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The Odds are in my favour !!!
I’m on holiday in Goa and what’s life without a little thrill. I’ve set aside a few thousands to gamble over the weekend at the casino. I’m hoping to get lucky and have some fun. A few hours and halfway into my weekend, I find myself at the roulette table. I’m feeling good, sure that I’ve finally cracked the system got around the numbers and I’m ready to turn my recent down streak into big bucks. A final deep breath and I place my bets…
I’m right where the casino wants me… Confident and sure that I can win.
All casino games are rigged. Everyone loses money eventually if not immediately. The odds are against the gamblers. Gambling gets people for what their worth: emotionally, mentally and financially. But it can’t happen without our active support, and most of it is self inflicted.
We can lose a few thousands at the casino but the effects of overconfidence can be devastating while investing. It’s not hard for some of us to believe that we can beat the market. To other it may appear as being self-centered and arrogant but then we have a system and we are confident that it works.
Humans are hard-wired to see themselves in the most favourable terms. We are confident about our ability to foresee the future and are optimistic about our forecasts.
This overconfidence gives us the sense that we are above average drivers, endowed with above average beauty and blessed with above average intelligence. When things however do not go as per our forecast we often blame the environment but seldom ourselves.
Overconfidence and over-optimism are particularly prevalent when decisions must be made in conditions of uncertainty. In these situations we tend to miscalculate the risk of events and only perceive outcomes that will have be favorable to us . We thus do not take appropriate precautions.
Investors who lose money more often (and in greater amounts) than they should, often do so because of overconfidence. Overconfidence can lead to the conviction that one is only buying investments that will be highly profitable and one is only selling investments that no longer have significant upside potential. We tend to;
• Taking more risk than we have the ability, willingness or need to take
• Failing to diversify the risks we do take
• Investing disproportionately in a particular stock/ Asset class or security
• Trading too often
Of course, if overconfidence and over optimism were the only behavioral biases we needed to worry about then we might, just be able to overcome these on the way to becoming better investors. But they are a starting point.
My tryst with overconfidence has taught me ..
“Before you attempt to beat the odds, be sure you could survive the odds beating you.”



Capital is the lifeblood of industry. Companies have access to capital in the form of equity capital contributed by shareholders and debt borrowed from lenders. Most companies take debt to grow. Debt is a necessary part of a company’s capital structure as it helps to build businesses that grow and generate returns for the shareholders. Companies resort to debt to :
1. Leverage the initial capital to scale up the business
2. Grow & build assets
3. Meet short term cash flow mismatches
4. Reduce tax burdens since interest costs are tax deductible
Building assets can help the company grow and generate higher turnover and sales. If, however, the asset delivers return less than the cost of debt, the company can get into a serious cash flow problem. Debt magnifies both the gains and the losses. Debt unlike equity has a fixed cost in the form of interest to be paid. Companies in cyclical industries are affected by the vagaries of income. These fluctuations can affect the company’s ability to service debt. A company that struggles with its debt burden has to first to pay its interest cost, leaving very little left for the shareholder.
Debt issued by the company has a claim on the company’s assets. Highly indebted companies run the risk of losing this collateral (along with it the growth) if they are unable to settle and service their debts.Borrowing additional capital against the contribution of shareholders equity is called leveraging. Too much debt taken against too little equity is like building a house on a weak foundation. These companies work to benefit for the lender since most of the revenue first goes to pay the lender.
In boom times when money is cheap some companies tend to borrow and invest in sub optimal projects. A turn of events and this could prove detrimental to these kind of companies. The key to magnify returns is to invest in businesses that are cash-flow positive and generate returns way above the cost of debt. The lower the debt the more there is for the shareholder.
IDFC Premier Equity Fund buys companies that are efficient allocators of capital, have lower debt and have used this leverage sensibly to generate great returns.

This product is suitable for investors who are seeking* :

  • Create wealth over a long period of time
  • Investment predominantly in equity and equity related instruments across market capitalisation
  • High risk. (BROWN)Risk Categories

    Note: Risk may be represented as:

    • (BLUE) investors understand that
      their principal will be at low risk

    • (YELLOW) investors understand that
      their principal will be at medium risk

    • (BROWN) investors understand that
      their principal will be at high risk

*Investors should consult their financial advisers if in doubt about whether the product is suitable for them.

The Disclosures of opinions/in house views/strategy incorporated herein is provided solely to enhance the transparency and should not be treated as endorsement of the views or as an investment advice. The information/recommendation provided is for informative purpose only and may have ceased to be current by the time it may reach the recipient, which should be taken into account before interpreting this document. The decision of the Investment Manager may not always be profitable, as such decisions are based on the prevailing market conditions and the understanding of the Investment Manager. Actual market movements may vary from the anticipated trends.This information is subject to change without any prior notice. The Company reserves the right to make modifications and alterations to this statement as may be required from time to time. This update has been prepared on the basis of information, which is already available in publicly accessible media or developed through analysis of IDFC Mutual Fund. Neither the IDFC Mutual Fund / IDFC AMC Trustee Co. Ltd./ IDFC Asset Management Co. Ltd nor IDFC, its Directors or representatives shall be liable for any damages whether direct or indirect, incidental, punitive special or consequential including lost revenue or lost profits that may arise from or in connection with the use of the information.