How to manage Investors Behavior?

When market goes down all of us are coming with slogans like “Manage your Client’s Behavior” but have we ever think why our client’s Behavior is Changed like that?

Find the cause so we can manage it

When we go to doctor for any treatment Dr always ask some questions to find the cause of your illness. If Dr treat us without knowing the cause, we will never be cured properly. Same way if we don’t know what is the cause behind the change in Investor’s Behavior, then how can we manage it?

We should work like an Ayurvedic medicine instead of Allopathy medicine which provide temporary solutions to the problem.

Do not dig wells when fire is taken.

We should not wait for the problem to be arise. it is better to control the enemy and the disease before it starts. We should hunt for permanent solution for the behavioral problem.

One basic rule of managing investor’s behavior, is educate them properly and show them reality, instead of exaggerated picture of the Market. Our Sales Speeches will be the reference books for our clients in future, for taking their decisions in all conditions.

If investor misbehave while down fall, Solely Investor is not responsible for that, we are also equally responsible for that because we failed to educate him, Market may fall also. Our Sales Speech is always about Returns and Growth only in the Market, we deliberately forget that market may go down.

Once your investor is educated with true knowledge of markets behavior and how to react on that Market trends. Your client’s behavior will automatically be changed because the way of looking towards Market is changed.

Dissect Marketing Strategies

Now a days we are facing the massive problem of Change in Investor’s Behavior mainly due to 2 reasons.

First of all disturbed cash flaw of investor due to CoVID-19, That is also because of lack of planning for Emergency Funds.

Second one is Due to lack of proper education provided for an investment while marketing. Our marketing strategy and speeches are always revolves around the following points.

  • Targeting Returns
  • Ignoring Safety
  • Marketing based on calculators instead of reality.

Still, we are repeating the same mistakes. Instead of educating about dips in the market, why it is necessary for an investment and how to get benefited out of it, we are just educating investors to stay away from the market and keep sips continue. You can see the psychology of distributors from following pics.

Now see the below-mentioned table and see if your market dips 60% (61%) then it has to be recovered 150% (156.41%) to reach the same level

Tobe Recovered

Now study other falls of the market.

Now if you have educated using above picture and the same situation arises your client will expect after such recovery his portfolio will be 2.5 times what it was before the correction but in reality, the portfolio is just leveled.

He who suffers knows better

The main cause of change in Investor’s behavior at downfall in Market is, the valuation which dropped of an investment, because of market downfall, was investor’s own. We forget that every owner of hard-earned money will suffer a most when it reduce. Till the investors money is with us we try to convince him that its OK whenever market goes down investment values also gets affected and will increase when market recovers just explained in above example “Correction is Temporary, Growth is Permanent” but same feeling will be experienced by us when the investor withdraw their money because now its our turn for baring losses so we are getting frustrated and start sayingDo Not Convert Your Notional Losses in to Real Losses“. I am not saying that we are saying wrong but we are not seeing other side of the coin. We should also have some strategy like “Convert your Notional Gain in to Real Gain” book the profits when it was at higher side “Do Not Convert Your Notional Gain In To The Notional Losses“.

SIP-Protection-7 years 04-2013-03-2020

It is the same portfolio which was gaining few months ago is facing heavy losses now a days because we do not have any strategy against disruptions in the market. When we go through Behavioral Science we will understand that the Pain of losing is more than Happiness from Gain

Loss-Gain-Feelings

The Pain of losing is more than the Happiness from getting Profits of same amount if the investor is not informed about the possible losses.

In our next blog we will discuss One Interesting case of Behavior Management.

WHAT IS STOPPING IFA FROM BECOMING A LIMITLESS ADVISORS.

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Know More: BLTP – The NeXT Gen Investment Strategy

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