FLAME INVESTMENT LAB

The Epicentre of Value Investing in India

The late Mr. Parag Parikh was (and still is) a highly regarded and respected stock market veteran. Beginning his career as a stockbroker in the late 1970s, he founded Parag Parikh Financial Advisory Services Private Limited in 1992, which in turn has sponsored PPFAS Mutual Fund.

He is especially renowned as a pioneer who applied the globally accepted tenets of Behavioral Finance while investing in Indian companies. 

In a world where making anodyne, politically correct statements is the norm, he charted a different course with his candid, sometimes acerbic observations on the Indian financial sector in general and stock markets / mutual funds in particular. However, no one could deny that each statement had a ring of truth embedded therein.

Being a prolific writer and blogger, his contributions to various reputed publications helped in conveying his forthright opinions to eager readers.

The two books authored by him viz. “Stocks to Riches” and “Value Investing and Behavioral Finance” enhanced his reputation as a thought leader and nudged readers to take a long hard look at their investing related foibles.  


Books

The essence of his two books is conveyed over here:

1. Stocks to Riches: Insights on Investor Behaviour

Investing in the stock market is challenging, as the market dynamics are unpredictable. Analysts, brokers and retail investors realize to their dismay that 'investments do well, but investors don't do well'. What could be the reasons behind this? What goes on in an investor's mind? What makes a stock market bubble? How does it burst? How does one find the right strategy of investing?

Intrigued by these pertinent questions, Parag Parikh, a seasoned broker and expert, took up this daunting task of understanding and demystifying investing in the stock market. 'Stocks to Riches' is the distillate of his experience. It simplifies investing in stocks and provides key perspectives for a lay investor venturing into the market. At the end of the day, it helps the retail investor reduce mistakes by following the time-tested and proven guidelines provided in the book.

A  few themes explored by him in this book include :

2. Value Investing and Behavioral Finance: Insights into Indian Stock Market Realities

“When others are greedy, be fearful and when others are fearful be greedy”. Ill-timed bouts of greed and fear among investors make stock markets volatile. Rational and successful investing is all about restraining and channelising these emotions and understanding Behavioral Finance, not market sentiments, crowd behavior or company performances.

At a time when market upheavals are eroding investors' confidence, dooming life's earnings and corporate fortunes, and whipping up mass hysteria, this book came as an antidote to investor anxiety and a guide to sane and safe investment decisions. Using investing trends in Indian capital markets over the last three decades, it shows how collective behavioral biases affect investment decisions, returns and market vagaries. As a corrective, it spells out long-term value and contrarian investing strategies based on the principles of Behavioral Finance.

Further, it advises on how to spot investment opportunities and pitfalls in commodity stocks, growth stock, PSUs, IPOs, sectors and index stocks. It also alerts the reader to a 'bubble' or crisis situation, and ways to identify and insure against it.


He was also at the forefront of disseminating knowledge as well as home-truths at various fora, be it colleges, symposia or on television, always exhorting listeners to apply what they had learnt.


Articles


Blogs


Videos

Introduction to Behavioral Finance

Part I - Behavioral Finance is the study of how people in general and investors in particular make common errors in their financial decision making due to their emotions. It is the study of psychology and finance. This is the common sense approach to investing!

Part II - This lecture talks about the emotions of Greed and Fear and the importance of making decisions in times of uncertainty. Introduction to the Prospect Theory which forms the backbone of Behavioral Finance.

 

Part III - Prospect Theory continues and a few real life examples.

 

Behavioral Finance Solutions:
Are you prone to the four biases of the Prospect Theory? You will find out in this lecture if you are, through a few quizzes, experiments and real life experiences. In addition the lecture will also highlight 'why stocks are the best hedge against inflation.

 

Why is investing confusing:
This lecture is about understanding investing, the paradigm of money, what type of investment planning is necessary and what sort of financial literacy is required to manage ones investments.

 

Mental Accounting:
Mental accounting is the shortcut the brain takes to assign different values to the same amount of money, depending on how and when the money has been acquired. We look at this phenomenon of mental accounting through 4 stories and a few interesting scenarios in this lecture.

 

Success and Failure:
The inaugural lecture deals with various characteristics of human nature which ultimately dictate if a person is going to be successful or not. Habits and our Emotional Quotient (EQ) plays a big part in how we progress in life. This lecture will form the foundation of the lectures to follow. They will elaborate on how one can use the principles of behavioral finance to be successful investors.

 

PPFAS Video Reources
https://www.youtube.com/user/ppfasltd/videos