International Yoga Day 2018: What yogic principles teach you about avoiding financial mistakes

Many perceive that the only benefit of yoga is to help us become physically fit. However, digging deeper into Yogic principles can help unearth its rich wisdom to improve every aspect of life. Insights from Yoga make you approach even tasks like ‘Financial Planning’ with a peaceful and calm mind.

Approaching equity markets armed with the knowledge of yogic principles, can help you avoid common financial mistakes and accelerate your journey on the path of wealth creation. Let us see how.

Mistake: Confirmation bias

We often form an opinion about stocks we want to pick beforehand and then seek information which corroborates our decision to invest in the stocks of our choice. This skewed perspective is called confirmation bias and often leads to flawed decision-making.

Yogic solution: Yogic principles talks about Panchakleshas or the five major causes of suffering. One of the Panchaklesha is Asmita, that is, ego. When we remove ego from the equation, we open our mind to opinions, which though contradictory to our point of view, are right. Applying this concept in financial planning will help us to make unbiased assessment of our investment decisions leading to prudent investing choices.

Mistake: Hearsay

Several youngsters today are wary of investing in equities because their parents share stories of relatives or friends losing money in equity markets. Hearsay coupled with lack of knowledge makes people stay away from markets even though they may not have any firsthand experience of investing in equities.

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Yogic solution: Dvesa, one of the Panchakleshas, expresses itself as an aversion rooted in ignorance. Yoga says that we must clear our mind of Dvesa for a healthier, happier life. Rid your mind of dvesa as it will not perceive the real value of equity as an investment opportunity. Seek help if you need clarity, instead of staying away from this growth instrument just because of your aversion based on someone else’s experience.

Mistake: Anchoring bias

Every Diwali, we see a rush to buy gold. Even though it is expensive and not the best option as an investment, Indians spend on gold and jewellery as a part of traditional customs. This tendency to take decisions based on a reference point in the past, even if it is not related to any event in the present, is called anchoring bias. Investors display this bias when they hold investments that have lost value, because they are stuck to a price and are unwilling to exit the market below that price.

Yogic solution: One of the expressions of feeling explained in yogic principles talks about the importance of Gyana. Gyana says that it is crucial to cultivate understanding and gain knowledge about every situation before taking action. When we conduct a thorough analysis and gain knowledge about the fundamentals before investing in a stock, we are bound to make sound investments instead of getting swayed because of irrational biases. Applying this principle in financial planning can help us make the most of our investments.

Mistake: Disposing effect

Has it ever happened that after you sold a stock to book profit, the price of that stock goes up through the roof? If you have experienced this, you might have fallen prey to a common mistake that most investors make. The tendency to sell stocks too early when the price goes up, while holding on to a stock for too long when the price is going down is called disposition effect. Driven by emotional reasons, such as feeling good by making a gain or reducing the stress by cutting loss, often leads to selling the winners, and holding onto the losers.

Yogic Solution: Practicing Vairagya or ‘doing nothing’, is an apt strategy to avoid such biases. Once you have made an investment in a long-term instrument, like equity, after due diligence ignore all the noise in the market. Equities are known to offer inflation-beating returns in the long-term, hence practicing Vairagya with such investments can help to avoid hasty decisions and consequent loss.

(By Arun Thukral, MD and CEO, Axis Securities and author of Yogi on Dalal Street)

Source: DNA Money