting  focus  towards  the  asset  class  in  favor  today.  This  happens  as  investors  have the  tendency  to  extrapolate  recent  experience  into  the  future  which  can  have  disastrous consequences. The result is, it skews our view of reality and the future.

We have seen many such events in India and investors either tend to be overweight or shy away from the trending asset class. Few recent events in Indian context are mentioned below:

Implications of this bias

Investors get swayed by recent events and tend to be either overweight or underweight the asset class in favor/out of favor; thus leading to inappropriate asset allocation.

The overall risk in the portfolio also increases drastically as investors often swing their portfolios to extremes during such situations with the hope that the trend will continue in future.

Recency Bias: Lane Changing doesn’t work

Investors  often  focus  only  on  the  recent  1  year  track  record  of  returns  when  selecting  a  fund, rather  than  analyzing  the  process  of  investment  manager.  Thus,  making  investment  decisions based upon the outcome and ignoring the process that led to that result.

The above chart depicts the ranking of the funds over the past 10 years; it can be observed that chasing the best performing fund of a particular year does not work in the long run.

How to deal with such bias?

Investors should follow the advice of a professional, should not invest directly and should have an asset allocation strategy.

Investors should not get swayed away by the past returns and should ideally look at risk statistics, the investment  process,  the  number  of  securities  purchased  and  other  fundamental  factors when selecting an investment manager.

Investors should follow a portfolio approach and diversify across various investments.

Unable to Bring Discipline in Investing !

Spending habits can impact long term wealth

Studies have shown that spending tends to be greater when consumers use credit cards rather than  cash,  due  in  part  to  certain  behavioral  cues  that  using  credit  cards  may  create.  One  effect is that a credit card “decouples” the act of purchasing from the consumer’s wealth – “get it now, pay later.” – study by RA Feinberg (1986)

People  do  not  act  in  their  best  long-term  interest  because  they  lack  self  control.  Often  people prefer  high  standards  of  living  in  the  present,  rather  than  saving  for  retirement.  People  who suffer from self-control bias often spend today and sacrifice their retirement, and do not invest in equities or take part in the benefits of rupee-cost averaging.

Recent  trend  in  India’s  household  savings  and  household  debt  also  confirms  such  behavior where investors prefer to live in the present, rather than securing their future.

The “save more tomorrow program” is a classic example to counter such behavior which automatically increased savings rates for plan participants each year. (80% remained in the plan through three pay raises). This is a great way to counteract the natural tendency of people who suffer from self-control bias.

Solution?

Again the magic tool – SIP

  • The concept of SIP is in a way similar to “Save More Tomorrow” Campaign
  • By  enrolling  into  an  SIP,  you  make  a  commitment  to  save a  particular  amount  of  money  every  month  for  the  next  ‘n’ number of months
  • The  amount  that  is  mentally  earmarked  for  SIP  helps  us to  avoid  expenses  on  extravagant  /  lavish  needs,  thereby bringing in discipline
  • SIP  Top  up  can  also  be  used  a  tool  to  overcome  this  bias  – SIP  Top  up  allows  you    to  increase  the  amount  of  the  SIP Installment   by   a   fixed   amount   at   pre-defined   intervals. This  facility  enhances  the  flexibility  of  the  investor  to  invest higher amounts during the tenure of the SIP

Is Short Term Thinking a Disease?

What Makes Us Think  Short Term?

Professor Walter Mischel, then a professor at Stanford University, conducted one of psychology’s classic  behavioral  experiments  on  deferred  gratification  named  “marshmallow  test”.  Deferred gratification refers to an individual’s ability to wait in order to achieve a desired object or outcome. The  study  concluded  that  individuals  that  tend  to  delay  gratification  were  less  likely  to  show extreme aggression and less likely to over-react if they became anxious.

Similar  analogy  can  be  drawn  to  the  field  of  investments  wherein  investors  over  react  to  short term market movements and tend to redeem their investments for short term gains.

 

What Makes Us Think Short Term?

Implications of this bias :-

Investors tend to invest with a short term view and focus shifts away from the goal for which investment was made

How to deal with such bias ?

Investors should do goal-based investing. Invest in equities with a long term view. For short to medium term goals, consider debt funds.

To Conclude

For all its limitless powers of imagination, miraculous artistic capabilities, never-ending endeavor for  excellence  and  boundless  achievements  over  the  millennia,  the  ‘human  mind’  is  neither free  from  its  delusions  nor  is  it  resistant  to  making  embarrassing  misjudgments.  Our  mind occasionally lets us down when it comes to data taking and analyzing in a complex world – the world of investing is no different.

When it comes to decision making, whether it is choosing a word in a game of Scrabble, zeroing- in  on  next  holiday  destination  or  whether  to  invest  in  a  stock,  we  try  our  best  to  rely  on  facts and data, while topping it up with a human touch in the form of our best judgments, hunches, intuitions and insights. It is undeniable that emotions like greed and fear are involved when an individual  investor  makes  decisions  as  represented  by  inflows  at  the  time  of  market  highs  and outflows during a market fall.

Even  great  investing  minds  give  in  to  emotions.  Harry  Markowitz,  father  of  Modern  Portfolio Theory and a Nobel Prize winner in Economic Sciences, was once asked as to what was the asset allocation  in  his  personal  portfolio.  He  famously  replied  “It’s  a  50:50  split  between  equities  and bonds  as  I  visualized  my  grief  if  the  stock  market  went  way  up  and  I  wasn’t  in  it—or  if  it  went way down and I was completely in it. My intention was to minimize my future regret”. This is an example of one of the best ever minds in the world of finance admitting and accepting human fallacies.

Thankfully  the  solutions  to  overcome  these  emotional  reactions  are  astonishingly  simple.  The key messages of this as detailed above is to embrace the basics like focus on asset allocation, investing through Systematic Plan, investing with a goal and to take help of an advisor. It is exactly these ‘sticking to the basics’ approach that can shield us from the urge to act frequently, to free ourselves from emotions while making decisions and help us stay focused on the path of long-term wealth creation.


Disclaimer

This   Content  is   for  information   purposes only  and   does not constitute  advice  or  offer  to  sell/purchase  of any company product.  The  information  and  content  provided needs to be read from an investment awareness and education  perspective  only.

Website: www.nayakfin.com

 

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Learning how to leave a legacy at work is key to lasting Contentment

Entrepreneurs go into business for many reasons – to pursue a dream, find alternatives to an unfulfilling career or make more money. Most entrepreneurs are also driven by a desire to leave a legacy through their work.

Now What does it mean to leave a legacy? When you think about your career as your life’s work and not merely a source of income, it takes on a far deeper meaning. When you’re pouring your time, energy and passion into a business, you want to have a lasting impact. It’s the concept of leaving your mark that defines how to leave a legacy. Your legacy is an inheritance – it’s your gift of service to others. Learning how to leave a lasting legacy is also a gift you give yourself, since it paves the way for finding genuine fulfillment in your life.

Understanding How to leave a Legacy – 

Many business owners sense that they want to leave a mark through their work, but they don’t know how to get there. To truly make a lasting impression, you must first answer a pivotal question: What does it mean to leave a legacy? You’re not looking for generic answers here – you’re looking for answers that are meaningful and unique to you. Since your life’s work encapsulates the essence of who you are – your dreams, passions and strengths – understanding how to leave a legacy at work starts with getting to know yourself. Here are some questions to get started learning how to leave a lasting legacy that will speak volumes about you well after you’re finished doing business.

  1. What is your purpose ?

Understanding how to leave a legacy can seem nebulous and out-of-reach if you don’t know what your purpose in life is. Without a sense of purpose, any action you take feels undirected. To discover your purpose, start with the end in mind. You want to be remembered for the ideas you leave behind and the values you express day by day. Learning how to leave a legacy at work is as straightforward as writing down those values. Do you want to be remembered for hard work? Vision? Altruism? By writing down your core values, you’re able to pinpoint the cornerstone of how to leave a lasting legacy.

  1. What are your Natural Skills and abilities ?  

Think of your heroes – the people who inspire, encourage and uplift you. It’s likely that, in addition to treating you with dignity and respect, your heroes also stand out for distinct skills and talents. There’s something fundamentally poignant about watching someone’s gift come to life. It’s in self-actualization – living out the innate talents that make you uniquely you – that you demonstrate how to leave a legacy that others will admire.

  1. What ignites your passion ?

Living out your passions creates contentment in your life. And you’re only able to give to others if you are content. So when you ask “What does it mean to leave a legacy?” what you’re really asking is how your passions meet a need in the world.

 Sharing 4 Tips & Strategies of what does it mean to leave a legacy. 

Once you’ve done the work to discover your true passions, you’re ready to implement practical strategies for mastering how to leave a legacy at work. In the course of doing business, you interact with many people each day. As you ask yourself “What does it mean to leave a legacy?,” also ask, “Who do you want to impact the most?” Your answers might include:

  1. Leaving a legacy for your Clients

Consider how to improve your product or service so that it leaves a lasting impression on your clients. To accomplish this, your product must capture the hearts of your ideal clientele, adding real value to their lives so that no competitor can ever come close.

  1. Leaving a legacy for your Stakeholders.

If you want to know how to leave a legacy for your stakeholders, you’ll need a mastermind business map for achieving record profits so your stakeholders’ dividends soar. When you understand how to leave a lasting legacy for investors, you’re also able to build a business that attracts future investment.

  1. Leaving a legacy for your employees.

Learning how to leave a legacy for your employees is the gift that keeps giving, since building a fulfilling career is the key of finding contentment in life. There are many ways to accomplish this, from being a standout leader to nurturing a vibrant organizational culture. Learning how to leave a legacy at work might mean teaching others to refine company processes, train new talent, mentor junior staff or manage business finances.

  1. Leaving legacy for your clients , Stakeholders and employees .

If your answer to “What does it mean to leave a legacy?” is “I want to impact everyone who comes in contact with my business,” you might consider creating a leadership program or philanthropic foundation. This option is likely appealing if your values include giving, education or financial growth. Creating a customized program aligned with your product is a visionary way to elevate your brand while demonstrating what it means to leave a legacy.

“Starting your Startup – Business mastery Ebook”

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Pick your choice of business & start today – “Today”

If you wanna start as side hustle or at potential risk of losing job or looking for fresh opportunities, or always wanted to create a niche for yourself you need to hear full 10 home based business opportunities.

 

 

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Chinese Bamboo tree – Patience , but did you get the message right !

Get Inspired by Bamboo tree story but understand only patience will not make your own Bamboo story – Hear it full to understand why real content matters.

 

 

Leave a question below or click on the link if you have any query & I will personally answer you –https://bit.ly/2KqvhKc

Please share your thoughts in the comments section below, as I learn just as much from you as you do from me.

“5 things for Profit in business” – Series 3

In first two series , I discussed about importance of “sales” & “firing yourself”.

Today we touch upon another Important aspect – “Finance”. Hear out full how to raise finance for ultimate business sustainability & growth …

 

Leave a question below or click on the link if you have any query & I will personally answer you – https://bit.ly/2KqvhKc

Please share your thoughts in the comments section below, as I learn just as much from you as you do from me.

50 Inspirational Quotes To Motivate You

No one can deny the power of a good quote. They motivate and inspire us to be our best.

Great quotes have an incredible ability to put things in perspective. Here are 50 of my absolute favorites:

  1. Nothing is impossible, the word itself says “I’m possible”! —Audrey Hepburn
  2. I’ve learned that people will forget what you said, people will forget what you did, but people will never forget how you made them feel. —Maya Angelou
  3. Whether you think you can or you think you can’t, you’re right. —Henry Ford
  4. Perfection is not attainable, but if we chase perfection we can catch excellence. —Vince Lombardi
  5. Life is 10% what happens to me and 90% of how I react to it. —Charles Swindoll
  6. If you look at what you have in life, you’ll always have more. If you look at what you don’t have in life, you’ll never have enough. —Oprah Winfrey
  7. Remember no one can make you feel inferior without your consent. —Eleanor Roosevelt
  8. I can’t change the direction of the wind, but I can adjust my sails to always reach my destination. —Jimmy Dean
  9. Believe you can and you’re halfway there. —Theodore Roosevelt
  10. “To handle yourself, use your head; to handle others, use your heart.” —Eleanor Roosevelt
  11. Too many of us are not living our dreams because we are living our fears. —Les Brown
  12. Do or do not. There is no try. —Yoda
  13. Whatever the mind of man can conceive and believe, it can achieve. —Napoleon Hill
  14. Twenty years from now you will be more disappointed by the things that you didn’t do than by the ones you did do, so throw off the bowlines, sail away from safe harbor, catch the trade winds in your sails. Explore, Dream, Discover. —Mark Twain
  15. I’ve missed more than 9000 shots in my career. I’ve lost almost 300 games. 26 times I’ve been trusted to take the game winning shot and missed. I’ve failed over and over and over again in my life. And that is why I succeed. —Michael Jordan
  16. Strive not to be a success, but rather to be of value. —Albert Einstein
  17. I am not a product of my circumstances. I am a product of my decisions. —Stephen Covey
  18. When everything seems to be going against you, remember that the airplane takes off against the wind, not with it. —Henry Ford
  19. The most common way people give up their power is by thinking they don’t have any. —Alice Walker
  20. The most difficult thing is the decision to act, the rest is merely tenacity. —Amelia Earhart
  21. It is during our darkest moments that we must focus to see the light. —Aristotle Onassis
  22. Don’t judge each day by the harvest you reap but by the seeds that you plant. —Robert Louis Stevenson
  23. The only way to do great work is to love what you do. —Steve Jobs
  24. Change your thoughts and you change your world. —Norman Vincent Peale
  25. The question isn’t who is going to let me; it’s who is going to stop me. —Ayn Rand
  26. If you hear a voice within you say “you cannot paint,” then by all means paint and that voice will be silenced. —Vincent Van Gogh
  27. Build your own dreams, or someone else will hire you to build theirs. —Farrah Gray
  28. Remember that not getting what you want is sometimes a wonderful stroke of luck. —Dalai Lama
  29. You can’t use up creativity. The more you use, the more you have. —Maya Angelou
  30. I have learned over the years that when one’s mind is made up, this diminishes fear. —Rosa Parks
  31. I would rather die of passion than of boredom. —Vincent van Gogh
  32. A truly rich man is one whose children run into his arms when his hands are empty. —Unknown
  33. A person who never made a mistake never tried anything new.——Albert Einstein
  34. What’s money? A man is a success if he gets up in the morning and goes to bed at night and in between does what he wants to do. —Bob Dylan
  35. I have been impressed with the urgency of doing. Knowing is not enough; we must apply. Being willing is not enough; we must do. —Leonardo da Vinci
  36. If you want to lift yourself up, lift up someone else. —Booker T. Washington
  37. Limitations live only in our minds. But if we use our imaginations, our possibilities become limitless. —Jamie Paolinetti
  38. If you’re offered a seat on a rocket ship, don’t ask what seat! Just get on. —Sheryl Sandberg
  39. Certain things catch your eye, but pursue only those that capture the heart. —Ancient Indian Proverb
  40. When one door of happiness closes, another opens, but often we look so long at the closed door that we do not see the one that has been opened for us. —Helen Keller
  41. Everything has beauty, but not everyone can see. —Confucius
  42. How wonderful it is that nobody need wait a single moment before starting to improve the world. —Anne Frank
  43. When I was 5 years old, my mother always told me that happiness was the key to life. When I went to school, they asked me what I wanted to be when I grew up. I wrote down “happy”. They told me I didn’t understand the assignment, and I told them they didn’t understand life. —John Lennon
  44. The only person you are destined to become is the person you decide to be. —Ralph Waldo Emerson
  45. We can’t help everyone, but everyone can help someone. —Ronald Reagan
  46. Everything you’ve ever wanted is on the other side of fear. —George Addair
  47. We can easily forgive a child who is afraid of the dark; the real tragedy of life is when men are afraid of the light. —Plato
  48. Nothing will work unless you do. —Maya Angelou
  49. “I alone cannot change the world, but I can cast a stone across the water to create many ripples.” —Mother Teresa
  50. What we achieve inwardly will change outer reality. —Plutarch

Did I miss any? Please share your favorite quotes for others to enjoy in the comments section below.