What happens during a market crash - a peek into human behavior
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A glimpse into the various psychological biases that impact us during a bear market and how to work around them
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What happens during a market crash - a peek into human behavior
- 5. www.eightytwentyinvestor.com -7000 -2000 3000 8000 13000 18000 23000 28000 33000 38000 43000 -50 0 50 100 150 200 250 300 Equity MF Inflows vs Sensex 12MMA net inflows into Equity MF ('000 Cr) Sensex
- 7. www.eightytwentyinvestor.comSource: https://multi-act.com/mutual-fund-investing-simple-but-not-easy/ *up to 31 March 2016
- 10. www.eightytwentyinvestor.com 1. Behavior in a bull market 2. Behavior in a bear market
- 18. www.eightytwentyinvestor.com The pain of losing is psychologically about twice as strong as the pleasure of making profit
- 21. www.eightytwentyinvestor.com The culprit in your brain Mr Amygdala!!
- 22. www.eightytwentyinvestor.com So what does it do? Freeze, fight or flight Brain’s early warning system
- 23. www.eightytwentyinvestor.com Financial losses are processed in the same area of the brain that responds to mortal danger! And it is literally true that we can relive our financial losses in our sleep.
- 30. www.eightytwentyinvestor.com Enter Mr Asch and his experiments.. 3 out of 4 people ignored what they could see so evidently with their own eyes and answered incorrectly at least once!
- 36. www.eightytwentyinvestor.com Eichmann said he was a “mere instrument” of leaders responsible for the killing of 6 million Jews in World War TwoHandwritten request for clemency by Adolf Eichmann, an architect of the Nazi Holocaust
- 44. www.eightytwentyinvestor.com https://blogs.cfainstitute.org/investor/2012/08/10/silver-medal-or-bronze-understanding-pride-regret-and-counterfactual-thinking/ A team of researchers found that, while gold medalists are happiest about their accomplishments… Bronze medalists are consistently happier than silver medalists!!
- 45. www.eightytwentyinvestor.com What-if and If–only problem Emotional responses to outcomes often are influenced by what might have been i.e how easily one can conjure up alternate outcomes, and counterfactual thinking often ends in regret.
- 55. www.eightytwentyinvestor.com 1. Loss Aversion + Amygdala + Obsessive monitoring 2. Social Proof 3. Expert Bias 4. Counterfactual thinking & Regret 5. Scarcity of time 6. Action Bias 1.Ego (Cognitive Dissonance) 2.Existing patterns
- 58. www.eightytwentyinvestor.com Date Loss (in lakhs) Date Loss (in lakhs) 01-Jan-08 0 10-Jan-09 -54 16-Jan-08 -2 25-Jan-09 -57 31-Jan-08 -13 09-Feb-09 -53 15-Feb-08 -11 24-Feb-09 -57 01-Mar-08 -13 11-Mar-09 -60 16-Mar-08 -22 26-Mar-09 -51 31-Mar-08 -23 10-Apr-09 -47 15-Apr-08 -20 25-Apr-09 -44 30-Apr-08 -15 10-May-09 -41 15-May-08 -15 25-May-09 -31 30-May-08 -19 09-Jun-09 -25 14-Jun-08 -25 24-Jun-09 -29 29-Jun-08 -32 09-Jul-09 -32 14-Jul-08 -34 24-Jul-09 -24 29-Jul-08 -32 08-Aug-09 -25 13-Aug-08 -26 23-Aug-09 -25 28-Aug-08 -31 07-Sep-09 -21 12-Sep-08 -31 22-Sep-09 -17 27-Sep-08 -35 07-Oct-09 -17 12-Oct-08 -48 22-Oct-09 -17 27-Oct-08 -58 06-Nov-09 -20 11-Nov-08 -52 21-Nov-09 -16 26-Nov-08 -56 06-Dec-09 -16 11-Dec-08 -52 21-Dec-09 -18 26-Dec-08 -54 05-Jan-10 -13
- 66. www.eightytwentyinvestor.com If…. Then…. “If a customer yells at me then I will ______”.
- 70. www.eightytwentyinvestor.com 5. Frame it under the right perspective Consider your entire adult life as your investing time horizon