Trap 4. ‘Look At Mr. X, You Should Also Do The Same’

Citing others’ behaviour to convince you to buy a product or make a financial decision is, perhaps, the oldest trick in the book. If someone tries to do that, treat it like a red flag and make your decisions keeping your own situation in mind.

Let us take an example. Suppose your broker tells you that you should immediately invest in certain small-cap stocks because they have given over 50 per cent returns in 2023, and one of his clients has doubled his money because of them. Here, it’s important to note that 2023 was an exceptional year for small-cap stocks and it will unlikely repeat.

Let’s take another example. The 56 listed public sector undertakings (PSUs) that are part of the Bombay Stock Exchange (BSE) PSU index posted a cumulative profit of over `5 trillion in 2023-24, an all-time high. “Someone who had invested in PSU stocks may have made a killing and may also have booked profits. But if you start investing in PSU stocks based on their behaviour without doing any research, you are likely to be disappointed,” says B. Srinivasan, director and founder, Shree Sidvin Investment Advisors.

Srinivasan explains that as no two people have the same circumstances, they cannot mimic each other’s investing behaviour. “Even if you have a friend who is of the same age as you, with a similar job and salary, following his behaviour may not right for you,” he says.

Let’s say, someone tells you that person A with a similar profile as yours invests `1 lakh in SIPs every month, and you should follow the same. But that someone may not realise that you may be paying home loan instalments, while person A may not. So, you may not have as much disposable income to invest as person A and won’t be able to mimic his investing behaviour.

So never mimic another's investment behaviour.