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What investors really want

We want to save for tomorrow and spend it today – Meir Statman

Prof. Meir Statman’s is the author of the book ” What investors really want “, while many may think it is simple enough as investors want returns, it is not that simple. Let us take a quick look :

Prof. Statman says when taking decisions involving money we look for one or more of three benefits as follows

Let us take buying an expensive watch for example :

IWC Grande ~ 18 Lacs

 

  1. Utilitarian benefit – What does it do for me  :  Shows me time and date
  2. Expressive benefit – What does it say about me : I’m successful with good taste
  3. Emotional benefit –  How does it make me feel : Accomplished as I  flaunt it.

While buying a phone or watch based on above benefits is a decision that depends on what we want out of our purchases, We make the mistake of following the same pattern in investing or even in taking a decision not to plan or invest.

  1. Investments offer utilitarian benefit of either preserving or growing our capital, we can be misled into buying what is not good for us because of what it says about us or how it makes us feel.
  2. We should be aware of buying investments that make us feel ‘exclusive’:  Invitation only real estate project launches,  low risk and high return products that need to bought today before the ‘opportunity’ closes etc.
  3. Emotional benefit of having an investment portfolio that can see us through retirement and not the emotion of play today and pay tomorrow.

Avoiding these emotional mistakes while pursuing our goals can make us better investors and in turn better decision makers in general.

You can see the full presentation here : http://www.cfasociety.org/poland/Documents/Meir_Statman_presentation.pdf

 

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