Dear All,

Please find below an article as appeared in Bussiness Standard for your reading:

Is it time for stocks without brokers?

Why do investors need a broker to buy stocks which were dematerialised long ago and can be delivered directly into their accounts?

The word is disintermediation. With the proliferation of lavishly funded e-commerce enterprises, this is happening in every sphere of activity. The grocer, the mobile store guy, the taxi company, the banker, the real estate broker and the mutual fund distributor are some of the people who were earlier indispensable to our lives and are now going out of business. Technology-driven platforms and applications (‘apps’) are replacing these intermediaries, creating a win-win proposition for both manufacturers and consumers.

Yet, in one area which took to technology earlier than others, nobody talks of direct access to consumers. People in the big cities have learnt to buy books, mobiles, shoes and even something as personal as lingerie online. Why do they need a broker to buy stocks which were dematerialised long ago and can be delivered directly into your account?

The Securities and Exchange Board of India (Sebi) implemented direct plans for mutual funds since January 1, 2013. By June that year, these plans came to account for nearly a quarter of the sector's assets under management. While the initial push came from debt funds, recent reports suggest around half of the fresh inflows from retail investors in equity funds are through direct plans. This shows that investors, even smaller ones, are gaining confidence about choosing and making their investments online.

Even the insurance sector, with a more powerful intermediaries lobby, has seen the advent of online products that allow you to buy insurance and unit-linked investment plans directly.

Now, for someone, who can understand an insurance policy with its numerous terms and conditions and buy it online, buying a stock without the help of a broker should not be a difficult proposition. Why are Sebi or the exchanges not even thinking aloud about it?

After all, what great help is a broker to a small investor? Common sense demands that the broker deploys his best resources to some of the larger clients. So, you are going to get some a fresh-from-college relationship manager who might only be parroting what he heard on TV this morning to push the stock his boss wanted him to.

In addition, you are showing your cards to a potential competitor in the market. Most broking firms have a proprietary book where it uses its own money to buy and sell stocks. Nothing stops your broker from playing against you, despite the obvious conflict of interest. What is worse is you are paying him to fleece you.

This column would not be enough if one begins quoting anecdotes of retirees and widows falling prey to wrong broking advice and seeing their life’s savings vanish in thin air to margin calls. Brokers often use the client agreements to absolve themselves of any responsibility in such cases. As in the recent scams, after playing along, they don’t think twice about being turncoat and play the victim.

No wonder big successful investors on the Street like Rakesh Jhunjhunwala have their own broker licence. Large corporate treasuries also often execute through their own broking firms. Beside the considerable savings on transaction costs, these big guys are also able to play their cards close to their chests, an underplayed but critical factor to investment success.

Online trading has been available in the market for years. But, there is still a broker who sits in between, providing the platform and charging a fee. It is not the objective of this piece to advocate the end of stock broking but, if an investor wants to do without it, he should have an opportunity and an avenue to do so.

http://www.business-standard.com/article/markets/is-it-time-for-stocks-without-brokers-115060101165_1.html

ear All,

Kindly find below a good article as appeared in Thefundoo.com for your reading:

Can The Regulator Impose A Fee Based Model?

Various steps have been taken of late by the regulator signal towards making this industry leaner from cost perspective, but is it ahead of its time or does it need to change its approach altogether?

In 2013, the AMFI introduced the investor advisor regulations with an intention of changing the rules of the game. Recently an FAQ came up regarding the same. This perhaps brought back to general memory that two years ago regulators asked the advisors to choose whether they want to sell or advise. At that time, the regulator probably ignored that there was a niche market for fee-based advising in India. Things haven't changed a lot since then and the market for fee-based advising continues to be very limited.

Is regulator trying imposing fee based model?

In this blog I just want to put up a few basic questions, starting with,“why is the regulator imposing thefee-based model on this industry?” I am not questioning the advantages of this model nor am I opining that we should never move to the fee-based model. I just have one basic question: what is the hurry when the industry is not prepared for it? Why can’t we wait for the industry to stabilize and then let the market forces decide what system will prevail? 

Ahead of time?

The regulation came up in 2013 and till now only very few advisors have registered with SEBI.Is it not enough an indication that the industry needs time?

In addition to that, recent reforms such capping of upfront commission are being introduced in our industry indicating a shift that the regulator is intending to bring:a shift from the current commission-based model to a fee-based model. 

Any market has two major forces, the buyer and the seller,and in this case the investor and the distributor/advisor. When the investor is not willing to pay fees for advice and the advisor/distributor is happy working for commission, whenthe mutual fund industry is picking up in India, does it make any sense to impose a fee-only model and hamper growth?

Regulators Rationale

The regulator’s rationale behind fee-based model is curbing mis-selling and guarding investor interest. 

This is fair enough but why is it always about protection, reservation, guarding in India? Why can’t we focus more on empowering the investor rather than imposing bans and caps everywhere? Our focus should be on making the investors aware and educating him so that they can decide for themselves rather than staying guarded.

Way Head

I agree that world over, financial advisors survive on the fee-based revenue model, but that is because their market has attained a level of maturity. By market, I mean both, the investor and the advisor community. All the stakeholders there have come to this consensus based on market forces. In India too, the market will eventually reach that level of maturity and adopt a suitable revenue model.That suitable model could be the existing commission-based model, the regulator’s choice fee-based model, or a hybrid. 

http://thefundoo.com/welcome/articlepage/110/Can+The+Regulator+Impose+A+Fee+Based+Model%3F

Family, altruism and experiences top priorities of the affluent middle class

Dear All,

Kindly find below a good article as appeared in Cafe Mutual for your reading:

Family, altruism and experiences top priorities of the affluent middle class

Spending on grandchildren, children and partners is the main indulgence for Indian consumers, finds a Collinson Group research.

Today’s affluent consumers place a higher priority on family, altruism and enriching experiences, ahead of luxury products and short-term satisfaction, shows a research from Collinson Group.

The research was conducted online in Brazil, China, India, Singapore, the United Arab Emirates, USA and UK with 4,437 consumers within the top 10-15% income in late 2014. 

The study found that spending on grandchildren, children and partners is the main indulgence for Indian consumers. Giving back to charity and the community, and protecting the environment also rate higher than buying leading brands and driving a luxury car. Affluent Indian consumers also expect banks to behave ethically much more than other nations (79% vs 68% globally), states the release issued by Collinson.

The study has divided mass affluent category into four groups - Mid-Life modernists, Prudent Planners, Stylish Spenders and the Experientialists.

Mid-Life modernists are the most prominent tribe in India and are characterised by their enthusiasm for technology. Prudent Planners are motivated primarily by family and trying to help others.  The Stylish Spenders yearn for the finer things in life. Finally, there are the Experientialists who put ‘money-can’t buy experiences’ at the top of their priorities.

Prudent Planners

Prudent Planners are the largest tribe representing 41% of the overall sample. This group is motivated primarily by family and altruistic goals and is most prevalent in the United States and United Kingdom.  Three quarters of this tribe (76%) cite spending time with family as their top indulgence and they have a higher than average interest in giving to charity (31%) and protecting the environment (30%). As the largest proportion within the affluent middle class at 41%, they are particularly valuable customers but are less motivated by material products and spend less time using technology such as smartphones or apps. Prudent Planners travel less than the other tribes but still take an average of six business and leisure trips a year. 

Stylish Spenders

In contrast, Stylish Spenders seek the finer things in life. This tribe is most common in China and the United Arab Emirates and is four times more likely to buy leading brands than other affluent middle class consumers (76% compared to 22%) and drive a luxury car (70% compared to 25%.) This is the group which invests the most in travelling in style across all aspects of the travel journey. Stylish Spenders are a small but very influential tribe with over half under 34 years of age (55%) and 32% earning over $190,000 per annum. Despite their high spending power, this group is the most loyal to brands they trust, participating in an average of five loyalty programmes and feeling loyal to up to eight brands. 

Mid-Life Modernists

Mid-Life Modernists stand out for their enthusiastic use of technology, with 61% citing gadgets as their biggest indulgence, 90% spending more than five hours a week using their smartphone and 45% spending over 20 a week online via a computer. Mid-Life Modernists are well represented in India and Singapore. Digital experience has a significant influence on this group and businesses which invest in this area can create powerful advocates amongst Mid-Life Modernists. This tribe is willing to endorse and promote a brand they feel loyal to via social media, with three quarters prepared to recommend a company to their friends and family; 74% more likely to make a repeat purchase from a trusted brand and 67% saying they are engaged members of loyalty programmes. 

Experientialists

Unique, ‘money can’t buy’ experiences and exclusivity rather than standard products and services motivate the Experiential tribe.  This group is prevalent in China, the United Arab Emirates and the United Kingdom and are most likely to enjoy experiencing a different culture (76%) and use travel as a way of keeping in touch with friends and family (67%).  Experiences such as spending on holidays (81%), dining out and luxury foods (64%) are also a priority.

Use of technology differentiates the tribes

The research shows a strong correlation between the most active users of technology and willingness to recommend and endorse brands they trust.  A group of ‘technophiles’ spend over 20 hours a week of their leisure time on the Internet and are avid users of apps, social media, online shopping and streaming of digital content. Within this group, 72% are willing to make a repeat purchase from a brand they feel loyal to, 70% would recommend that brand to friends and family and 53% will choose this particular brand even if it is more expensive. 

There are however clear differences in how the tribes prefer to use technology. For example, Stylish Spenders particularly value information which is personalised to them as well as the opportunity to tell others about access to exclusive destinations, hotels and restaurants via social media channels.

Smartphones, apps and digital experiences are valued by Mid-Life Modernists and offering promotions and price comparisons via mobile devices, particularly those that can benefit a whole family, is an effective way to engage with them. 

Prudent Planners continue to value face-to-face interactions and retaining this as an option, rather than solely focusing on digital channels, is important for this sizeable segment.

Experientialists “live for the moment” and expect brands to regularly update digital content and offer unique experiences to maintain their interest. 

http://www.cafemutual.com/News/Family,-altruism-and-experiences-top-priorities-of-the-affluent-middle-class~439~Ana~Trends~41

regards

Dear All,

Please find below a good article for your reading:

Things Financially Mature People Don’t Do

Jaws dropped during that classic scene in the 1995 movie Sabrina. Sabrina’s father is revealed to be more than just a quiet chauffeur with a passion for good books. He’s shockingly a millionaire! How did he accrue such wealth on a presumably modest salary? By imitating the investing habits of his prosperous employer. You too can learn from financially mature people. You can avoid costly mistakes by watching what they do – and perhaps more importantly, what they don’t do.

1. They don’t spend more than they make

A recent Yahoo Finance study found that “fewer than half of Americans are spending less than they earn.” This problem is compounded by high credit card interest rates. If you’re finding it difficult to stick to a budget, try switching to cash as your currency. This will quickly stop the bleeding because once cash is gone the spending has to stop.

2. They don’t wait until the end of the month to see how their money is doing

Credit card bills should be formalities, not surprises. Expense tracking apps(or a pen and paper) help you stay on top of your money.

3. They don’t pay for subscriptions they aren’t using

Gym memberships, magazine subscriptions, and season tickets to your favorite team’s games are great – if you actually use them. Spend some time going through your credit card statement and cancel a few forgotten subscriptions. Chances are, you won’t miss them.

4. They don’t overlook small expenses

Small expenses add up. Look for opportunities to reduce them. Relax the air conditioning when you leave the house, turn off the lights in an empty room, use a refillable water bottle instead of buying a new case every week.

5. They don’t automatically spend “surprise money”

Tax returns and birthday money don’t have to be spent the day they’re received. Put some in savings, or use it to pay off debt.

6. They don’t use shopping to help them feel better

Shark Tank’s Kevin O’Leary argues that “retail therapy” should be avoided altogether. But come on now. We’re the species that invented sugarless candy – surely we can redeem the post-break up shopping spree? Here’s an idea: When heartbreak or frustration beckons you to the mall, think of one item you actually need. Maybe it’s a new pair of work shoes or a birthday gift for a friend. Set a “budget” for yourself and take only the CASH for that item. Then, enjoy a little shopping.

7. They don’t gift shop at the last minute

It happens to the best of us. We remember a birthday or anniversary with mere hours to spare. Then we’re off the nearest store in search of a last-minute gift and in our panic, we buy something expensive to hide the fact that we don’t have a card and the gift isn’t wrapped. Gifts are given to express love and affection. Shopping a little sooner can help you find a thoughtful, less expensive gift that shows how much you care. 

8. They don’t eat out every meal

A recent experiment conducted by the Boston Globe found one home cooked meal cost half the price of a comparable restaurant meal.

9. They don’t waste leftovers

One of the easiest ways to make eating out more affordable is to simply save your leftovers. You can turn one meal into two.

10. They don’t let purchased food expire

Throwing away food is throwing away money. If you struggle with stinky fridge syndrome, try making more frequent trips to the grocery store. Buy exactly what you’ll need for the next 2 or 3 days, instead of “stocking up” for the week or the month.

11. They don’t spend money without stopping to think

Have you ever examined an old purchase and wondered, “What was I thinking?” Financially mature people ask the right question: “Do I absolutely love this?” Skip this step, and you’ll find yourself in need of a garage sale.

12. They don’t buy clothes they won’t wear regularly

Closet full of clothes yet “nothing to wear”? Save space and money by searching for versatile pieces you can’t wait to show off. Here’s a minimalist who’s happy to show you how (with photos).

13. They don’t buy something just because it’s a discount

An old episode of The Lucy Show poked fun at this common mistake. Lucy chided her friend for buying a 50lb bag of dog food. Her friend defended herself saying “that was half price.” To which Lucy hilariously replied, “You don’t have a dog!” If you find yourself thinking “These shoes are half off, and they’re not that bad,” take the money and buy a pair of shoes you actually like. You’re more likely to get some use out of them.

14. They don’t buy anything without asking the price

It’s an old trick. Selling stuff without ever mentioning the price and it works, because we’re often too embarrassed to ask how much something costs. We don’t want anyone thinking we’re poor, but we have it backwards. Poor is what you’ll be if you don’t ask the hard questions.

15. They don’t avoid expenses that save them trouble and money in the future

Getting the oil changed may be annoying, but it’s cheaper than a new car. Getting your teeth cleaned may be uncomfortable, but would you rather have a root canal? When you’re trying to cut back on spending, trim from the fat, not the essentials.

16. They don’t buy into get rich quick schemes

When people really do strike proverbial gold, they probably don’t tell the world about it in a “business opportunity” seminar. Financially mature people know that wealth comes through hard work and good choices over time.

17. They don’t forget to set financial goals

Without a clear goal and a doable plan, people tend to stay right where they are. Good goals illuminate the path between where you are and where you want to be.

18. They don’t let past mistakes keep them from improving

Peek at the statistics and you’ll quickly learn most of us aren’t very good with money. With practice, patience, and persistence, you can grow into financial maturity. You just have to get started. There’s an old saying. If you want a big oak tree in your backyard, the best time to plant it was 20 years ago. The second best time? Right now. Use these tips to start imitating the financially mature. Because let’s face it. Life’s more fun when there’s some money in the bank.

regards

Dear All,

Please find below a very good article as appeared in Live Mint on Value Investing for your reading:

The mystery of value investing: How is value unlocked?

A good value investor never lets her capital leave home without an identified catalyst

Chairman J. William Fulbright: What causes a cheap stock to find its value?

Benjamin Graham: That is one of the mysteries of our business, and it is a mystery to me as well as to everybody else. [But] we know from experience that eventually the market catches up with value.

Testimony to the Congressional committee on Banking and Commerce, Chairman: Senator Fulbright (1955).

How a “value” investment finds its value is one of the enduring mysteries of this discipline. While value investors themselves struggle with this concept, non-value investors get frustrated and many don’t adopt this technique because they just cannot see how it can be done. Many reject it since to them, ex-ante, a value investment is likely to remain undervalued for an indefinite period.

What gives a value investor confidence that value will be unlocked? There are different kinds of value stocks, and the precise answer is different. But the answer lies in one word: catalysts.

The Oxford English Dictionary defines it as a person or thing that precipitates an event. Let us take the case of a stock that is bought below its net asset value. Say, the principal assets are cash, stocks, bonds or other liquid assets on the books. In this case, announcements of a special dividend, stock buyback, acquisition or expansion plans, which will increase operating assets that have high profitability, will act as catalysts. Sometimes a mere management change will be enough to catalyse the value unlocking process.

In some companies, which have a division that has significantly low profitability and which is hampering the growth of the whole company, an announcement of either selling the division or getting it listed independently will also act as a catalyst. Another potential catalyst in the case of a highly indebted company is the announcement of equity infusion by a strategic investor with the aim of reducing the debt. For cyclical companies, as sales begin to pick up, profitability starts to increase, either from losses towards profits or from lower to higher profits. The first quarterly earnings report that turns positive is quite often the catalyst.

One can get into these situations, before the event, knowing the potential catalyst that can unlock the value. But the timing is still not known. A typical horizon can be of two-three years, but can sometimes be as high as five years. For these situations, one needs to know that the company is available at a nearly 50% discount to its intrinsic or net asset value. This means that after the catalyst unlocks the value, the stock will eventually double. Assuming that the holding period is one year, this will mean a 100% compounded annual growth rate (CAGR); for two years, it will mean 42% CAGR, 26% for three years, 19% for four years, and 15% for five years. This means that as long as one buys a stock at a significant discount to its intrinsic value, even a fairly long holding period can give decent returns.

Now, we move to the typical case of a value stock that is profitable but without growth in earnings. The fact that it is profitable is more important than the specific profitability. In these cases, the market is valuing it below its intrinsic value since the near-term outlook for a few quarters might not be growth-oriented. Quarter-on-quarter, earnings are accumulating and adding to the net worth of the company. Hence, the net worth is consistently increasing. This is making it cheaper on a price-to-book basis even though the price might not increase. At some point, someone is going to notice, and the price will at least start growing at the pace of growth in book value due to earnings’ accumulation. If the company is paying a dividend, it is likely to be increased along with the growth in book value. The dividend yield cannot become very high since dividend seeking investors will start piling in at higher yields. This provides a floor for the price of the stock where dividend yield becomes comparable to fixed income returns adjusted for taxes.

In these cases, at some point, the business picks up since whatever was causing stagnation in the near-term earnings has played out and sales growth has started.

The case of growing value stocks that might be selling below their intrinsic value due to slower-than-expected growth rates in the near-term is similar. In these cases of profitable value stocks, whether growing or not, one must not only know the nature of the catalyst beforehand but also estimate its timing with more accuracy. Doing so helps in monitoring the potential catalyst during the holding period—how far it is on the horizon.

In all these cases, what gives comfort and holding power to the value investor is that she knows what she is waiting for and how long the wait might be. Also, what is expected from each quarterly and annual statement is clear.

There are more value situations and just as many catalysts—mergers and acquisitions, delistings, spin-offs, reorganizations, refinancing or recapitalization, and others. Where there aren’t visible catalysts, activist investors sometimes get in and do the needful. Keep in mind to buy a diversified portfolio of value stocks to maximize probability of catalysts. A good value investor never lets her capital leave home without an identified catalyst.

Vikas Gupta, executive vice president—traded markets and investment research, ArthVeda Fund Management Pvt. Ltd .

regards

Why IFAs need to have a business plan?

Dear All,

Please find below a good article about IFA vs Business Plan, as appeared in Cafe Mutual for your reading:

Why IFAs need to have a business plan?

Having a business plan will help advisors stay focused and implement their strategy smoothly.

Every business starts with an idea. However, just having an idea is no guarantee for success. Your vision needs actionable points. To ensure that you stay on the right track, you need a business plan for your advisory practice.

So let us see what goes into o business plan.

Setting goals

First and foremost, you need to pen down your goals. Your goals need to be actionable and concrete. For instance, I will accumulate Rs. 50 crore AUM in 2 years by tapping the mass affluent market with a minimum ticket size of Rs. 5 lakh. This is a more concrete goal than say, I will acquire 100 clients in 2 years.

Vinayak Sapre of Insights says that most IFAs do not have a business plan. “I have dealt with IFAs very closely and most of them don’t have a business plan. Having clear goals keeps you on your toes. You need to know in which direction you are heading,” says Vinayak.

Gajendra Kothari of Etica Wealth Management says that advisors need to have three plans. “Advisors need to ideally have three plans – best case scenario, worst case scenario and optimal case scenario before they start their business. You will not get a shock if you have planned in advance,” suggests Gajendra.

Gajendra suggests that advisors need to have a short term plan and a long term plan. “If you achieve short term goals, you will be able to replicate them over a long term,” he adds.

To a large extent, the fortunes of AMCs and your business is depended on markets. However, attributing your setbacks on bad market conditions can be hazardous for your business.  Your goals have to be such that they are not depended on markets. You need to have a strategy to acquire the desired number of clients within a specified period of time irrespective of whether markets are bad or good. In fact, a few IFAs say that businesses are best built in bad market conditions and that is the time when your clients need you the most.

SWOT analysis

As you might be starting solo you would do well to evaluate where you stand, more precisely do a Strength, Weakness, Opportunities, Threats (SWOT) analysis.

It is advisable not to venture into something where you lack expertise or only have a limited expertise. Before venturing into an uncharted territory study the market well.

Let’s look at how a typical SWOT analysis for an IFA would look like:

Strengths

• I have good contacts which will help me get clients
• I have the right qualifications and expertise to succeed in this profession
• I’m a good story teller and l like interacting with people

Weakness

• I don’t have the required capital to fund my business

Opportunities

• Mutual fund penetration is abysmal and this presents a huge opportunity to be tapped
• Many people are looking for unbiased advice on their finances and there is a lacuna of quality professionals in this industry
• Government may encourage people to invest in mutual funds by providing tax incentives and this will create a huge demand for mutual funds
• Markets are likely to be in a secular bull run and there is likelihood of investors appetite for mutual funds going up

Threats

·         I may face competition from banks, other established players and online channels

·         Clients may move to direct plans

·         The regulator may do away with commissions from manufacturers which will require me to charge fee from clients

·         Compliance cost may go up

As you can see, strength and weakness are internal while threats and opportunities are external factors influencing your business. Analyzing your strengths and weakness will help you identify your niche and offer the best services to your clients based on your abilities and strengths. Anticipating threats and preparing well to tap the opportunities will help you be in control of your business. You will not be caught unawares.

Resources

After SWOT analysis, you need to know the resources (office, employees, infrastructure, software, etc.) required for realizing your goals and how will you raise these resources. Normally, most IFAs start from their home and buy an office space after they reach a certain size. This will depend on your business model.

However, this is not advisable in most cases. Historically, most IFAs put in little or no resources in the business except their time. As a result of this underinvestment, they are caught in a perpetual cycle of ‘low investments, low returns’. What is the point in saving Rs. 5000 on a messenger when you could use the same time to canvass business and earn an extra Rs. 10,000!

This is one of the most important decisions you will make so it is worthwhile for you to deliberate on this.

Action points

Once you have clear goals, you need to chart out a game plan to realize your dream. For instance, if you are aiming to accumulate Rs. 25 crore AUM in the first year, how will you go about getting clients? Who are your ideal clients and how will you reach out to them?

You need to prepare a roadmap for reaching your goals. Your action points could be:

• I will draw up a list of people who could be my ideal clients
• I  will organize investor awareness camps to reach out to clients
• I will write in media to build trust and visibility
• I will start my company website
• I will blog and solve people’s queries regarding their finances through social media
• I will join a local club or association to expand my network

Ask yourself

You are getting into a territory where there are already hundreds of advisors. You need to ask yourself many questions. For instance, Why am I getting into this venture? What differentiation do I have to offer? What sets me apart from others? What is my USP? and so on. This will help you realize your goals faster.

Monitor & Review

Just the way you monitor and review your client’s portfolio, your business also needs a review. You need to periodically monitor your goals and make course correction wherever required. This will help you stay on track and evaluate your assumptions. “I had started with a plan when I entered this profession. I have achieved 70% of my goals. Now we are evaluating where we lagged. Having a business plan helps you remain focused,” adds Gajendra.

We hope the above pointers give you a fair understanding about the importance of having a business plan. Share your views.

http://www.cafemutual.com/News/Why-IFAs-need-to-have-a-business-plan~266~Cli~BusinessDevelopment~62

Dear All,

Please find below a good article by Carl Richards of Behavior Gap for your reading:

Understand the Emotion in Your Financial Decisions

In a perfect investing world, we’d all respond like robots. The markets go up, we’d know it’s time to sell. The markets go down, we wouldn’t have any problem buying.

But because we aren’t walking, talking algorithms, we’ll almost always need to take emotion into account. We’ll almost always need to weigh financial decisions by both the numbers and how we feel.

Seeing the emotion in our investing decisions may seem like a small thing. Learning to understand it though is huge for future goals.

For instance, think about the reasons you own the investments you own. I suspect more than a few of you have at least one investment, maybe more, that makes no sense. Unless you consider your emotional attachment to that investment.

Maybe it’s stock from an old employer. Maybe you bought Apple because you really love your iPhone. Whatever the investment you bought, you’re probably holding on to it for emotional reasons.

When you step back, you have a really hard time identifying how this individual investment fits into your bigger plan. But you can’t bring yourself to let it go — at least not yet.

I get it. I really do. After all, I’ve just highlighted how we aren’t robots and how the way we feel plays a role in our financial decisions.

That said, we also need to understand how emotion can stop us from making smart decisions. We need to be aware that liking an investment a lot may not be enough to justify owning it. On top of that awareness, we need to remember how our strong emotions may lead us to make a mistake.

Pause for a minute and think through a big financial decision you made based mostly on emotion. Maybe it turned out great, but I’m betting that you made more mistakes than you expected. Even if things turned out O.K., I’m also betting that afterwards, you wish you’d done a few things differently.

If so, you’re not alone. I’ve done it. Your friends have done it. But our goal is to avoid repeating it.

I suggest thinking it through in two steps. Weigh how you feel about an investing or financial decision. Then, ask someone you trust, with no direct connection to the outcome, what they think.

If the person you trust suggests the opposite of what you want to do, take a deep breath and work through the reasons why. You may still end up doing exactly what you planned to do. But having this check-and-balance in place can help you see potential issues.

You are most definitely not a robot. That said, there’s no reason for emotion to stop us from making good financial decisions.

regards