03 August, 2021

The Bull Is A Lonely, Contrary Beast

A first course on how to make money in bad times by avoiding the mistakes that got us here in the first place

Photo-illustration by Bishwadeep Moitra
The Bull Is A Lonely, Contrary Beast
Given the current economic events, it's important to have some insight into our behaviour. Mental heuristics have played an important role in our financial disasters. And what is a mental heuristic? It's a shortcut the brain takes in processing information. In the process, the brain does not take into account the full information, leading to bias in decision-making. Of course, there are many kinds of mental heuristics the brain lapses into.

Investors' wealth has evaporated with the current meltdown. How could they lose when they had entrusted their investments to big banks having a global presence and mutual funds of reputable organisations? What they thought was these banks had all the expertise to manage their money. This was the mental heuristic that was their undoing. Yes, banks are good if you are looking at the safety of your deposits. However, investors thought these banks were also good at managing their money. They also bought from banks complex structured products they did not understand. These banks had smart MBAs who claimed to...

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