“Life begins at the end of your comfort zone.”
Of course you would have read this before from many motivational speakers or the successful people. Everybody knows the advantages but the objective of the following paragraphs is to relate the above line with an investor’s behaviour and our experience of the same while dealing with them.
5 years back when we started meeting up potential clients, we had faced an issue of resistance; there was primarily one reason for showing resistance for investing with Care PMS, when we shared our research reports on potential investment companies and the standard response was “I have not heard this name before” and that is where they showed up a behaviour of remaining in their comfort zone i.e. investing with the names that they were aware of or if they form part of top 100 / Index / A group companies.
There is absolutely nothing wrong with this behaviour and we believe this is a very good behaviour in order to ensure that your hard earned money should be invested in only something that you know. But there is a difference in “knowing the name” and “knowing the company” and this is where we believe an investor should emphasise on knowing the company in detail. The moment you hear a known name, you are in comfort zone and when you hear from someone else – you feel it’s a good company; which may not be necessarily true. On the other hand, the good companies which are currently not known will become known.
Impact of this behaviour
If an investor remains in the comfort zone where he wants to invest only in the companies where he has heard the name before or a bit familiar with and stays away from such opportunity; then the impact is that he will probably miss out on some good investing opportunity and the probability of generating good returns and creating wealth.
However, we would like to add that there is no reasonable certainty that the known names will ensure certainty of their capital or assuring good returns either. Please refer table below and probably it will make the point more clear.
We do not want to say that Large Cap companies are not good, we are just saying that all the known/ big / large cap companies are not necessarily good. There are good companies in that space as well.
The Conflicting Behaviour
We have also observed slightly conflicting behaviours from investors where as such they are not comfortable in investing in unknown companies but when they hear some names which is also known “Tip from confirmed sources”, we have noted that investor is willing to put the funds even though he would not have heard the name. Now that is interesting! and nothing more than speculating, period.
The Mistake – Classification of Mid-Small Cap / Large Cap instead of unknown / known companies
We have also noted that people say that they are not comfortable with Mid-Small companies but what we have actually noted from investor’s behaviour is that they are actually more concerned with the known names rather than the market cap because honestly majority of the investors would know the price of the company and not the market capitalization and its just more to do with the familiarity of the name of the company.
We have highlighted the table below wherein we did not face any concerns while explaining the companies in the Right Column of the table but on the left side of the table it required lot of efforts to explain them!
Conclusion – What to do?
We believe that the decision of investment should be based on the Quality of the stocks and not the size or the market capitalization or on the based on the familiarity of name.
The objective of this article is to break the general myth, move out of your comfort zone, explore the opportunities after understanding it better and take the challenge of investing in some good quality Mid-Small Cap Stocks that are not appeared in TV / Newspapers.
Last thought on this topic from a village elder in this field!
For years, stocks in large companies were considered “investing” and stocks in small companies were considered “speculation,” but lately small stocks have become investments and the speculation is done in futures and options
– Peter Lynch
Hope you also try and move out of your comfort zone in 2016. Have a wealth creating 2016!
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