"The Closer You Look, The Lesser You See"

Earlier this month, Businessworld hosted a daylong Mutual Fund Summit at Mumbai. The summit was attended by over 300 IFA's, and witnessed more than 30 industry stalwarts sharing their views on diverse aspects of the MF distribution business.

Amidst the largely technical and strategic sessions that followed, Nikhil Naik, Chief Growth Officer, NaikWealth drew upon his years of experience in dealing with clients to deliver a highly relevant and entertaining talk titled "Getting into the mind of your client".

Naik began by describing the general inclination of investors to concern themselves with recent, sensational news and events, and how this tends to blindside them from viewing the big picture. He used an interesting movie clip to drive home the point that "the closer you look, the lesser you see". He used an interesting visual aid to describe how we tend to succumb to mental traps.

Naik quoted the example of how Sir Isaac Newton (one of the finest human brains) also succumbed to mental traps of investing, losing significant amounts of capital in the bargain.

"Our brains are hardwired to see patterns", said Naik. He went on to show some very interesting examples of how we try to look for familiar designs in things that we see in our day to day lives - although no real pattern might even exist in the first place.

Naik next went on to describe the optimism bias which blocks out investors from properly estimating the probability of a bad outcome, thereby leading to decisions made out of euphoria rather than sound logic.

In this manner, Naik brought a host of interesting mental biases to the fore, citing interesting examples in each case. He also offered that the difference between 'investment return' and 'investor return' is the behaviour gap (that is, the return loss caused by taking irrational decisions)

According to Naik, "Grit" is the most essential element of life as well as investing success. He quoted Angela Lee Duckworth, who famously stated that Grit is "living life like it's a marathon, not a sprint". In the parlance of financial investments, "Grit' would refer to the passion and perseverance to pursue very long term goals, said Naik.

He signed off with the simple message that Advisors can help their clients avoid most of the mental traps associated with investing by keeping them aligned to their long term goals and investment objectives. Wise words indeed!