Social Trends are Risky Investments:- In our daily life we are moving towards a society where we are curious about others are doing. Behavioral finance says that we are mostly driven by the psychology rather than mathematics. In 2004, we have seen these phenomena for the first time. Once the stock market starts rising, people start moving slowly and gradually into the market. By 2007, every second people in the metro cities were investing in the market or had taken exposure in the market with different instruments.

Same kinds of investments happened in real estate, in 2008=09 onward, people start taking exposure into the real estate without knowing the advantages and values. Broker kept on changed the valuations and people started believing and took the exposure. Most of these investments happened due to strong recommendation of peers and family members. In a recent survey it is found that 90% of these investors did not take any professional help and advice.

In this demonetization drive also we see that people know that keeping black money is risky and any time government can take action. But they did so because their peers are doing so.
In the long run, we find that when a person takes his decision without any logical thinking, he tends to make mistakes and end up with wrong products. A person who negotiates for Rs. 50 in a parking area writes a 10 lakh cheques without even much thinking.

Social trends actually create the bubble in any asset class. Recently people are jumping into midcap and small cap stocks because last three years returns are good. They don’t actually try to understand that how the small and mid cap stocks will do in future. End of the day, they got stuck in these stocks and made huge losses.

The investors need to remember that the loss is going to make him suffer not the crowd. The people who live by social trend usually make more losses than profits. So be cautions when some of your friends or family member advise you without much knowing.