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Optimism

  1. 1. Confidential: For Limited Circulation only Optimism 1
  2. 2. Confidential: For Limited Circulation only Have you ever found yourself taking decisions which will be better-off than similar and like-minded decisions that people around you take? Looking only at the brighter side?  Optimistic bias seems greater on issues that are more a matter of personal control, which suggests that it is largely due to people overestimating how skilled they are relative to other people.  People tend to overestimate positive events. So it's this difference between your expectations and the outcome, where the former are slightly better than the latter.  Optimistic bias is a well-established illusion that one's future is rosier than it really will be. 2
  3. 3. Confidential: For Limited Circulation only What is it?  Simply put, optimism bias induces people to over-estimate the favourable outcomes of the investments they have made.  Investors with too much optimism may overestimate the relative value of their investments and put too much confidence in their investing savvy.  Such investors believe that bad investments will not happen to them—they will only afflict “others.”  Investors underestimate risk in their portfolios and end up with concentrated and under-diversified portfolios. How can we identify it?  Investors may overload on their own company stock assuming competitors may not do as well.  Investors may end up ignoring factors like taxes, fees, inflation, etc. that significantly affect the long-term benefits of compounding. 3
  4. 4. Confidential: For Limited Circulation only Examples  People expecting to complete personal projects in less time than actually required.  Most smokers believing they are at less risk of developing smoking-related diseases than others who smoke.  Final year college students overestimating the number of job offers they would receive.  You expect your portfolio of selected stocks to do much better than your friend’s portfolio without a rational analysis. How do we overcome it?  Succumbing too frequently to optimism bias usually deteriorates savings. So, people attempting to combat this bias should invest wisely at every opportunity.  Have a justified asset allocation.  Have a trusted financial advisor. 4
  5. 5. Confidential: For Limited Circulation only This Information Package is distributed on a strictly private and confidential and on a need to know basis exclusively to intended recipient. This Information Package and the information and projections contained herein may not be disclosed, reproduced or used in whole or in part for any purpose or furnished to any other person or persons. The Persons who are in possession of this Information package or may come in possession at a later day, hereby undertakes to observe the restrictions contained herein. The information contained herein is of a general nature and is not intended to address the facts and figures of any particular individual or entity. The content provided here treats the subjects covered here in condensed form. It is intended to provide a general guide to the subject matter and should not be relied on as a basis for business decisions. No one should act upon such information without taking appropriate additional professional advice after a thorough examination of the particular situation. This Information Package is distributed upon the express understanding that no information herein contained has been independently verified. Further, no representation or warranty expressed or implied is made nor is any responsibility of any kind accepted with respect to the completeness or accuracy of any information as may be contained herein. Also no representation or warranty expressed or implied is made that such information remains unchanged in any respect as of any date or dates after those stated herein with respect to any matter concerning any statement made in this Information Package. All recipients of the Information Package should make their own independent evaluations and should conduct their own investigation and analysis and should check the accuracy, reliability and completeness of the Information and obtain independent and specific advice from appropriate professional advisers, as they deem necessary. Where this Information Package summarizes the provisions of any other document, that summary should not be relied upon and the relevant. The information contained in this document is confidential in nature and the recipient is receiving all such information on the express condition of confidentiality. If you are not the intended recipient, you must not disclose or use the information in this document in any way whatsoever. If you received it in error, please inform us immediately by return e-mail and delete the document with no intention of its being retrieved by you. We do not guarantee the integrity of any e-mails or attached files and are not responsible for any changes made to them by any other person. Thank You ! 5 Safe Harbour

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