Parag Parikh, chairman of Mumbai-based Parag Parikh Financial Advisory Services, has recently authored a book, ‘Value investing and Behavioural Finance’, which we reviewed in our pages some time earlier. During a visit to Delhi, Parikh spoke to Sanjay Kr Singh about the malpractices within the stock markets that investors need to guard against. Warning the gullible, he says, was his primary motivation for writing this book.

What was your goal behind writing this book?

My purpose is to empower investors and make them aware of the problems within the stock markets. My goal is also to train them to be genuine investors and not speculators. As a Sebi-registered portfolio manager, I believe I am in a profession. Alas, money management and stock broking have become a business. For instance, we don’t allow our investors to trade in futures and options because it is not in their interest, but this segment has become a milking cow for brokers.

Further, when people become old, they become redundant to society. But if they have learnt to manage their money they will be independent. They will have a reason to read the newspapers for two hours everyday, and that will help them spend their time fruitfully.

What are some of the common behavioural weaknesses investors display in the markets?

Most investors resort to heuristics. It means that investors do not process complete information but take shortcuts, and this leads to behavioural biases.

The first type is availability heuristic. It means that people rely on information that is most readily available. Today people are scared about swine flu because the media is talking about it. But more deaths take place in India due to malaria, cholera, and drunken driving.

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