The general understanding of making money in the stock market is that investments and trade calls should be based on some form of supporting facts i.e. the decision to trade or invest should be based on some analysis, be it fundamental or technical or a combination of the two. But that is not what actually happens. A study by Andrew Willis in 2001 found that investors and traders across categories place a huge emphasis on emotions when picking a stock. This stands equally true for a retail investor with limited knowledge and resources and a professional portfolio manager. Chances are that if you ask your broker to manage your portfolio, then depending on the commission he gets, he will try and clone your portfolio with stocks his brokerage has positions in. The irony is that in periods of extreme volatility, brokers picks stocks with very high beta and the maximum range on intraday movement. So if IT stocks are booming, it would be very common to see traders, investors and brokers pick up positions in Satyam and Infosys with limited or no analysis.
And you thought that they spend hours analyzing a stock for you….
1 comment:
Well should agree to this.. My broker did the same with me and the pick was RNRL:(
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