What guides us in our decision - Is it Rational Thinking?
Time - 10 min
Recently, one of my friend Mohit who loves cornflakes found out that one other company is offering a discount of 30% on Oats and while he has never eaten the oats though he brought one packet of Oats.
Looking at this situation, he is satisfied that he has got 30% extra and the company is happy that they are able to successfully execute their marketing ..right?
No, if you think deeper while the company is able to sell their product however our friend Mohit still has to figure out few dilemmas before he can make it a win -win situation i.e. He has to start liking something completely new i.e. Oats and also he may have to unlearn the taste of Corn flakes to move towards something new.
While it may look like a small decision to make though it has got it own repercussions .
Recently one of my friend told me about a new CPSE ETF - An ETF launched by Indian Government thus mainly comprising of Govt companies i.e. ONGC, BHEL etc and while I do recommend ETF over Mutual Fund though considering it's an ETF comprising of Government companies - I recommended otherwise, the only reason being that I don't understand government policies, when it comes to running of organisations and these companies has not been consistent in giving the returns over the period of time.
On which my friend answered but 'It has given 28% in such a bad year' - So what ? - I still would recommend against it as I am not aware of these companies - It's ok if the whole world start liking Oats tomorrow though If i dont' like it, I will stand my ground.
Warren Buffett Calls it - "Circle of Competence" and says that 'It's not important how big your circle of competence is though how well have you defined its perimeter'. He further says that in life to being a good investor - you just need to find 10-15 great companies and stick with them throughout their journey.
Therefore, do stay away from Products you don't know else invest time in knowing about them. You may strike gold sometimes but then it would be gambling rather than a rational investing.
As, in this case my friend Mohit actually liked Oats and had a win - win situation.
If you like this article, do read these as well:-
https://goo.gl/EZFIkN :- Why stock Market is the next wave to build a nation.
https://goo.gl/r6qLpu :- Human Psychology and stock Market.
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