Portfolio Media

Behavioural biases to be wary of in a bull market

Anand Kalyanaraman Satya Sontanam | Updated on December 14, 2020

The market is on a gravity-defying trip, never mind the naysayers. At record highs, the Sensex is now up about 12 per cent year-to-date and 75 per cent from its March lows. It trades at about 33 times trailing price-to-earnings, higher than its past averages.

But like many big bull runs in the past, this rally too could turn into a frenzy with many retail investors burning their fingers due to ‘irrational exuberance’. In this situation, a reminder on the behavioural biases that we all are prone to, can be useful.

Behavioral finance principles are relevant across market conditions. But they find more resonance in extreme markets — raging bull or bear — which induce severe bouts of greed or fear among investors.

In this week’s Big Story, Anand Kalyanaraman, from BusinessLine’s Research Bureau, explained some key behavioral biases seen in raging bull markets like the current one, and how you can guard against these.

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Published on December 12, 2020

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