The Honey Trap - The Honest Truth By Ajit Dayal
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Investing in India - Honest Truth by Ajit Dayal
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10 APRIL 2008

"People", counselled a colleague of mine, "don't think logically. You have to appeal to their emotions".

And so it has been through the centuries.
In politics.
In love.
And in money.
Everyone wants a quick fix, an easy way out.
Kings have fooled their subjects.
Politicians have tricked their voters.
Messiahs have blinded their followers.

Villains are created, emotions are stirred, and then the simple solution is offered.
And the people think, "What idiots we were not to think of this idea before.
Yes, surely if we kill all the Jews or Christians or Muslims or Buddhists or Hindus or the Red Indians or yellow-skinned or white-skinned or brown-skinned or black-skinned people the world will be a better place. Such a simple solution."

Politicians and rulers appeal to the emotion of hatred. Societies that breed on these emotions end up soul-less and eventually die. Historians are left to uncover and catalogue the mass graves and scarred hearts.

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A man in love does not appeal to the emotion of hatred. In fact, quite the opposite. The beautiful young lady casts a halo of possibilities to the impossible.

His income may be small, her spending habits may be large, but - when you are in love - it does not matter. Eating at expensive restaurants every day and shopping in the well-lit malls may not be affordable, but the person in love ignores it. This is only the courtship period, he consoles himself. Visiting her family and seeing her immersed in a life of luxury does not deter him. His love - their love - will see them through.

She will change, he thinks and we will move to a more modest lifestyle.
He must have some hidden wealth to keep us going, she thinks, as she clings on to her lifestyle.

Meanwhile, they cling to each other. And they cling to hope.
When the lights are on, they are in love.
When the lights are switched off, they swim in emotions of hope and optimism for the future.

But one day, the lover boy wakes up. He has bills to pay. Conquering his weakness for his love, he begins to suggest that they eat out less often, at more modest places. How about some home cooked meals?
Very soon, love evaporates. Other emotions set in.
The bills are still to be paid.

And the peasants wake up. They have no one left to kill. They have knocked out all the people they were told were their enemies. But they are still poor. The rulers are still rich. They begin to think of who the real enemies are.
They think rationally. And a new emotion sets in.

So there is nothing surprising when investors use their emotions to make money. After all, we use our emotions to vote, to fall in love and find our life partners. So why not use our emotions to make money. Emotions are the reasons we have failures.
"Life", said the divine Buddha "is suffering." It is these emotions and expectations that we have which cause that suffering.

But who cares what the late Buddha has to say. We all need our quick fix. We all have our dreams. If someone walks in and sells you a dream, you will grab it. You will buy it. You will then preach it for him. Your greed will take you in that direction. Buddha or no Buddha, you have chosen the path.

Markets, they say, are ruled by fear and greed. And they are. Everyone wants to make money. A lot of it. And not work for it. So when the TV news channel tells you to tune in for the "expert's best buy or strong recommendation", everyone stands around waiting. With great expectations. Emotions are charged. Greed rules. Salvation is soon to be upon us.

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And the expert gives his view. They give you a name of a hot stock. And it rises. Money has been made. The expert becomes a guru. More followers flock to him for counsel. His calls get more outrageous. More bold.

In a "bull" market - which, by definition means that everything you buy is going up - all the calls of the great guru will always rise in value and give profits to his followers. The guru becomes a mega guru - the TV channels beg for his presence.
And then the tide turns.
For reasons out of the guru's control, the markets turn sour. There are more sellers than buyers. More people have fear, they wish to sell. The number of people who are greedy declines, there are fewer buyers.
When there are more sellers of anything and less buyers, the price of that product will always decline. The same logic of demand and supply applies to the price of a share.

The followers lose money. Sometimes they lose all their money. The mega guru's views are no longer hailed by anyone. But the TV channels have to keep their 24x7 electronic bombarding of our brains. They analyse the history of the guru. What did he say, what made him right, what did he get wrong? The analysis is meaningless. It merely helps the TV channel fill in another 30 minutes of garbage to numb your senses. Meanwhile, they look for another guru to present to their viewers. Surely there must be some guru who can make money for all of us when markets are going down?

The internet makes everyone vulnerable to deceptively easy ways to make money. And the invitations to get rich pour in via email. Of the 500 million people with internet email ids, you have the honour of being discovered as a "badly needed friend".
Someone in Africa - who was the wife of some deceased leading politician - writes to you.
"I know you will help me", she writes," recover the money that my late husband left for me in a bank account in Switzerland. Please send me your bank account details", she urges you.
"I can use your bank account to get the money out of there and then share those millions with you", she writes with honest simplicity.
"By the way", she asks innocently, "can you also send me your credit card details?"

The email promises you the impossible. It appeals to your emotion of greed. Just like the guru's hot tips appeal to your desire to make millions and do no work for it.

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There is a sucker born every minute, said the legendary circus master, P T Barnum.
The gurus know that.
The brokers know that. The 24x7 TV channels know that.
That is why the TV channels have to always chatter and promise you something. They have to appeal to the greed in you.

Emotions are more powerful than rational thinking. Emotions are more powerful than a calculated risk. For every fool who accidentally made it rich by being a sucker, there will be hundreds with tales of woe - those who lost all they had.
For every fool who accidentally made it rich by being a sucker, there will be many more people who followed a simple disciplined approach to investing.
That is why you will never find a disciplined investor who is poor.
The disciplined investors leave their emotions out of investing.
The disciplined investors know that making money is hard work.

Keeping emotions out of investments is hard work.
But who wants to work hard these days?
There is so much money to be made every where. So much easy money.
Look at the geniuses on Wall Street.
They lost billions for the banks and finance companies they work for but they got their rewards and their personal profits.

Maybe people are waking up from these illusions.
They are poorer, we suspect.
And hopefully wiser.

Table 1: Suggested allocation in Quantum Mutual Funds
Quantum Long Term Equity Fund Quantum Gold Fund Quantum Liquid Fund
Why you should own it: An investment for the future and an opportunity to profit from the long term economic growth in India A hedge against a global financial crisis and an "insurance" for your portfolio Cash in hand for any emergency uses but should get better returns than a savings account in a bank
Suggested allocation 80% 15% 5%

Disclaimer: Past performance may or may not be sustained in the future. Mutual Fund investments are subject to market risks, fluctuation in NAV's and uncertainty of dividend distributions. Please read offer documents of the relevant schemes carefully before making any investments. Click here for the detailed risk factors and statutory information"

Note: Ajit Dayal, the author is a Director in Quantum Information Services Private Limited and Quantum Asset Management Company Private Limited. Views expressed in this article are entirely those of the author and may not be regarded as views of the Quantum Mutual Fund or Quantum Asset Management Company Private Limited or Quantum Information Services Private Limited.

Mutual Fund Investments are subject to market risks. Please read the offer documents of the respective schemes before making any investments.


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