Connecting the dots

We are all biased!! Yes, I said that out loud, we all are. It includes yours truly too because I am no exception. Let’s define what bias means before we delve into different types of biases. Wikipedia defines bias as “disproportionate weight in favor of or against an idea or thing, usually in a way that is closed-minded, prejudicial, or unfair”. Biases stem from the way our brain is structured to help us. Our brain always tries to keep past experiences in mind, remembers what gives us pain or pleasure, what worked to give us recognition or what led to failure, and tries to make sense of the present and future decisions based on them. So, the brain doesn’t recognize that it could be a bad thing for us. Biases make us irrational in our decisions and choices. Now almost none of us can eliminate biases because its difficult to recognize the bias when you’re actually being biased because your brain tricks you into believing that what you’re doing is the right thing to do. ...

What is compounding? Investopedia defines compounding as “the process whereby interest is credited to an existing principal amount as well as to interest already paid.” This means you get money on money that you earned on the money you invested. To simplify interest on interest. Let me tell you the story of the Legend of Paal Payasam(king) and Krishna. Long ago there lived a king who was fond of chess and used to challenge everyone if a person wins against him he would reward them whatever they ask for. A modest monk (Lord Krishna disguised) accepted the challenge. The king thought what could this modest monk possibly ask for even if he wins and accepted the challenge. If you guessed the monk won, you’re right. But wait for the prize the monk asked for. He asked for grains of rice but with a condition, on every square of chessboard the rice grains should double. The king laughed and agreed. First square one grain, two on the next, four on the next, 16 on the 4th square, a...

  What does investing in the stock market & running a marathon have in common? Running long distances requires a lot of stamina and mental strength. It takes hours of deliberate practice, self-belief, and doses of strength training. Is investing any different? You’ll figure out in. Let’s assume you have practiced and you have all that requires running a marathon covered. Cut to the day of the actual marathon and how you can think of it as similar to investing. Let me divide it into 4 parts of 10km’s each for simplicity assume full marathon is of 40kms exact. The race flags off after the Zumba warm-up and you’re all fired up and excited. You leap and run at your maximum pace leaving everyone behind for a brief moment. This is akin to when you start your stock market journey with your initial capital having read all those books and thinking you know everything but having zero market experience. Let’s say you do earn a decent return on your first idea but t...