In-Conversation with Vaibhav Jain, CFA, CMT

CFA Society India had the pleasure of interviewing Vaibhav Jain, CFA, CMT for its current edition of member newsletter.

Siddharth: What are the key behavioural biases that investors commonly exhibit, and how can these biases affect their investment decisions? 

Vaibhav: The top 3 behavioural biases which I have seen many investors exhibit include:

Loss aversion bias, where they might sell their winning shares immediately booking small profits, but let their losses keep going higher, as they don’t want to feel the pain of losing money.

Another one is herding behavior. They might tend to enter into a trend based on what others are doing, but won’t check if that’s fundamentally making sense to them, according to their investment objectives and risk profile.

One bias that is often observed in individuals who gained a few years of experience in the market, especially during bull runs when they initially entered, is the tendency to exhibit overconfidence bias. An initial good run, when probably every other stock was going up, would make them overestimate their ability to pick stocks. This bias is also seen in people who hold degrees and certifications in finance but with no practical market experience.

Siddharth: Could you provide an example from your experience where you’ve observed a behavioural bias influencing investment decisions, and how was it managed or mitigated?

Vaibhav: Behavioural biases are a common challenge for investors, and if you ask me to name one that I have personally encountered and managed, is the “Availability Bias” in my own investment journey. This bias involves overemphasizing information that is readily available or easily recalled.

In my earlier, less experienced days, I used to analyze a large number of stocks, often over 100 at a time. This extensive list made it challenging to conduct in-depth research on each stock, leading to a reliance on readily available information or recent news.

To manage this bias, I made a deliberate shift in my investment approach. I reduced my watchlist to a more manageable number, typically around 50-60 stocks. This adjustment allowed me to allocate more time and resources to conduct thorough research on each stock.

Siddharth:  In your experience, how have technology and data analytics been leveraged to better understand and manage behavioural biases in investment management?

Vaibhav: Technology and data analytics, particularly in Quantitative (Quant) based investing, have significantly reduced the impact of behavioural biases in investment management. These approaches rely on systematic processes and algorithms that make investment decisions based on historical data and predefined criteria. By automating the decision-making process, technology minimizes the emotional biases that can lead to impulsive actions and suboptimal investment choices. 

Moreover, data-driven analysis and risk management systems continuously monitor portfolios, ensuring that they align with predefined strategies and risk parameters. Overall, technology has empowered investors to make more disciplined and rational investment decisions, enhancing their ability to manage biases effectively.

Siddharth:  What role does emotional intelligence play in successful investing, and how can one enhance their emotional intelligence in the context of financial decision-making?

Vaibhav: Developing emotional intelligence is important for successful investing as it helps in managing emotions and thereby managing risks better. High emotional intelligence also fosters resilience, helping investors bounce back from losses, learn from mistakes, and adapt their strategies.

To enhance emotional intelligence in financial decision-making, mainly investors should practice self awareness and self regulation. Self awareness helps investors recognize when emotions are driving decisions. Creating a structured investment plan to follow during market fluctuations, maintaining a journal for all investment and trading decisions made, right or wrong, and if all this isn’t working then seeking guidance from registered investment advisors will help.

Siddharth:  Could you please share about your volunteer journey with CFA Society India?

Vaibhav: My journey with CFA Society India as a volunteer started in 2018 with the Professional Learning committee, in Mumbai chapter. I was privileged to work with a great team and got various chances to brainstorm, plan, manage and execute lot of events in the last 4-5 years, my favourite being Box Cricket every year. Being a volunteer, I also got various networking opportunities with the best minds in the country and enhanced my personal brand value. In this entire journey, CFA Society India has given me much more than what I can ever contribute to the society.

About Vaibhav Jain, CFA, CMT

With over 10 years of experience in the financial services industry, Vaibhav is currently the Head of Content and Education, Share.Market. He led the strategic partnerships, sales, and content development for the platform, leveraging his expertise in private and investment banking, portfolio management, and equity capital markets at WealthDesk. Before joining WealthDesk, he was a Partner at Edelweiss Financial Services, where he managed the portfolios of high net worth clients, as well as private equity and venture capital partners. Prior to that, he was an Associate at Deutsche Bank, where he worked on the origination and execution of several landmark equity capital market transactions in India, including the first ever REIT listing in the country. He is a CFA Charterholder and a CMT Charterholder, and holds an MBA from IIM Indore and a dual degree in Computer Science Engineering and Finance from Jaypee Institute of Information Technology.

About Siddharth Jain, CFA

“Siddharth Jain is a CFA Charterholder, FMVA designated, and did MBA in finance. He has over 11 years of experience in finance, valuation, and analysis. He worked at S&P, Resurgent, Deep Industries, E&Y and currently working at RKL LLP (a client of Staffing Global Network LLP) as a Senior Valuation Analyst. In his current role, he works on target company valuation (M&A), Private company valuation, Equity compensation valuation, and finance due diligence projects. He recently wrote a book “Business Valuation: A handy guide for Beginners and Professionals” which has been well received by the readers in India & abroad. Siddharth is an active volunteer of Public Awareness Committee (PAC) of CFA Society India”