1. The inability to delay gratification is the root of failure. You have to "Walk the Talk" i.e do whatever you say
  2. Stock markets are not zero sum games, wealth is not just transferred, it goes up or down.
  3. Books —> The Future for investors by Jeremy Siegel, The Crowd, Extraordinary Popular Delusions
  4. Values are found in bear market and Growth stocks, IPOs are product of bull market. So, IPO investing is not for a value or contrarian investor (an investor who goes against the crowd)

Success and Failure

  1. We don't like change. We try to repeat what we had done in past and stay in that comfort zone.

  2. Sow a thought and you reap an act, sow an act and you reap a habit, sow a habit and you reap a character, sow a character and you reap a destiny

  3. Lazy, greedy, Ambition, Self-Interest, Ignorance, Vanity —> Some of our psychological factors

  4. Expediency factor or E factor —> Brian Tracey. Everyone tries to achieve the same thing (see image below) and look for the fastest path to reach there i.e refusing delay gratification. Looking for short term gains resulting in long term loss

  5. Avoid the pull of E factor to be successful

Understanding Behavioral Trends

  1. Earnings in Equity —> Fundamental (Performance of company, dividends), Speculative (Entering and exiting timings by various calls, expansion and contraction of PE because of our irrationality)

  2. EPS = 10, PE = 20, So, stock is at Rs.200. After an year, assume earnings had grown over 20% i.e EPS = 12. Now, 3 scenarios

    1. Constant PE —> So, price is 12*20 = 240. So, 20% of 200 is entirely fundamental returns
    2. Expanding PE —> Assume PE is 25. Now, price is 12*25 = 300. Out of this, 20% is attributed to fundamental returns, 30% is attributed to speculative returns
    3. Contracting PE —> PE is 15. Now, price is 12*15 = 180. So, 10% loss. Out of which 20% is fundamental returns, -30% is speculative returns

Calculating fundamental and speculative components of Sensex

Despite EPS growing continuously i.e fundamentals growing, the PE got reduced thus speculative returns reduced —> Overall returns reduced. If EPS growing continuously and PE reducing, that means that's a good bargain

Despite EPS growing continuously i.e fundamentals growing, the PE got reduced thus speculative returns reduced —> Overall returns reduced. If EPS growing continuously and PE reducing, that means that's a good bargain

Corporate performance (EPS) and Shareholder's price can move diagonally opposite. That indicates it's a good bargain i.e though company is good, people are afraid and thus selling thus price reducing.

Corporate performance (EPS) and Shareholder's price can move diagonally opposite. That indicates it's a good bargain i.e though company is good, people are afraid and thus selling thus price reducing.

Stock price reflects not only the fundamental return but also the speculative one