Value Investing And Behavioral Finance: Insights Into Indian Stock Market Realities

by Parag Parikh

"When others are greedy be fearful and when others are fearful be greedy" - ill-timed bouts of greed and fear among investors make stock markets volatile. Rational and successful investing is all about restraining and channelizing these emotions and understanding behavioral finance, not market sentiments, crowd behavior or company performances. At a time when market upheavals are eroding investors' confidence, dooming life's earnings and corporate fortunes, and whipping up mass hysteria-Value Investing and Behavioral Finance comes as an antidote to investor anxiety and a guide to sane and safe investment decisions. Using investing trends in Indian capital markets over the last three decades, it shows how collective behavioral biases affect investment decisions, returns and market vagaries. As a corrective, it spells out long-term value and contrarian investing strategies based on the principles of behavioral finance. Further, it advises on how to spot investment opportunities and pitfalls in commodity stocks, growth stocks, PSUs, IPOs, sectors and index stocks. It also alerts the reader to a 'bubble' or crisis situation, and ways to identify and insure against it.

Genres: Finance, Economics, Personal Finance, Business, Nonfiction, Money, India

352 pages, Hardcover

Published July 1, 2009

About the author

Parag Parikh was an Indian entrepreneur and author. He was the founder and chairman of PPFAS Ltd, an Investment Advisory Firm. He began his sojourn as a broker on the Bombay Stock Exchange, in 1979. He has a Masters’ Degree in Commerce & Economics from the University of Bombay.

Reviews

[Milan · Rating 3 out of 5]

Parag Parikh's book explains some concepts very clearly but it gets repetitive at a lot of places. The examples are a bit dated now. Many companies and sectors have changed so much in the last decade that the examples seem to be from a bygone era. But the basic principles remain the same since the time of Ben Graham and that's where the book accomplishes its task.

[Aashrit · Rating 4 out of 5]

This book would get a full 5 stars for the fact that it covers everything Indian investors do with examples of Indian stocks.

It loses 1 star for how repetitive it is. It is a 300 page book where every chapter repeats the same behavioral patterns of humans such as "herd mentality" followed by a whole page about why that is bad in *every chapter*, not to mention that human behavioral patterns got a chapter of their own at the beginning. This book could have easily shaved off 100 pages by consolidating that redundant information.

All in all, a must read for anyone getting into investing in India.

[Vikas Agarwal · Rating 4 out of 5]

Its a nice book written by Indian writer on Behavioral investing. He hit the very basics required by the investor.

[Pratik Kothari · Rating 3 out of 5]

This book was published during very interesting times of mid-2008 (Lehman). The author has freely used stock names (positively & negatively) to drive a point, rather than general gyaan. Lot of timeless observations in the books (relevant today and can see it playing out). Enjoyed the chapter on 'commodity investing' the best.

[Zubin Nanavati · Rating 5 out of 5]

One of the few gems on the Indian stock market that borrows from excellent financial literature as well as profound (although somewhat dated) empirical evidence. The core concepts and fallacies discussed in the book are timeless, and should be a part of every investors understanding of markets.

[Ashish Burnwal · Rating 5 out of 5]

One of the best to read! Very matured and crystal clear thoughts presented by the author.

[Amrutayan Pati · Rating 3 out of 5]

Good read to get a basic understanding of how sentiments sway in the market and role played by the various stakeholders. Few chapters actually present some very simple but interesting insights backed by data e.g. the commodity play, IPOs in bull market, investing in low PE NIFTY stocks. However, the content does get repetitive after a point of time and slightly dated obviously given it has the context of 2007-2008.

[Swaraj Yadav · Rating 5 out of 5]

Best book so far on indian stock market and investor behaviour

[Divyanshu Oberoi · Rating 4 out of 5]

Why people fail?
There is so much more information available today on how to be successful than ever before. Self-Improvement books are amongst the best sellers in bookstores, millions have read them but the vast majority of people live their lives far below their potential, achieving far more less than their capabilities permit,
“Failure is as predictable as success because it is the strength of character, which separates the winner from the loser.” Success and failure are more the result of habits.
Make a habit of doing what most people don’t like to do because there are the price of success.
Behavioural finance is an emerging field that combines the understanding of behavioural and cognitive psychology with decision-making processes.

What has Behavioural Finance got to with investing?

1. Learning from one’s own experiences and mistakes.
2. Using common sense.
3. Wisdom gained from the literature of past successful investors like Benjamin Graham, Warren Buffet, Peter Lynch, to name a few.
4. One’s ability to control one’s emotions and understand the emotions of others.
5. Discipline and ability to stay in the course in spite of all the temptations.

[Srinath · Rating 3 out of 5]

Overall it's a 4/5 but felt uninterested while reading parts because of the repeated content.

His previous book "Stocks to Riches" is better at understanding the cognitive biases while investing. While this book also lists out, I find the methodologies, analysis and inferring on Sensex data more usual and informative. I might borrow some points from this book while building my own portfolio

He does provide a lot of insights and I did learned some new points about value investing. But at many places, the same cognitive biases were explained again and again, the same quotes, the same historical examples were provided again and again. Maybe the content can be reduced to avoid over repetition.

Anyways, a good read for a beginner who's looking to learn about value investing, our cognitive biases and how to avoid them. And has some interesting analysis on Sensex data (some ideas might be counterintuitive till we see the tabulated results)

Notes: https://www.notion.so/Value-Investing-and-Behavioral-Finance-1d4a669d0c844343ad3f7821ce078cb5

[Ajay Bhat · Rating 2 out of 5]

Parag parikh fund has come to highlight post-pandemic with 10x growth in AUM. Also, as an investor, I was interested in learning the basics of value investing. To be frank, this book doesn't offer a lot to those who are knowledgeable of the financial markets, especially those who have burned their hands(losses) via equity investing. However, I liked the psychological aspects/behavioural traits. After 50% completion, the author loses its originality, and select points are repeated endlessly. Lastly, a lot of aspects have not aged well, and the book needs a revised edition for sure. Eg: The author is upbeat about PSU stocks in the period when the book was written. However, we have seen how the majority of these stocks haven't fared well over the years. For those who have a basic idea about finance and markets, this book is a good read. Not recommended for beginners without background knowledge.

[Tejas · Rating 3 out of 5]

Book is all about Gyan or lecturing about things to drive point. With this style of writing, same things appear to be repeating again and again. You can call it beating around bush.

However overall book provides different perspective to look into missed opportunities.

Caution -Readers should validate claims by author. Author skips to answer how to achieve what he is claiming.


E.g. On one of the chapter of index investing. Case used by author on laggard stock raises multiple questions - Most of the companies recommended are closed now or few with negative returns.No point of rupee cost averaging impact on index investing and laggard stock. Here author seem to be advocating from point of view of fund manager. It may not necessarily unbiased advice.

[Ajay Singh · Rating 5 out of 5]

Mr. Parikh's book is one of the few good books written by an Indian author about Indian stock market.
He points out behavior biases we face while investing in stock market. And demonstrate these biases by giving examples from of Indian companies.
He explains the nuances of each sector index and their performance till the book publishing date.
There are many contradictory finding in this book. For example, the fact that the stocks living the indices perform well is an eye opener.
It is a content heavy book and thus a value for the price.

A request to the publisher to come with a new edition with updated data.

[Sanket Moon · Rating 5 out of 5]

Personally this is the book I started with to get into the Investing World. Parag Parikh in this book has literally taken the novice through the concepts of Investing World and Jargons as supportedly as a father supports his child in the initial days of its leap to walk.
No other book takes you such a depth of understanding the business as does parikh.
Other books like Intelligent Investor is an elaborate book but not for a novice. This book by Mr. Parikh has to be one's first step if at all one wants to get into the world of Stocks.

[Badshah · Rating 4 out of 5]

Good book to understand the fundamentals

Book is divided into 12 chapters focusing on one subject. The book conveys investing philosophy along with the proof of history of Indian stocks.

Gives a good knowledge on different concepts like IPOs, PSUs, Index and sector investing, mental heuristics that leads to losses, etc. Please be aware that lots of mental heuristics repeat again and again in the book with different examples. The best part of the book in my opinion is that it uses Indian stocks as examples.

[Sharvari Londhe · Rating 4 out of 5]

Honestly, this book is a 3.5. It's a good read, I have read alot of other books related to investment, this book made sense, said the right things but it was very repetitive a bunch of points made were repeated more than a couple of times which was frustrating, it also didn't provide a whole a lot information which hasn't been said in other investment book, but it's a good book for beginners. Few things that stood out were it's interesting insight on IPOs and index investing which I haven't read in any other books. It's a good read overall.

[Nanya Srivastava · Rating 3 out of 5]

For anyone learning about stock exchange in India, this is a great read. Meant for beginners, the book talks about the principles of value investing and how investor behaviour drives the stock market. There are a lot of repetitions as the same kind of behaviour drives different segments and scenarios, and this book also did not have a very good editor who could have cut the redundancies. However, the repetition will hopefully drive home the points the author is trying to make. Highly recommended for newbies.

[Manjunath Mathihalli · Rating 4 out of 5]

If one considers himself an Indian investor and not a trader, then this is a must read…PSUs in Indian context and their valuations are quite explained with some very informative data points over couple of decades..limitations and fallacies around Index investing and IPOs are quite solid…of course, the standout aspect is the behavioural heuristics in the investment world, even though these are repeated (hence 4 star instead of 5) across several chapters…after reading this book, one would be very careful before declaring oneself as a growth investor!

[Bhuvanesh Kandasamy · Rating 5 out of 5]

One of the best books ever written on the Indian Stock Market. Though written almost 15 years back, the concepts of behavioral finance still hold true. I would recommend this book to an experienced investor as most of the biases listed will be more understandable. The author Parag Parikh gives a holistic view of why the value we pay for our investments is more important to sustain ourselves in the market. I would recommend to watch his speeches on value investing and behavioral finance on YouTube along with this book for an effective learning experience.

[Gunjan Mehta · Rating 5 out of 5]

Must read for anyone who wants to understand the Indian stock market. Mr. Parag Parikh honestly open up about the misbehaving practices prevailing on the Indian Mutual Fund industry. He has tried to make the readers understood about the behavioral aspects of investing as well. Valuation of any stock matters a lot when you enter into the stock otherwise it doesn't matter how good the company is, your returns will suffer.

[Pranav Kulkarni · Rating 3 out of 5]

Okayish book...Author's view on commodity investing and PSU's were new for me and made sense. I personally don't agree with author's views on IPO's and index investing though. And the investor behavioral traits, growth trap, bubble trap concepts are repeated in every chapter so many times unnecessarily that you start wondering if the author knows anything else apart from this? The book has zero teachings about stock picking strategies, so its mostly a waste of time if you're looking for that.

[Pramod Anumula · Rating 5 out of 5]

The author's long experience in the history of Indian stock markets is a joy to read. The author helps the reader to find his behavioral mistakes which could affect his wealth creation. The book is a wonderful read for people who wanted to have a perception of Indian stock markets.

The cautionary words and anecdotes given by the author are timeless and trustful. Although the book had repeated paragraphs, it still beats many books.

[Nithin Jacob · Rating 5 out of 5]

What an amazing read!
A must-read for anyone who is thinking about venturing into the world stock markets.
The author did a wonderful job summarizing investor behavior and highlighting why individuals have a tough time making money in the markets.
I would highly recommend this to my friends who are looking to invest and who are entrepreneurial in nature.
I had a blast reading it and I can see myself coming back to the book to refresh some of the valuable lessons I have learned from it.

[Nandini · Rating 5 out of 5]

I really enjoyed reading this book. As a beginner investor in the indian equities, i learnt a lot about the past trends, bubbles and what things went wrong. The commodities and behavioral finance chapters was something new I learnt and even though the examples are a bit too dated now, the chapters where he discusses growth and sectoral traps and bubbles totally reminded me of the bull run we had until late 2024.

[trivikram · Rating 5 out of 5]

Must read basics of value investing in india.

Not a book which teaches about ABC like p/e ratio or book value. Neither there is any special formula or strategy for success.
Stress on value investing behaviour with Indian examples. Lot to learn from history.
Would have preferred to read it on my Kindle. But that's totally worth the money . Full of words of wisdom from author

[Kanishk · Rating 3 out of 5]

Author keeps his point in the beginning of the book and then it gets very repetitive. Almost no value add after the first 20%. Literally the same examples have been repeated in each chapter. Second half the book gives a bleak false hope of the book getting better. It never does. It could have been an article. For beginners of behavioral finance.

[Kaustubh · Rating 4 out of 5]

The book succinctly describes (only) the psychological aspect of Indian investor, distinguishes trader and investor - must read for everyone who has got in touch with equity markets. Unfortunately the author died in an accident few years ago. He ran some of the most successful funds and convinces through his book the power of value investing.

[Prasanna Venkatesh · Rating 4 out of 5]

The book provides valuable insights on how we should alter our line of thought based on market behavior so that we protect our money. However I'm a wee bit skeptical about the author's opinion on index investing. Maybe he could have given more info on it's performance in comparison to other strategies unlike the one he used in the book. A good read nonetheless!

[G Shranith · Rating 5 out of 5]

A must read for people who are aspiring to be successful investors in India. The book compares how more often then not, going against the herd mentality helps one create fortunes with practical examples.

The book is repetitive, I think the author wants to stress the point of herd mentality at different sectors.

[Sanjay Kumar Jena · Rating 5 out of 5]

A masterpiece on Value Investing & Human Behavior in dealing with Equity

Why didn't I read it a long time ago! I could have been a better investor. If one is really keen on value investing and want to know how actions are biased by our emotions rather than rational thinking, then read it, reread it until it is imprinted in mind.