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Value Investing And Behavioral Finance

Understanding Behavioural Traits

The second chapter, titled 'Understanding Behavioral Trends,' examines the two components of equity returns, fundamental returns and speculative returns. Fundamentals are concerned with the returns from increased earnings and dividends. The speculative component is caused by the expansion or contraction of the PE. The speculative components are influenced by investor sentiment and can fluctuate dramatically.

 

The author advises retail investors to avoid getting carried away by market 'noise' and instead buy fundamentally sound companies at a low to a reasonable price.

 

Returns from the Sensex (1991-2007)

 

 

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