The Scar Bias
The older you get in Markets more Scars you have from previous Bull Market Mistakes
There are 3 types of Scars
1) Personal Scar
Where you participated in the Company/Sector/Group as an Investor and Lost Money of an Opportunity Loss.
2) Seen not Hit
Did not participate but have seen the Past Actions of the Company/Sector/Group.
3) Hear Say
No Scar but a Fear from what you have heard about the Company/Sector/Group.
Some of the sample cases. Some Examples of Past Actions
Ø Company announced Demerger but never did.
Ø A few companies had bought a Jet in the previous cycle. More than the Annual profit or good part of market cap.
Ø Did a QIP or IPO for a group company and later on merged at a much lower valuation at bottom of cycle.
Ø Takeover of a large company in peak of Cycle.
Ø Crazy expansion and almost dead in previous cycles.
Ø Defaulted on Debt/FCCBs.
Ø Banned by SEBI for Insider Trading.
Ø Some amazing Story Telling in Good Times.
Ø Capital Mis-allocation/ Diworsification after a Good Cycle.
Ø Total Fraud.
Please add to this list.
I am not putting names but you can 😊 add comments with examples.
Btw I am the one who coined the term Chor Bane Mor
Which was more focused on change in Governance. Most companies won’t pass the test. There is a good change in governance in companies across the board.
Newer listed companies now know all this and are almost over the board in story-telling 😊 . One needs to be careful of management promises and talks.
The older you get in Markets more the Scars and more the tendency to just reject companies quickly. When in Doubt Stay Out !! Is that a good strategy?
I would shift it a little.
1) Personal Scar
Its difficult to build conviction if one has a scar where one has participated and got hurt. Even if everything looks interesting now ( valuations, growth etc ) its a tough pass and even if stock goes bonkers one does not mind.
2) Seen not Hit
If one has not been personally hurt can at least have an Open Minded View to the present situation.
3) Hear say
And in case of just hearsay about bad Past but a good lucking present and Future one can give a Benefit of Doubt. (Invest First Investigate Later. This works best in a Bull Market. )
To sum it up the way forward is to be Open Minded and Research First Reject Later
Do share your thoughts.
https://twitter.com/nooreshtech/status/1785253917015658594?t=z6Jgzel1rKCMijW3nrwbyg&s=19
