6 Reasons Which Often Wrongly Influence One’s Stock Market Decisions

We have mapped the six key principles of influence suggested by Dr. Cialdini with our stock market related decisions. Surprisingly, they are very close to majority of stock market investors in day to day life.

1. Reciprocity: We often find ourselves in love with one or the other stock just because they have given profit at one point of time. Mr. Sharma had made profit in XYZInfra stock in January. Since February (and now it is December) he is continuing to hold it because this stock had given him profit. Every stock (well most of the) goes through cycles. If you were lucky to make money in one stock at one point of time then identify the correct time to get out and ride the other upcoming wave. Sorry! Mr. Sharma your stock doesn’t recognize your love. So, don’t expect warm wishes from it on New Year eve. Get rid of it before it leaves you bleeding more.

2. Commitment & Consistency: At one point of time Mr. Nair studied well and researched about a particular stock. He also broadcasted his findings among friends’ circle during social gathering. Now, it has given enough indication to get out by moving in unfavorable direction. In spite of that Mr. Nair is holding his position because somewhere at the back of his mind he wants to keep his words and appear consistent. His findings from research and study might be correct at that point of time. However, stock price and direction depend upon many factors and some of them might have changed in between without his awareness. So, being flexible and getting out of the market at appropriate time (with minor loss in case our finding fails) is a much smarter move than trying to be consistent.

3. Social Proof: Every member in kitty party of Mrs. Nayak is investing in IPO of company ABC. She is compelled to put her money in the IPO even without knowing the expanded meaning of the acronym IPO. In stock market there is some strange power which always acts against the masses decision. It is an old saying if everybody is buying then it is time to sell.

4. Authority:Mrs. Kelkar has watched all business channels and followed all experts’ suggestions. They told company XYZ is at 150 and it will go up to 275. Buy at every dip, but they did not mention it will go till 75 before turning up to 275 in next 3 -5 years.

5. Liking:Mr. Kidwai is great fan of business tycoon Mr. Shah and Mrs. Kidwai is a fan of a sports person Mr. Nitin who endorses product of a company ABC. So, it is fixed Mr. Kidwai will invest in stock of company Shah & Shah (run by his idol Mr. Shah) and Mrs. Kidwai will invest in ABC. Sorry! Mr & Mrs Kidwai, it is not bathing soap Flux which you have chosen by influence of advertisement by your favorite star (even knowing by rational mind they do not use it really). You may forget the fragrance of your bathing soap just after coming out of bathroom but you will never forget if you lose your hard earned money due to wrong investment decision.

6. Scarcity: We often get authentic rumors like company Q&Q is going under such and such reform and their stock is bound to jump by 5X or 10X factor. It has already gone up by 50% in last 45 days just catch it before it zooms up. Mr. Verma based on such authentic rumor puts all his investment potential in one basket known as Q&Q equity. Mr. Verma is not part of top management of the company; he is also not part of govt. body which approves such plans, not a consultant in Q&Q, not in accounts and auditing and not even an employee or vendor of Q&Q. Many folks are up in queue who know this news upfront that is why the reason stock is reflecting 50% up in last 45 days. Now, probably they are looking for next level of buyers, so that they can cash 50% return in 45 days which is handsome and realistic return on investment in comparison with 5X or 10X hope that they are selling to next level of buyer. Now you may have got idea why it is authentic as well as a rumor.