Had a interesting conversation with a friend today and guess what he was holding PEL for 30 % of his PF ! So the discussion was long
And after the call after he told me with his permission I tried to deconstruct and post about the Biases and how his perceptions changed ! And as munger quotes no one is so smart to learn everything from own mistakes although I don’t consider it as a mistake I tried to de biased many thinking fallacies .
Hypothetically Watching a India 🇮🇳 and 🇵🇰 Pakistan World Cup Match and in last 5 balls India needs 15 runs and somehow we lose in last ball with 3 runs to make ! So how will India go ? Crazy and sad for another week of cursing and memes and the history of India beaten in a world cup match (the odds of making bets on India changes , I’m not a sports bettor though 🤩😂 , Not yet )
So that’s exactly what’s Deprival super reaction tendency we perceive near misses of a victory as something that’s taken away from us . So that’s actually what’s happened with PEL investors .
Piramal investors all were very happy when the deal with shriram was announced and there were very bullish people who expected a wonderful return on the investment but in recent past that did not work out so well and PEL had to exit the stake with a single digit return .
So what was going on ?
As an investor I feel that a big victory or big money has been taken away from me (Deprival ) even though that’s not the case when you analyze the situation rationally .
1. Piramal is known for his strategic timings in his previous deals and as an investor there are things that are outside our control – This is one !
2. Even after Knowing about Piramal they were not able to digest the fact he could exit anytime if he is not comfortable with an investment ( The right thinks to do if he feels so , As most bet on Piramals judgement )
3. Scarcity – They now think there is something Returns or the (compounding machine ) taken away from them even though that’s not the case .
4. There may be better opportunities in future envisioned by management so if you’re distorted by this news you may tend to miss the next big move .
5. Only if they fully understood the management ( Piramal is known for major moves) and they should have placed their bets based on this too else Deprival tendency is they result of borrowed convictions
6. Thinking in terms of 0% to 100 % makes trouble – People who are feeling a sense of lost returns could have thought of this event as 0 % that’s the problem Probabilistically speaking based on Piramals Previous bets they should have assigned a higher number ( Don’t think in 0 – 100 % that’s black and white thinking ) always its gray that I like as a decision maker !
As investors we need to have an Insight about the investment and foresight to use that insight this is the job of an investor . When you’re borrowing ideas and convictions from other people you may never hold onto any investments and results would be emotional hijack
So learnings from the event ?
1. Know why you’re making an investment . Is it a management bet ? A value unlocking bet ? Or is it a arbitrage opportunity and journal it so you can revisit and see your decisions ( I have a decision Journal and a Investment journal where I have written all my investments in last 7-8 years in detail)
2. Always think probabilistically – Embrace ambiguity and uncertainty as anything can happen . There’s a merit in thinking in Gray – and always there’s something in between ( Remember Osama Bin ladens capture in Abottobad was an educated probabilistic estimate )
Read : Thinking in bets as a starter
3. Try to establish Base rates on your investments
4. Don’t buy or sell based on borrowed convictions and What’s app groups discussions – It takes many months to research and wait for the right price to build up positions. Only than you can add up / Cut down based on your judgement.
5. Know the difference between noise and signal wait for the next big move that maybe investing into a asset of HFC or elsewhere .
6. Always be comfortable with dissent of opinions and ask What’s the other side of the issue ? And what do I want to be true ? #Debiasing questions
Disclaimer : I’m Registered SEBI Research analyst , we hold no positions in PEL , this is not a Recommendation. Only for educational purpose.