Recency Bias!!!
by Mr. B. Padmanaban, CFPCM
Certified Financial Planner
The recency bias is pretty simple. Because it's easier, we're inclined to use our recent experience as the baseline for what will happen in the future.
I have list down few important milestones of Sensex, though we know what happened overall, but we fail to understand in details.
Everyone is concerned over the 20% rally happened in the last 9 months, as if it never happened in the history before. Market is high up to this point, all time high is a bad word because market will keep hitting the all time high going forward.
 |
| B. Padmanaban, CFPCM |
Date
|
Sensex
|
Duration
|
Growth in %
|
29-01-15
|
29,681
|
27 Months Flat
|
1.17%
|
27-04-17
|
30,029
| ||
27-04-17
|
30,029
|
9 Months
|
19.94%
|
23-01-18
|
36,018
| ||
09-03-09
|
8,160
|
20 Months
|
157.40%
|
05-11-10
|
21,004
| ||
15-05-03
|
3,012
|
7.5 Months
|
100.07%
|
02-01-04
|
6,026
|
I would request you to revisit what happened in the last 15 years, which are reasonably well regulated market compared to the earlier one. We always anchor about the number. If I tell market has the potential to reach 40K before this year end, many will raise their eyebrows, but in the percentage terms it is about 11%. In 11 months it is possible, am not predicting or guaranteeing something.
How many times we read or hear about time in the market is more important than timing the market. Given an opportunity everybody wanted to time!
Today, we are greatly influenced by social media, and it will not allow us to think or to have our own view. When we keep getting negative messages about something, we started believing it is true. We are more and more vulnerable to social media going forward!
From the year beginning till date, large cap has done well compared to mid & small cap funds. You can give so many reasons to it. But if you look at FII (Foreign Institutional Investor) & DII (Domestic Institutional Investor) activity we can understand better.
Amount in Crore
| ||
Month
|
FII
|
DII
|
Jul-17
|
1,464
|
4,786
|
Aug-17
|
(15,995)
|
16,205
|
Sep-17
|
(23,969)
|
21,025
|
Oct-17
|
(7,826)
|
10,090
|
Nov-17
|
(13,514)
|
9,243
|
Dec-17
|
(6,411)
|
8,142
|
YTD
|
9,810
|
(614)
|
From the year 2018 beginning DII is net sellers and FII are net buyers this is the main reason for the large cap doing better than the Small & Midcap. You can't expect all the time mid & small cap can outperform.
Last, not the least some of the investors started asking though Sensex is closing higher why my portfolio has reduced, but at the same investor never asked last year Sensex has given only 28% return how come my portfolio has generated more than 50%. Look at the performances given below.
Date
|
Sensex
|
BSE Midcap
|
BSE Small cap
|
02-01-17
|
26,595
|
12,131
|
12,190
|
29-12-17
|
34,036
|
17,822
|
19,230
|
Growth %
|
27.98%
|
46.91%
|
57.75%
|
As long as your goal is long term do not worry about the ups and down in the market which you can’t avoid. When we are investing in the market we are indirectly investing in a business. No businessman will keep timing his business based on uncertainties. Those who withstand tough time will reap greater benefits, so do not carry stress by seeing everyday and worrying about your portfolio fluctuations.
Market can reverse at any time, as an investor you have two options stick to your long term goal and keep investing your surplus if there is a fall, otherwise simply ignore this is the best way to make money.
B. Padmanaban, CFPCM
Certified Financial Planner
www.fortuneplanners.com
9884349173
padmanaban@fortuneplanners.com
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