Somewhere an article compared the skills of investing with skiing. It is interesting how the mastery of these two very different activities require similar and very counter-intuitive techniques. Mastery of skiing requires us to conquer our fears of falling. To go down a slope, we must lean down the mountain; and to turn, we must lean into it.

Similar is the case with investing. We are afraid of going against the public sentiment. When the world is enamored by an investment trend, it is difficult not to be a part of this trend. The thought of being left behind and not profiting is a strong motivator to join. This is our greed in play. Similarly, to hold onto something whose basic fundamentals is strong but is not in favor anymore creates fear. The fear of being the loser is an equally strong motivator to sell. And this combination leads to “Buy High, Sell Low” behavior. Thus, in investing as in skiing, we need to learn the counter-intuitive skills of overcoming our greed and fear.

Behavioral finance is a relatively new field that seeks to explain our actions against the backdrop of modern finance. It postulates that investors are not necessarily rational beings, or at least not where finances are concerned. It includes observable, systematic, and human departures from rationality into standard models of financial markets. And proves, investor behavior has its effects on the market prices & returns. This contradicts the belief that financial markets are efficient.

As per some of the findings, men trade 45% more than women and sacrifice an additional 0.94% of their potential return as a result. Another finding is that loss aversion causes investors to sell winners too soon and hold on to losers too long.

The above findings are just the tip of the work done in behavioral finance. Research has been done in numerous aspects of human behavior. One example is how people “anchor” themselves to a certain price while trading and their future actions get determined by this anchored price. If a stock is bought at price X, to buy the same stock above X gets more difficult. We keep waiting for the price to go down so that we can buy it again.

To read more about this interesting aspect of finance, search on “behavioral finance” and you will find wealth of information on the internet.

— Lavina Nagar

— Lavina is a financial planner and founder of Maya Advisors, Inc. She can be reached on 650.704.3074 or 

Disclaimer: This article is for information-purposes only, and may not apply to your unique situation. Nothing in this should be interpreted to be a recommendation to anyone to purchase, sell or hold any security or product. It does not replace a lawyer, accountant, financial planner, or other professional advice.

Buy low, sell high – the most common tenet of the investment world. Sounds very basic but how does one do this in the absence of a crystal ball? Well, there is one technique – rebalance your portfolio. Not only this lends you a discipline that leads to buying low and selling high, it also ensures that your portfolio reflects your investment goals and your risk profile.

Let us take a simple example of this. Say on Jan 1, 2010, your target asset allocation was 30% fixed income and 70% equity and you had $100,000 to invest. You decided to implement your portfolio using ETFs AGG, a bond ETF that represents the total United States investment-grade bond market and SPY, another ETF, which represents S&P 500 Index. However, by the middle of Jan 2011, AGG had gained ~2.7% whereas SPY had gained ~13.50%. This resulted in your portfolio being 28.00% in AGG and 72.00% in SPY. So what do you do? You sell the extra 2% in SPY and buy AGG with that cash. Now your portfolio is back to its target of 30% in fixed income and 70% in equity. And in the process, you have taken the gains that SPY rise had given and bought AGG which had performed less spectacularly than equities.

So, why rebalance now? The bounce in stocks in 2010 and drop in bond prices in last few months would have definitely had its impact on most of the portfolios. Also, there are still a number of investors who are in cash. This can be a good opportunity to decide how you would like to deploy and invest that cash. There is no perfect time to rebalance but once a year is a good frequency for most investors. This gives them a discipline and an opportunity to review their asset allocation. An asset allocation reflects each investor’s personal financial situation, their investment goals and their risk profile among other things. As time passes, we should make time to review whether our asset allocation still represents our current personal and financial situation correctly. A time allocated for rebalancing can give a framework in which to make this decision. It is almost like setting the clock in spring and fall. Make this a habit and you will be glad you did it.

— Lavina Nagar

— Lavina is a financial planner and founder of Maya Advisors, Inc. She can be reached on 650.704.3074 or 

Disclaimer: This article is for information-purposes only, and may not apply to your unique situation. Nothing in this should be interpreted to be a recommendation to anyone to purchase, sell or hold any security or product. It does not replace a lawyer, accountant, financial planner, or other professional advice.

No, this is not a tongue-twister. Or maybe it is, but not the normal kind. Ancient language of Sanskrit, despite its phonetic cleanliness can be a tongue-twisting language, with its combinations of half sounds and compound words. It holds a place in the history of mankind equivalent to Greek and Latin. It lets us peep in the past and see a bygone era of poetry and drama, science and technology, philosophy and religion that transcends time and space. And one of its little gems that have stood all tests of time is “Athi Sarvatra Varjayet” – excess of anything is bad.

This time of the year particularly brings this sage advice to the forefront. As the year starts on a fresh page, it provides a sane perspective to portfolio planning. Concentrated portfolios are a sign of excess – excess of greed or fear or inertia. I know of someone who once had an unrealized gain of over seven million. Only to see it dwindle down to a low hundred thousand after the dot-com bust. The culprit? Not greed, not fear, just inertia. And this is still a happy story. As many in the valley will tell you, not all such stories have a happy ending. And yet, most common issue we see with most of the portfolios that we come across is the concentration – concentration in one security, and equally common, concentration in one sector. And you can guess the sector. It is either technology or bio-tech. One of the portfolios I have seen could have been more easily managed by selling all its holdings and buying a simple index fund or ETF on Nasdaq; giving an added advantage of avoiding the illusion of being diversified!

On the other hand, you will also come across innumerable stories of people who have made fortunes by finding and concentrating on a single idea. It does work and works pretty well when all the stars are aligned. But a single misalignment can be a recipe for failure. For prudent investors with life goals and aspirations, concentrated portfolio is not the recommended approach. Life is not judged by bragging rights; it is judged by achieving your goals on your terms and within your timeframe.

May the New Year bring you and your loved ones good health, cheer and peace!

— Lavina Nagar

— Lavina is a financial planner and founder of Maya Advisors, Inc. She can be reached on 650.704.3074 or 

Disclaimer: This article is for information-purposes only, and may not apply to your unique situation. Nothing in this should be interpreted to be a recommendation to anyone to purchase, sell or hold any security or product. It does not replace a lawyer, accountant, financial planner, or other professional advice.