Chasing Investment Returns:

Story of Amateur Investors

Chirag Shahmachandran
 Stock Market
• The Stock Market
– Institution which facilitates the sale of various
securities from seller to buyer
– NASDAQ
– Dow Jones
– DAX
– Hang Seng
 Amateur Investor
• Little Experience or New to Stock Market
• Not Active in Stock Market
• Elementary Knowledge…at best
 Chasing Investment Returns
• Basing investment decisions on past
returns
• Purchasing stocks, using different
investment advisors solely to be in the
“hottest stock”
 Chasing Returns
• Negative Returns on Investments
• Heavy Losses
• 2000
• WPJPX ↑ 328.7%
• MSCGX ↑ 313.9%
• WPIJX ↑ 279.9%
• MFITX ↑ 273.1%
• ATCHX ↑ 248.9%

• 2001
• WPJPX ↓ 71.8%
• MSCGX ↓ 21.3%
• WPIJX ↓ 60.0%
• MFITX ↓ 56.4%
• ATCHX ↓ 63.9%
 $950

$270
 280 %

S&P 500 8%
Current Price = $17.70
 And the List Goes On…
•NFLD – Northfield Labs
•XNL – Xethanol Corp.
•TMTA – Transmeta Corp.
•AVCI – Avici Systems
•ACH – Aluminum Corp. Of China
•AMRN – Amarin Corp.
•And More!!!!!!
 Not Always…
• Many stocks have constant stable growth
since IPO
• Large Cap Value
– MO
– BRK-A
 Why Does This Happen?
"Investors should remember that excitement
and expenses are their enemies. And if
they insist on trying to time their
participation in equities, they should try to
be fearful when others are greedy and
greedy when others are fearful."

-Warren Buffet
 Reason
• Get in “hot stock”
– Often too late
– MSFT
– DRL
• Lack of Information from 1 type of
information
• Misinformation
 Emotion
• Pick “hot” stocks
– Stimulated by the possibility of increased
earnings based on past earnings
• Hype
• Hope
– Ignoring risk
• Previous Losses/Gains
– How much risk to take
 Suggested Dose of Emotion
• Investment gurus suggest not injecting
any emotion
Emotion = negative for making decisions?
For investing….YES
 Perception
• Overflow of information
– Investment Advisors
– Past performance
– Analysts
– Articles
– TV Shows
– Etc.

• Alters our perception of stock

 Language
• Bias of FA, Analysts, Spectators, Writers
– Bear/Bull Perspective
• Interpretation of recommendations and
predictions
– Skewed by emotions of company
 Conclusion…
• Investors should not rely on a single
source for information
• Confirm reasons why particular stock is
“hot”
• Objective
• Stick to strategy which matches
investment goals
"Long ago, Sir Isaac Newton gave us three laws of
motion, which were the work of genius. But Sir
Isaac's talents didn't extend to investing: He lost
a bundle in the South Sea Bubble, explaining
later, 'I can calculate the movement of the stars,
but not the madness of men.' If he had not been
traumatized by this loss, Sir Isaac might well
have gone on to discover the Fourth Law of
Motion: For investors as a whole, returns
decrease as motion increases."
- Warren Buffet