The investors have been exposed to over 250 products in his life that he starts losing the ability to distinguish them. The human brain gets conditioned to the good and bad performance of the products. It tends to X-ray the products offered with the same frame and accordingly chooses the products. Over a period any deviation to the set pattern is taken as an aberration. While the mind says “stick to the known” the rational brain says” why don’t you try something new to know if you were missing something?”
The investment in some of the exotic and complicated products happens when the investors climb down from the ‘rational-brain’ state to the ‘’emotional-brain’ state. The investor remains mostly unstable of any major decision and is vulnerable for amendments if strongly insisted. This leads to a variety of anomalies which I call as “Investor’s Color Syndrome”.
Investors face the following color syndromes
- Product Blues Syndrome: Investors are excessively carried by faith in the product such as Chit Fund, Benefit fund or Deposits that they will refuse to believe that other products will work. He suffers from “Product blues” by which he is carried away.
- Knowledge Green Syndrome: Some investors build overconfidence on all products having understood some basic facts. It tends to be a half-knowledge that becomes dangerous. This is typically a “Personal bias” on what he likes or chooses and tends to believe that it never fails.
- Fear-Greed Red Syndrome: Investors tend to have extreme views about products as to how they will perform. They either nurture a high degree of ‘greed’ that it will generate a high return or sometimes become pessimistic and ‘fear’ that it will worsen or never live up to expectations. A typical red alert syndrome.
- Feedback Yellow Syndrome: Investors tend to follow the feedback from TV media, people, newspaper or magazine that advocates strong views leading to parasitical view causing a ‘jaundiced eye’ in everything they see leading to this Yellow Syndrome.
- Market Black Syndrome: – Some investors think that things are either bad or good based on superficial information. They may not have an eye for details as they will lack the time to research on the product or markets leading to a lopsided decision on investment. This is characterized by a lack of visibility and the forecast of market which is, in general, a very common syndrome amongst investing population referred to as Black box Syndrome. As in the case of the aircraft from which the black box is recovered only to understand what went wrong, post the event occurring.
- Money Brown Syndrome– Investors tend to choose products based on freebies, contest, prizes, and kickbacks offered on a product to decide his investment leading to inferior selection referred to as “Brown envelope syndrome” . The offers are either in cash or in-kind and sound lucrative to hide the deficiencies in the maturity value of the investment. Alternatively, some smart investors tend to skim the revenue from the advisor under the ploy of competition only to receive deficient services.
Insurance to permit a window of exit with no applicable loads if for some reason the investor is not happy. This can help them come out of the Advisor’s Halo Effect. Since the last product sold if it has worked good the investor will feel good to buy the next one from the same advisor.
Alternatively, it can work the other way as well. In the current market condition, it has what is called “Reverse Halo Effect”. This is basically a counter-productive as in the most cases when equity investment have not been good, the investors stay away from the advisor who has recommended them in the bad days of the performance.
So investors should guard themselves against these Syndrome and Halo Effect to help make the right investment decision in life.
The table below helps to know the role of advisor, investors and external factors impact on the entire decision and possible Cost-benefit Analysis
| Performance Determinants | Weights |
|---|---|
| Market | 40% |
| Advisor value | 20% |
| Investor ability to understand | 20% |
| Fund Manager Value | 20% |
| Total | 100% |