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What's your verdict on Salman Khan?

May 8, 2015

In this issue:
» Indian markets trading slightly lower to their average 10 year forward price to earnings multiple
» A round up on markets
» ...and more!


00:00
6 May 2015. This was going to be the day of the verdict.

It seemed like it was the most important national event since the general elections last year.

The whole country watched and waited as the media produced minute by minute coverage of the hearing of the 2002 hit-and-run trial.

Then came the judgement... The trial that dragged for over 12 years and endured many twists and turns, finally, came to a definite turn. (Of course, this is not the end yet. The verdict will be challenged in higher courts and it is anybody's guess what will happen in the end.)

Salman Khan's trial could surely make for an engaging coffee-table conversation. But that's not what I want to discuss here. What really stunned me was the flood of extreme reactions that followed the verdict... And that's what I want to delve deeper into...

Understanding human behavior and its effects on investing has been one of my key areas of interest. I believe that investing is not a rocket science, but a game of the mind. If you can master your emotions, eliminate thinking errors from decision making and follow a disciplined, process-oriented approach to investing, there is nothing that can stop you from big successes and riches.

I also believe that people invest the way they live. Your investing behavior is a replica of how you respond to daily life situations. So if you want to transform your fortunes and taste success in investing, first be prepared to transform your mindset.

Coming back to Salman Khan...

What did people say in his defence?

Some cronies and die-hard supporters of Khan held on to the view that it was not Salman's fault. They blamed the people sleeping on the pavement for their predicament.

Some blamed the government for not housing people, which resulted in such an accident.

'He is a changed man'.One key argument that all Salman sympathizers put forth was to look at his good side. Look what he has done for society through his generous charitable work. Look how many lives he has saved. Why put such a kind-hearted man behind bars for something that happened more than 12 years ago?

Some people couldn't eat after the verdict... As per a news portal, a man allegedly attempted suicide outside Bombay High Court...

The list is unbelievably endless...

I was amazed to see how people react at times of extreme emotion... How they can distort facts to conform to their thinking...

I'm sure most of you read news, watch television and follow the social media. Just think about these questions for a moment... How do you choose what information to consume? What questions do you ask? How do you formulate your opinions? How do your preferences and biases affect your opinions? How do you weigh different facts in your head? How do you deal with confusion and absence of complete information? How do you arrive at conclusions and decisions?

If I have to put it in just one line, then the question would be: How consciously do you think about your own thinking?

I strongly feel that the Salman Khan controversy has many big lessons on human psychology that can have meaningful application in investing. Here are some that came to my mind:

Who really is this guy called Salman Khan?

Salman Khan. The name rarely comes without the prefix "Bollywood superstar". And why not! That's exactly how we know him. We primarily know him because of his movies. We have seen him as the romantic lover, the super cop, the ideal son... But above all, we know him as the well-meaning, good-hearted, archetype Bollywood protagonist who goes around bashing the goons and saving lives.

Some bits and pieces that we know of him are through news reports, gossip columns, interviews, featured articles. I guess almost all big stars have well-functioning PR machineries whose key role is to project, promote and protect the star's public image. So what you sometimes read as news are, in fact, advertorials meant to propagandize a certain view of the star - how generous and kind-hearted he is because of his charity and so on. (If you have cases and controversies lined up against your name, this is one of the most effective face-saving exercises you could do.)

Assuming that none of us really know Salman Khan in person, our image of 'who Salman Khan really is' is based on all public information available to us. If you think for a moment, there is a huge information vacuum.

But the human brain is an interesting device. When faced with incomplete information, it accommodates any bits and pieces of information to create its own perception of the object.

So we know the Salman Khan on reel. We don't know him in reality. The brain focuses most where information is available. In absence of real information, it may sometimes take the 'reel' information as real. In a star-crazed, hero-worshipping country like India, this phenomenon needs no explanation.

# Investing lesson

Do you buy a stock because of its business fundamentals or public image? Do you end up buying stocks that are repeatedly discussed in business dailies, business news channels or investor forums? The stocks that appear most in the media are not necessarily blue-chips.

The forgotten 'tiny' yet important details

How many times over the last 12 years have you heard or read about the pavement dweller who got crushed under the Land Cruiser? Or the others who got seriously injured but survived? The key witness who died under mysterious circumstances? The image of Salman Khan has occupied so much public mind space that these 'tiny' yet crucial details have become obscure components in people's minds. By the same logic that I explained above, the brain can be tricked into evading crucial information by reducing exposure to that information.

# Investing lesson

Always peruse through a company's annual report for tiny yet critical details. If you see any red flags in a company's financial health or corporate governance, do not ignore them. Be doubly cautious in a bull market when investors are willing to discount such issues.

Public memory and recency bias

The car accident happened in September 2002. It's been over 12 years. That's a very long time for people to really feel the pain and the predicament of the pavement dwellers. As an event gets older, its impact on people's minds begins to subside. The human brain has a tendency to focus most on what is recent. This is called the 'recency bias'.

#Investing lesson

Do you recall the 2008 financial crisis and the stock market meltdown that followed? Many people burnt their fingers badly and lost their hard-earned savings. Many lessons were learnt. Buy fundamentally good companies... Don't overpay... Invest for the long term...

But with time, these lessons tend to be forgotten... only until the next market crash... And then again people lose money. History repeats itself.

Lady Justice wears a blindfold

I'm sure you all must have seen the image of Lady Justice in courtrooms. The blindfold signifies that law should be viewed objectively, without bias and prejudice. To achieve this objective, the judiciary is governed by a set of rules and laws. These laws help the judiciary to seek the truth in a logical, fair manner and to uphold the interests of all the parties involved. Imagine what would happen if judges started pronouncing verdicts based on personal feelings and likings? What would happen if singer Abhijeet Bhattacharya was the judge?

#Investing lesson

In investing, you may notice that your thinking may tend to change with the changing market sentiments. There is no way to fully eliminate all biases and thinking errors. But there is a way to minimize them. The answer is having an investment checklist. A checklist may help you evaluate a company on key investment parameters. Prepare a set of parameters based on your investing approach. If a company fails to meet the requisite criteria, you may want to avoid investing in it.

What do you think about the public reaction to Salman Khan's courtroom verdict? Let us know your comments or share your views in the Equitymaster Club.

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03:45
 Chart of the day
Ever since the Modi Government came to power, the market has been riding a bull rally, barring the correction witnessed recently. Almost two weeks ago, 9 of the top 10 most valued companies saw their market worth eroded by over Rs 650 bn. Now that's a correction that we have been warning our readers about for quite some time now.

Currently, Indian markets do look attractive when compared to global peers. As an article in Livemint suggests, Indian markets are trading slightly lower to their average 10 year forward price to earnings multiple. Barring Taiwan, all key global markets are trading at a significant premium. This is indeed reassuring to some extent, considering that economic prospects of India seem far better than the ones that are trading at a premium. That said, investors would do well to keep track of such movements only to scoop up good businesses at attractive valuations and not get carried away by trends.

Global stock markets: Comparing valuations
Prices as on 30th April 2015

04:30
The Indian stock markets ended the day in the green. While the BSE-Sensex was up by 506 points, NSE-Nifty was up by 134 points. The major Asian equity markets were trading strong as well. European stock markets also opened on a positive note.

04:50
 Today's investing mantra
"I've found that when the market's going down and you buy funds wisely, at some point in the future you will be happy. You won't get there by reading 'Now is the time to buy.'" - Peter Lynch

This edition of The 5 Minute WrapUp is authored by Ankit Shah and Richa Agarwal.

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10 Responses to "What's your verdict on Salman Khan?"

Gurjeet Singh Bains

May 11, 2015

It is all amatter of money power.Money can buy a battery of high and mighty lawyers who can influence our legal system.Money can buy wtnesses as well as victim families(you saw on tv they said they donot want Salman should go to jail).Many said Salman has done lot of charity. Is it possible to do charity on a high scale without money? So money has got Salman the bail in no time which common man can only dream of. Many prisoners are still in jail after they completed their term because they donot have money.

Like (2)

C.A.Sohan jain

May 11, 2015

this may be added to my comments expressed few moments before. First driver Ashok singh must be arrested for misguiding court n put behind bars for more than 5 years as he deserves more punishment than salman as these types of rascals miscarriage the sacred justice.

Like (2)

C.A. Sohan Jain

May 11, 2015

Its sad that SALMAN KHAN got away scotfree after such tragic accident in a drunken state. It reflects very poorly & negatively on Bombay high court & India n how big money cancels jail term. It sends wrong message to rich n famous people to continue crimes as nothing will happen to them. Crimes can be stopped with big deterrent punishment so all people rich n poor think 1000 times to commit crimes. People are talking nasty thing of high court judge, salman & his family as public has pronounced him guilty backed by session court verdict. 2 days of hectic lobbying & marketing got him bail but failed to salvage salman's image. Actually salman has lost forever his goodwill among educated n knowledgable people.Let him get married n behave gentalmanly forever.

Like (2)

R.Ramesh

May 11, 2015

He should go behind bars. No doubt about it. All are equal in India. How much ever lies he tells, there is sure chance of getting punished. The high court should not have granted bail.

Like (2)

Ajm

May 10, 2015

In this Great country of ours,
" Justice moves at the speed of snails.
Generally Truth fails,
And falsehood prevails."

Like (3)

dilip garud

May 9, 2015

Actually it is the salman's father who s guilty,because after knowing that your son is drinking it is the duty of his father to tell him the truth about alcohol,its good side and the bad side.I still remember my father's words when he told me you drink but don't let the alcohol drink you.believe me i am 65 years old today.when i drink in my limits i really enjoy driving and my control and the speed over my vehicle increases 50%,but if any body crosses limit then he bangs becoming salman.my son started drinking at the age of 16,because he became lab assistance,as soon as I realised this I told him the good and the bad side of alcohol,and told him the most important thing,stop the vehicle and sleep even on the road side if required,and do not cross the limits .every one must know how many pegs he can take to get 6 inches high this is what the daru is for,if he can afford it.the moment you cross it you must go and sleep,otherwise your crash is certain.Thanks for asking comments

Like (1)

Yeshwant

May 8, 2015

The verdict was bad in law.

Like (1)

Emilio

May 8, 2015

I do sympathise with Salman to the extent that his high profile prevented him from effectively hiding this from the public eye. Not that he did not try though.
But the fact remains that he committed a crime and deserves to be punished.
Those who revile him just for who he is are just as wrong as those who support him blindly. How blind his supporters are is clear from the way they outrageously blame the victims.

Like (1)

manni

May 8, 2015

I think 5 years in jail is very light sentence. Here in USA even involuntary death is 15 years. And what's Rs. 30,000 in bail money, it's pittance. Judgement should me rendered on basis of the severity of crime and not public sentiment. With his kind of money, who knows, he'll never go to jail. The justice system takes too long to come to actual decision. It'll be years before some kind of result materializes. think about the people who died and are seriously injured. They're their
because of necessity.

Like (1)

Dr. Pranay Mohan

May 8, 2015

I have full sympathy for him as well as victims,the only fault done was leaving the place,he should give them first aid by approaching a hospital,but it may be under alcoholism he was unable to take the right decision,moreover this mistake was due to alcoholism so a round table conference was needed to compromise the issue otherwise he is a real Hero helping others all the time.

Like (1)
  
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