Your Way to Millions
THINK!Your way to Millions is the first book by an Indian author on the subject of Behavioral Finance. Behavioral Finance deals with the psychology of investor decisions. This book shows how anyone can use the principles of Behavioral Finance to create more wealth and save more money. By reading this book and applying the principles contained herein, ordinary people can discover extraordinary opportunities for creating wealth.
This book will be useful not only for corporate executives but for anyone who is looking for a way to generate financial success – be it financial practitioners, housewives, students or investors. However, this book does not stop at wealth creation techniques; it helps people understand how they make decisions, what are the psychological barriers to making the right choices and much more….
THINK! Your way to Millions is a path breaking work on the psychology of human behavior. It demystifies a whole lot of things, including age old questions such as:
(Extracted from Chapter 4 – Frame dependence and the impact of psychological barriers on investor behavior)
How many people do you know who like making losses? I haven’t come across too many. Psychologically, most people do not like to make a loss. There is a strong aversion or disinclination towards incurring a loss of any kind. The issue however is that our natural inclination to avoid loses can actually put us under greater risk of loss. How? We will come to that in some time.
Let’s consider a simple illustration first:
Let’s say that you are given two options. If you choose option A, you will incur a sure loss of Rs. 8,000. If you choose option B, there is an 80 per cent chance that you will lose Rs. 10,000 and a 20 per cent chance that you will lose nothing. Which option would you choose?
Majority of the people we administer this problem to choose option B. Why do they do this? The logic is that they stand to incur a sure loss of Rs. 8,000 in the first option. And people have a natural dislike to losses. So, most people choose the second option, i.e. option B because that choice offers them a chance to avoid any loss. This phenomenon is called Aversion to Loss.
Let’s see how this works in a financial scenario, say in an investor’s case:
Let’s assume that you bought two stocks – stock A and stock B. Stock A was bought for Rs. 100,000 and is now worth Rs. 200,000. Stock B was bought at Rs. 300,000 and is also now worth Rs. 200,000. You suddenly realize that you need Rs. 200,000 for your daughter’s marriage. Which stock would you sell?
If you answered stock A as the stock that you would sell, you are perhaps demonstrating an aversion to loss that could cost you money in the long run. However, don’t worry. Most people make that choice because they reckon that they have already made their profits on stock A and the decision to sell off stock A at a profit leaves them happy and satisfied. They want to hold on to stock B because stock B at this point in time is quoting at a rate far lower than what it was bought for. As long as they hold onto it, it is a notional loss (just a paper loss); however, the moment they sell stock B at the current rate it becomes a real loss. And the aversion to loss takes over and stops the investor from selling stock B.
Now look at the above situation again. In essence, what is the investor doing if he sells off stock B. He is actually holding on to a losing investment (an investment that has come down considerably and may actually come down further) and selling off a winning investment (an investment that has already made money for him and may not be anywhere near its peak level as yet). An alternative way of addressing the situation could be to sell of Rs. 100,000 worth of stock in each of A and B. That way, even if stock A were to come down in the near future, he would already have made a decent profit on it. Similarly, he would still gain whether stock B were to go up or down in the future. And he would have to pay no tax on the entire transaction, thereby augmenting his real gains from the two transactions.
There is another way in which investors lose money – that is when their aversion to loss is combined with the habit of procrastination. Consider the above illustration yet again. If the investor continues to hold onto the losing stock just because he doesn’t want to lose part of his investment value, after some time procrastination sets in and the investor will generally not sell even when the stock does move up a little. Aversion to loss and ill-considered procrastination ensure that the investor rarely sells at the opportune time. Finally, the investor may sell eventually at a much higher loss or when the investment has no real value left. Consider what happened to several investors in the 1990’s when they held on to losing investments purely to avoid a loss – eventually, they were left holding stocks that were worth merely the value of the paper held.
This section mainly includes Q&A on the book. Some questions however may be about the author too. In case you have any queries that are not covered here, you are welcome to write to Jagmohan Bhanver on Facebook, LinkedIn or Twitter. Alternatively, you may write to him at jagmohan.bhanver@iifmonline.com
Think! Your way to Millions is a book on the subject of Behavioral Finance. Behavioral Finance deals with the psychology of investor decisions.
Not at all…Everyone makes decisions every single day that have to do with money and wealth creation or dissipation.
This book shows how anyone can use the principles contained herein to create more wealth and save more money. By reading this book and applying the principles contained herein, ordinary people can discover extraordinary opportunities for creating wealth.
This book will be useful for anyone who is looking for a way to generate financial success – be it financial practitioners, housewives, students or investors. However, this book does not stop at wealth creation techniques; it helps people understand how they make decisions, what are the psychological barriers to making the right choices and much more….
The book has been written in a manner that anyone can understand. Each concept has been explained with the help of an example; and in some cases several illustrations. The language is simple and even the examples have been taken from every day experiences of ordinary people.
Most people take between four to six hours to finish this book. After that it depends on you which sections you want to go back and refer, depending on a particular situation you need help on.
As I keep telling people, decisions and money are not restricted to a particular country. This book deals with the decisions and choices we make; and how those decisions can either help us create more wealth or destroy whatever wealth we may have. To answer your question, this book is meant for any and everyone who wants to understand why and how they make a decision and how they can use this knowledge to lead a richer and fuller life.
I was in a discussion with the Country Manager of one of the leading MNC financial sector companies based in India. We were talking about how I could do seminars for some of the company’s high net worth clients to help them add more value to their existing wealth. During the discussion, the person I was talking to suggested how useful it would be if there was a book on the subject. And that’s how Think! Your way to Millions was born.
The book was published in 2006 and was the first book in this space in India. It has since then been used by people from varying industries and backgrounds to help them make better financial decisions. It was also nominated for the Hutch Crossword book award. Even today, every time I conduct a seminar on the psychology of decisions and wealth creation, the book gets picked up instantly by the participants.
Well, despite having been a senior banker with large national and foreign banks let me confess that I have made a lot of financial mistakes in my own life. And there have been some really poor decisions I have taken too. The god thing is that I have used all my mistakes and other people’s mistakes and condensed them in this book so that readers do not repeat the same mistakes others (including me) have made in our life.
I had the benefit of having a team of five researchers and a couple of organizations, including the financial services company I was consulting for at the time of writing this book helping me. It still took more than a year to complete the book in a form that publishers would be keen to look at. Once that was done at my end, the publishers instantly did their bit and came put with the book within two months of the same being completed.
Well, I love interacting with people. This was one of the main reasons I left a lucrative banking career a decade back. The idea was to have more time and freedom to interact with people, without having any specific agenda in mind.
I would therefore be very happy to interact with people on any of the social media platforms where I am present. The preferable ones would be Facebook, LinkedIn or Twitter.