Managing Advice

For an investor, it’s normal to be stopped by a stranger and asked for advice on a specific stock. This tends to happen more often in bull markets. When a seeker asks for advice, they often already hold a view and at times may even have undertaken an investment. In such instances, what the seeker seeks is validation. Finding validation is challenging if you already have a bias. Holding a position tends to bias the situation even more. If the seeker receives advice contrary to his thinking, he is not going to receive it well.

Advising in such situations is extremely tricky. The only solution is to state a view, clarify that it is a personal opinion, and tell the seeker to make his own judgment. In a market polarised towards a few dozen stocks and just a couple of themes, this tends to have a recoil effect. The seeker tends to be aggressively biased by recency and moves on to argue over the opinion given when it does not gel with his investment view. Advising in such a situation is not a good idea.

The market will take its own time to change its mind. So continuity of advice is critical in such situations. It is best not to give any view as more people tend to get hurt. We are in a market phase where continuity of advice is most critical. Random advice runs a high risk of failure. Both persons receiving and giving advice must engage with each other only with a commitment to continue engaging. If not, one must avoid engaging in such conversations.

A phase where the market turns fast is before us. This phase can stump everybody and one must approach advice from both sides with utmost responsibility.

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