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What you don’t know can cost you a lot of money January 06 2017Market Psychology

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Many young investors, when they look for inspiration, look at Warren Buffet. They live and breathe by his teachings and why not? The man is a legend and they are hard to come by.

Of course, the problem occurs when they finally know his life story, his ideology and that Rule 2 is not to forget Rule 1 but they have no clue how Nifty is being calculated.

 

The conundrum of learning

“Risk comes from not knowing what you’re doing”

If an amateur investor has to place emphasis on the words of the people that inspire them, this quote by Warren Buffet is where they should start. Using a search engine to get advice about investment or even trading has become commonplace. There is no denying that it does come with its benefits but are they quantifiable?

Information accessible by all may not necessarily be pertinent to decision making, rather it is the analysis of this information that should form a part of decision making.

 

There is a hole behind the painting on the wall!

Everyone is familiar with the tragedies of hidden costs, the feeling of the windows being opaque never comforts the traveler. We look for the “conditions apply” tag in everything but when our money is considered, we let it slip. The tag of having incomplete knowledge is the most lethal one because it often leads to tangible losses.

 

Conditions do apply

Investor education and protection are advocated for a reason and that reason often coincides with the mitigation of loss caused due to incomplete information. It is imperative to not just read up on literature but also educate oneself.

Financial Literacy should be the primary factor while making investment or trading decisions. Being able to understand money and all the questions that go with it is crucial. It starts with how to earn money and grows into much bigger queries such as how to manage it, save it or multiply it. Answers to all of which form a strong foundation to go ahead with.

 

Investor Education and Awareness

By definition, the capacity to read, analyze and understand investments and investment vehicles is referred to as Investor education. If you keep the technical jargon aside, it is simply the understanding of the different streams of investment or the market you are trading in. Grasping the idea of financial instruments and how their value is derived can help you avoid unwanted loss. 

Essentially, it is about knowing completely where you are putting your money and why!

 

The Specialization Theory

Many retail investors put up a strong argument against investor education saying that they shouldn’t have to put in so many efforts when they are already paying commission?

The counter to this is a plain and simple- “It is your money”

For example, It is good that you can afford a nurse to care about you full time but you would still like to know what are you suffering from and what medicines are being given to you in order to cure it.

Similarly, even if professional assistance can cure you faster, being aware can make a huge difference.

 

Importance of Investor Education and Awareness

 

As Benjamin Franklin has wisely said, “An investment in knowledge pays the best interest”. 




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