Feeling SAD???

What a super start to 2012 for our equity markets........
Sensex above 17K, Nifty above 5K. India is one of the best performing markets YTD. A lot of beaten down stocks of 2011 (Banking, Real Estate, Capital Goods) have even outperformed indices.

How's your portfolio doing? Obviously, up from 2011.
Are you Sad and cursing yourself for not putting all of your cash & cash eq into markets in 2012?

If Yes, then you are suffering from Hindsight Bias.

As Taleb says-  Quality of a decision is not determined by the outcome.

Putting everything in equities 1 month back was not a great decision- There was a possibility of more correction due to problems in EU and US and policy issues in our motherland. ( Interestingly those problems are still very much there, but Mr. Market has forgotten them for now.) And by putting everything, you would have missed ability to buy cheaper (if you would have got a chance).
Though due to Luck, putting everything would have been a successful decision.

But we can't survive for long durations just by Luck.

As Howard Marks says-
There are old investors, and there are bold investors, but there are no old bold investors.

Putting some part into Equities? Hey that was must!!!
Some hint was given here. (Though I had no expectation of such a fast up movement)...

Why?
Why should I answer when I have the luxury to fall back to expert advise.....
“Be Fearful When Others Are Greedy and Greedy When Others Are Fearful” - Warren Buffett

Life = Interaction of Mental Models

If I am asked to write down my most important learnings during my two decades of education and two years of corporate world, Mental Models would be among the top.

Our Life moves a lot (if not entirely) based on numerous Big and Small decisions we & people we rely on, make thoroughout our lives. And those decisions are influenced a lot by Mental Models.
Those decisions go a long way in detemining where we end up....

Making/ Losing money in the stock market is just a small result of our decision making process affected by Mental models. Belief in God, Marriage, Education, Occupation etc etc all can (to a some extent) be explained by the Interaction of Mental Models.

Let me give an example-
After Satyam Fraud all other IT stocks also fell. Why? Big part of the reason is Social Proof, Pavlovian Misassociation and Representativeness Bias and Vividity.

Belief in presence of God is also nothing but Social Proof, Survivalship Bias, Confirmation Bias and Vividity.

The decisions we take will improve if we are aware of the Mental Models that are affecting us consciously and sub-consciously. And the tragedy of the wrong decisions is not just that we get the wong things, but we lose out on the good things. Always analyze Opportunity Cost before making a big decision.
And to understand the real picture, Zooming Out is necessary.

Wish you all the best for your decisions and Life!! 

I LOVE YOU*

Most stock pickers agree on one thing-  'Don't Fall in Love with Your Stocks'.
I asked why?
Someone (probably Peter Lynch; not sure though) replied back- "Because they can't love you back."

Mungerism inside me again shouted back- "Reciprocity in Love Also !!!!"
I tend to disagree with the above quote. I love all my stocks.
You have to agree that we love a lot of things which can't love us back. Be it Food (Pizza), Game (Table Tennis), Person (Sachin Tendulkar), Place (Gurgaon), Thing (Laptop) etc etc. So why can't we give the same love to our stocks?

I Love my stocks!!! All of them!!!
But Not Unconditional !! With my terms and conditions!!

Imagine a chat between Me and Mayur.......
I: I Love You.
Mayur: TILL WHEN ?
I: Till you keep on making good returns on capital & keep on either using the money at high rates or distributing it to me. And also till Mr. Market is not paying me too much to leave you.

At a time when we get so many stock predictions and stories and new information (most of which is Noise), only love & conviction with my stocks can keep me invested in them to get full benefits from them.
Some other potential answers could be Till you are a Cash Bargain/ Debt Capacity Bargain/ an Economic Moat/ Growth at Reasonable Price/ Asset Play/ Risk Arbitrage.

The key question in this Love (just like in most other Loves) remains TILL WHEN.
I leave too early, I miss out. I stay too late, I suffer!!!

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* Terms & Conditions Apply