Tuesday, February 24, 2009

Financial Psychology - A Must Have?

I was speaking to the senior management at a fairly large IT company a couple of days ago. I noticed that there was something different with them. In the past whenever I had met them, it was easy for me to tell how things were going on just by looking at they way they spoke, behaved and carried themselves. A year ago the very same people spoke with quite a hint of arrogance and ego. Today on the other hand it is very easy to say that their ego and arrogance have disappeared. Unfortunately now they are the complete opposite of what they were at that time. Now their spirits are broken and they surely are in desperate need of some self-confidence and motivation. 

There is a thin line between self-confidence and arrogance. Crossing over the line from being self-confident to being arrogant is one of the major reasons so many “supposedly invincible” businesses are in trouble. At the same time giving up hope and being constantly depressed is a sure shot way to sink. 

Very few people have paid attention to the psychological aspect of finance. Even people who study finance in a professional way are not taught about how they can learn a lot about the finance by studying the mindset/psychology of the individuals running the business. One of the most important rules of being an investor, businessperson or successful human being is to never let ego get to you. Success, wealth and power tend to attract arrogance and ego. As mentioned in the past also, these are thing that can cause the downfall of the most intelligent people. 

Unfortunately even the best MBA schools on the planet have not paid attention to something that on the face of it might seem very basic, but has immense value and importance. A few years ago I was speaking to someone from Harvard and telling them how important it is to teach students about financial psychology and mindset needed to be successful investors, business owners and managers. Today we know for sure that old rules of investing and finance – no longer work. The entire world economic system is collapsing because of a lack of these basic fundamentals. Do read this story on Forbes– How Harvard’s Investing Superstars Crashed. I’m sure such things could have been avoided by taking a few very simple steps. At the same time, when the biggest and brightest crash out, it also means there is a huge opportunity for new people to make the most of such rare happenings. 

Ramalinga Raju of Satyam, also happened to be a Harvard alumni and even Enron had an Harvard angle to it. This just proves how important it is for us to have an education system across the world that is more balanced and isn’t just about making bigger and bigger castles in air on people’s money and credit. I don’t mean to blame any single institution here and all I am trying to say is that a major reform is needed in the way knowledge is imparted. Finance and money can never be just about balance sheets, numbers and figures. There is much more to it. 

Financial psychology as a subject will help people figure out when things are going wrong and when to stop. There is nothing wrong in being wrong and accepting it, only when that is done can we bring about new changes. A lot more people today have realized the importance of living a more balanced life – the problems associated with a society which just wants to consume more and more with the help of credit have already been seen in America. 

People who are financially independent are in a much better position to face economic uncertainties. One of goals of The Happionaire™ Way is to make sure that financial education is made more relevant to more people on this planet – right from MBA schools and senior executives to children just entering school and people just starting to work. It has already started, you reading this is proof of that, but there are still millions more with whom we need to share our knowledge. I’m sure that with God’s grace and support of Happionaires across the world we will be able make this dream a reality. 

A sneak preview of Happionaire’s Cash The Crash is also up on our website. Do check it out, I hope all our fellow Happionaires like what they see and read. It should be hitting stores across the country soon. It wouldn’t have been possible without people like you, who have such a strong desire to learn more in this rapidly changing world. 

Keep smiling and keep learning! There couldn't have been a better time than now.

Yogesh Chabria 

Sometime ago I had done a book review for a friend's book - 
What Your Financial Agent Will Tell You And Why You Shouldn’t Listen by DeepaVenkatraghvan


Gopinath Mavinkurve said...

Financial management is certainly a mindgame. Oh how could Harvard not include psychology in the curriculum for their business course? Turbulent times are the best for getting into the equity markets for the long term (atleast 3 years). Your optimism will bear out in time to come. However what worries small investors is the scale of the financial sickness and apparently the patient has just been admitted to ICU and recovery is certain to be slow and painful. That apart, your optimism lights up like a glow-worm in the darkness of the forest.

Anonymous said...

I would have been shocked a year ago if I cam to know Harvard had made such huge investment losses. When Harvard has made losses we can imagine how important it will be to bring this change.

I agree with Gopinath - The Happionaire Way is one of the most wonderful discoveries I have made. At our workplace all of us very eagerly wait for your posts and discuss them. I work for an investment fund. Your post on Raju made all of us have lots of interesting discussions.

Anonymous said...

I had a friend who had gone to USA to do his MBA - but I was surprised at how much ego and arrogance he got after he got back.

You are right - they need to be taught about the importance of being humble.

And when is CTC out? It looks amazing and I found the topics very interesting. Typical of you Yogesh - you surely know how to make things fun.

Anonymous said...

There is a huge oversupply of MBAs all over the world right now. What I would suggest is that all of them should get some practical skills and knowledge.

Couldn't agree anymore with Sumitra for Cash The Crash. Am sure to pick it up!

Anonymous said...

I agree with U Yogesh.
Can v see 2009 as investment year. I mean time to do investments. With falling intrest rate, property and stock prices.

When CTC will available in the market.

rc said...

Your blog is amazing and very very interesting and at the same time gives peace to mind that thing will be ok soon. I read ur Bank of India blog found very interesting plz share some more. Can u plz tell me the technique to read the balance sheet of a company.

And eagerly waiting for CTC.

Anonymous said...


I am another one of your fans and I found your Bank of India story very nice. As a request, it would be great if you could have a weekly show on TV so we can learn more and at the same time be entertained.

I am sure Cash The Crash will do very well and I'm waiting to get my copy. I read the preview and also what an amazing cover design. I would suggest that you send signed copies to every bookstore and a few lucky people there can win them. I really want to have an autographed copy from you. This is surely the next huge bestseller in the country.

Will keep on learning.

Anonymous said...

Excellent to learn about the subject of Financial Psychology. I always discover something new here. Sir, as a suggestion why don't you start a course where you can share your knowledge - it will help a lot of people? I am sure you are busy, but you can always structure the basics and then have teachers teach it. This will not just appeal to us in India, but people all over the world. I would love to be your first student!
I keep checking out bookstores to see when CTC is coming and also online websites. Please don't make us wait so long for it - really want to read it.

Anonymous said...

Dear Yogesh,

As I could not get a copy of ITHW from nearby city, I bought a copy by post from Network 18 directly. It was really wornderful to read and I could not keep it down before finishing it. I have also recommended this book to many of my friends. I am waiting for your new book Cash The Crash.

benny, Jalandhar

Mob: 9216064023/9256064023

Anonymous said...

I agree with you Benny, till I didn't finish reading the book I didn't stop reading it. Also I ordered it online as here in Nagpur, I couldn't find bookstores that have it.
I am really waiting to read Cash The Crash soon and after reading the initial intro - it really got me to think more for myself and feel very motivated to benefit from the present situation.

Anonymous said...

Dear Chabria Sir,

I am an MBA student and a lot of us are big fans of your ideas. We have regular discussions about your writings and have learnt a lot.

As Suraj suggested, why don't you develop a course that can help people learn more about finance. I would suggest that a fairly intensive course of even one month can be offered. I would love to take it.

Best of luck with Cash The Crash! Will surely be amongst the first buyers!

Long live The Happionaire Way!

Anonymous said...

Hi Yogesh,
The behavioral finance is an integral part of market study or anything related to finance. These guys forget it at good times. Harvard losing money in derivatives and borrowing to cover itś position seems very shocking. They have forgotten fundamentals of finance and surviving with the help of a false racket.

Same with the Indian IT guys they do not know where their hands and legs are.

Quick question for you. How long do you think it will take us to find the ground of this fall?

Do you say that the Big IT company is in trouble or they need only pshycological help?


The Happionaire™ Blog said...

To be honest this isn't surprising - Harvard isn't an exception. Even Isaac Newton, a man who told the world about gravity and the theory of relativity made huge losses by investing in the South Sea Company - also known as the South Sea Bubble.

He was a genius at maths and science, yet those aren't the main qualities needed to invest and create wealth.

I will write a bit about when I think this Crash will end, in my next post. It is a question lots of people have asked.

It is nice to see so much interest from fellow Happionaires in CTC. Just a couple of weeks more and it should be available across stores.

Keep smiling and keep looking our for opportunities!

-Yogesh Chabria

Anonymous said...

I always learn something new here Yogesh. It is surprising that even Newton made losses. I guess when it comes to business and investing, practical experience and being humble and open to not knowing is more important.

I think that is why more highly skilled people like - doctors and engineers might not be as successful at investing and business. Just my views though.

Like all the other happionaires amd very very very very eager to read CTC!