Chapter 12 - Investors' Behavior : Introduction

INVESTORS

Our emotions, outlook, frame of mind, fear and greed - everything plays a major role in determining our investment decisions. When to enter the market, when to exit it, our preferences, our overall outlook about risk bearing and expected returns – all this too play a signifi cant part in deciding the success of stock investments. Like an individual’s personality, investment strategies of each of us are different. All successful stock market investors have become wealthy only because they have stuck to the investment discipline which they have prescribed for themselves. Warren Buffet is the best example in this case who ignored the dotcom boom which made many investors wealthy. He proved how important and effective it is to stick to a plan (value investing) in times like the dotcom boom. He was heavily criticised for refusing to invest in high-flying tech stocks. But once the tech bubble bust in the new millennium, his critics were silenced. By avoiding greed, the dominant market emotion of the time, he was able to avoid the losses even as most others were hit by the bust.