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Stock market psychology and behavioural finance: What investors should know

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Stock market psychology and behavioural finance: What investors should know
Financial success is not a hard science. It’s a soft skill, where how you behave is more important than what you know. While everybody is looking at the same stock prices, same charts and has access to the same balance sheets and management commentary, not everybody has the same outcome in their trading and investing journey. This boils down to the single most important factor responsible for all the outcomes – our psychology and the subsequent behaviour that is driven by this.Most often than not this happens due to our existing beliefs and blind spots which most of us don’t even know that they exist. Below are a couple few psychological/sentiment indicators that can help you decode various phases of the market:

VIX: this index generates a projection of volatility, which can show the speed and range of changing prices over a period. Investors may use the VIX to gauge market sentiment, specifically how fearful market participants feel.

Put-call Ratio: This ratio analyses the volume/oi of puts, or rights to sell an asset, and calls, the rights to buy an asset, over a period. Investors use this ratio to gauge the overall sentiment of the market because it can imply a possible reversal in market trend.

Fear & Greed Index: The fear and greed index is a market sentiment indicator that measures the emotions and psychology of investors in the stock market. It provides an overview of the market of whether market participants are primarily driven by fear or greed at a given time.

Markets may be a voting machine in the short run but they do provide a prism to make us believe what the “group” thinks and this can lead to a variety of biases like “an illusion of being indestructible”, “collective rationalisation” or simply “being blinded to pitfalls”.

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According to behavioural finance theory, there are several types of cognitive biases that can affect an investor’s judgment. Being aware of the most common ones can help you avoid them in order to make more rational decisions after all, It’s not what you do in the markets that matters, but it is what you “don’t do” that counts!

Overconfidence

Most people tend to overestimate their abilities in many areas. When you overestimate how much you know about the market or a specific stock, you’ll be tempted to make risky decisions like trying to time the market, which is trying to predict the best time to buy or sell stocks, or overinvesting in high-risk stocks, which are more likely to lose money.

Herd Mentality

Humans are social animals, so going along with the crowd is in our nature. From the hot new fashion trend everyone is wearing to the crowded restaurant that requires you to make reservations months in advance, people tend to make choices based on what others are doing. In financial markets, however, herd mentality can lead to asset bubbles, which is when the price of an asset like a stock rises rapidly but will eventually fall, and market crashes, which occur when a lot of investors sell off their stock.

Loss Aversion

People feel the pain of a loss more acutely than the euphoria of a win, even if they win more than they lose. In financial terms, investors will often hold onto stocks they should sell to avoid realizing a loss. Conversely, they may sell too early to avoid further losses, when waiting for a market rebound would be the better option. Often investors with a strong loss aversion bias have portfolios that are too conservative, underperforming market norms.

Confirmation

Confirmation bias explains how two people with opposing viewpoints can hear the same information, and each comes away believing it supports their opinion. When you have a firmly-held belief, you give heavier weight to evidence supporting your belief while minimizing evidence contradicting it. In finance, confirmation bias can lead you to overlook investment strategies or assets that fall outside of your bubble, causing you to miss significant growth opportunities. You may also invest too heavily in one area because you haven’t fully analysed the risks.

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Behavioural Investing

While biases are a critical component in behavioural finance, there are other key elements in the theory, as well.

Heuristics

Heuristics is the process of simplifying a problem when you don’t have enough information to make a “perfect” decision. In these instances, you’re likely to use a shortcut or rule-of-thumb to make a decision that feels right. Heuristics simplify the decision-making process, which means they simplify the financial decision making process, as well. Without them, you’d have to spend much more time making decisions. However, relying on heuristics without carefully analysing investment options can lead to irrational or incorrect decisions.

Mental Accounting

In mental accounting, you place different values on money based on how you obtained it. If you buy a winning lottery ticket, for instance, you might blow it all on a spontaneous shopping spree even though you carefully budget your paycheck. This can lead to irrational financial decisions.

Anchoring

Anchoring is a type of heuristics that involves subconsciously using irrelevant information as a reference point. Historical values are common anchors. For example, if you bought a stock for Rs. 100 but it starts losing its value, you may be tempted to hold onto it because you don’t want to sell it for less. Salespeople take advantage of anchoring by starting negotiations at far above market value. The inflated price serves as an anchor, so when they come down, it’ll seem like a good deal.

Successful Trading and Investing requires a lot more than having the right process and discipline. In the long run, the hardest financial skill is getting the goalpost to stop moving.

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Scholarships to help finance your study abroad: A country-wise guide

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Scholarships to help finance your study abroad: A country-wise guide
Studying abroad has long been seen as a valuable opportunity for students to enhance their academic credentials, gain exposure to different cultures, and build a global network. Yet, the high costs associated with international education often make it challenging for many to pursue these dreams. Scholarships, therefore, play a critical role in making education abroad accessible to students from a wide range of socioeconomic backgrounds.

Scholarships can cover tuition fees, living expenses, travel costs, and other related expenditures, significantly reducing the financial burden on students and their families. This support allows students to focus on their studies and fully immerse themselves in the educational experience. Beyond the financial assistance, scholarships can also offer mentorship, internships, and networking opportunities, providing a well-rounded experience that extends beyond the classroom.

Here’s a country-by-country break up of all the scholarships available to you

Scholarships to study in the United States

Indians seeking scholarships to study in the United States have various options to consider. Many prestigious programs offer financial assistance to international students, including Indians, providing opportunities to study at renowned American universities.

(Join our ETNRI WhatsApp channel for all the latest updates)

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Here are some notable scholarships specifically available for Indian students to study in the US:

1. Fulbright-Nehru Scholarships

The Fulbright-Nehru program is one of the most prominent scholarship opportunities for Indian students. It provides funding for various academic pursuits, including Master’s degrees, doctoral research, and post-doctoral research. The scholarship covers tuition, airfare, living expenses, and other related costs.Here are all the details2. Tata Scholarship for Cornell University
This scholarship is for Indian undergraduate students seeking admission to Cornell University. Funded by the Tata Education and Development Trust, it aims to support Indian students who demonstrate financial need and are admitted to undergraduate programs at Cornell.

Here are all the details

3. S.N. Bose Scholars Program
This program offers Indian students pursuing science and engineering a chance to study and conduct research in the United States. It is designed for Indian students enrolled in Bachelor’s or Master’s programs in India and seeking research internships at select American universities.

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Here are all the details

4. The Stanford Reliance Dhirubhai Fellowship
This fellowship is for Indian students who wish to pursue an MBA at Stanford Graduate School of Business. It provides financial support to candidates from India with the potential to become leaders in the business sector. The fellowship is highly competitive and covers tuition and associated fees for the two-year program.

Here are all the details

5. Inlaks Shivdasani Foundation Scholarships
The Inlaks Foundation offers scholarships to Indian students to pursue graduate studies in the United States. The scholarships support various fields, including fine arts, architecture, applied sciences, and humanities. The award covers tuition, travel, and living expenses.

Here are all the details

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Scholarships to study in the United Kingdom

Studying in the UK is a sought-after goal for many Indian students, but it can be costly. Fortunately, there are several scholarships available to help cover the costs of tuition and living expenses. Here’s an overview of some prominent scholarships available for Indian students to study in the UK:

1. Chevening Scholarships
A prestigious program funded by the UK government, Chevening Scholarships are awarded to outstanding students from around the world, including India, for postgraduate study in any subject. They cover tuition fees, a living allowance, travel costs, and more.

Here are the details

2. Commonwealth Scholarships
These scholarships are aimed at students from Commonwealth countries, including India, who wish to pursue master’s or PhD programs in the UK. They cover tuition fees, airfare, and a living allowance.

Here are the detais

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3. Great Scholarships
Offered by the British Council, these scholarships are available to Indian students for postgraduate studies in the UK. They are funded by the UK government and various UK universities, providing a specific amount towards tuition fees.

Here are the details

4. Felix Scholarships
Available to Indian students pursuing postgraduate studies at selected UK universities, Felix Scholarships cover tuition fees and provide a stipend for living expenses. They are awarded to academically outstanding students with limited financial resources.

Here are the details

5. Charles Wallace India Trust Scholarships
These scholarships support Indian professionals in the arts, heritage conservation, and humanities for short-term study and research in the UK. They typically cover travel costs, accommodation, and a living allowance.

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Here are the details

6. Rhodes Scholarships
One of the most prestigious scholarships, Rhodes Scholarships are awarded to exceptional students from various countries, including India, to study at the University of Oxford. They cover tuition fees, a living allowance, and other expenses.

Here are the details

7. Inlaks Shivdasani Foundation Scholarships
These scholarships are available to Indian students pursuing postgraduate studies in the UK in fields such as fine arts, design, architecture, theatre, and music. They typically cover tuition fees and provide a stipend for living expenses.

Here are the details

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Livingstone Partners buys Dutch M&A firm Florin Finance

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Livingstone Partners buys Dutch M&A firm Florin Finance

Global M&A and debt advisory firm Livingstone Partners has bolstered its presence in the Dutch market with the acquisition of local boutique Florin Finance.

US-headquartered Livingstone Partners is an M&A and debt advisory firm dedicated to the middle-market. The firm has over 120 staff working from 11 offices worldwide, including two in the US, seven in Europe, and two in Asia.

With the acquisition of Florin Finance, Livingstone Partners doubles its team in Amsterdam to around 20 staff. The local Dutch office was launched in three years ago.

“This move reinforces our position as the premier independent M&A firm for middle-market transactions in the Netherlands,” said Ralph Hagelgans, Managing Partner at Livingstone. “The arrival of the Florin Finance team also positions Livingstone Partners for further growth in the Benelux in the coming years, creating ample opportunities for both clients and professionals.”

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Florin Finance was founded in 2013. The boutique has over the years closed dozens of transactions across sectors such as agriculture, professional services, industry, technology, telecom, and retail, among others. The firm has bagged several awards for its work, including being named a leading M&A consultancy in the Dutch market in 2023.

“Florin Finance is renowned for its high-quality, hands-on M&A services. Our shared culture of excellence in dealmaking will enable us to make a significant impact in the Benelux market,” said Niels Claeren, Partner at Livingstone Partners.

The deal will see nine staff transfer, with partners Remco Goes and Niels Roks now becoming partners at Livingstone Partners, lifting its partnership to six. Istvan Csejtei and Joris van de Kerkhof both joined from PwC last year, following in the footsteps of Niels Claeren and Mark Pel who previously made the same switch.

The Amsterdam team of Livingstone Partners works for entrepreneurs, private equity firms, and corporates, with a focus on six segments: business services, consumer goods, healthcare, industrial, and media, and technology.

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Private Credit – Its Role In Global Finance: A View From Offshore

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Private Credit – Its Role In Global Finance: A View From Offshore

The following article, from an offshore law firm, looks at the rise of private credit, how it works, its place in wealth management, and more.


The following article comes from Michelle Frett-Mathavious,
partner in the BVI office of offshore law firm Harneys. She talks about the
world of private credit, which has expanded rapidly in recent
years, fuelled to some degree – until two years ago – by
more than a decade of ultra-low interest rates and tighter
capital regulations on traditional banks after the 2008 market
crash. 


The rise in interest rates since the pandemic has shifted the
equation. The International
Monetary Fund recently
raised a red flag about potential systemic risks in the
growth of such “shadow banking.” Even so, the editorial team
continues to be regularly regaled about the benefits of private
credit and why wealth managers should use it for clients. We
will cover this market with a balanced view, mindful of how the
long-standing financial trends can be repackaged in new
guises. 


The editors are pleased to share this content; the usual
editorial disclaimers apply. Email tom.burroughes@wealthbriefing.com
if you wish to respond.


The rise of private credit

Global events of the past decade in particular have done nothing
if not reinforce the notion of change as the one constant. One
area in which the adage certainly resonates is within the global
finance system which has itself borne witness to a changing
landscape, characterised in many ways by what appears to be a
supplanting of the dominance of traditional bank lending with
various alternative lending strategies deployed by private credit
lenders. 

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The vacuum created by the largely retrenched position of banks
has opened wide the door for alternative sources of financing for
borrowers. As private credit (or private debt as it is also
known) continues to amass more and more of the market share
previously enjoyed by traditional bank lending, it seems certain
that the somewhat subtle shift in the lending market is here to
stay.


What could well have been little more than lightning in a bottle,
has planted roots and some may say, grown wings since its
emergence. The gradual but steady rise in alternative credit
originated more than a decade ago as a direct result of what is
now commonly known to most as the global financial crisis.
Resulting from the meltdown across the global financial system
which occurred in 2007/2008 was the creation of certain market
conditions and investor demand for alternative sources of credit
to plug a gap left by the traditional banking system. Tough
conditions often act as catalysts for change and the prevailing
conditions at the time ultimately gave life to the alternative
lending sources that we see at play within the finance system
today.


The market has grown to a position where at the beginning of
2023, it was valued at approximately $1.4 trillion, with an
estimated growth trajectory of $2.8 trillion by 2027. By any
measure, this signifies the importance of private credit to
global finance and lenders operating within the space, who span
the gamut from private equity to varying types of funds and
institutional investors such as hedge funds. Alternative
investment funds have significant sums of money at their disposal
for lending. 


This makes the market an undeniably important source of financing
for corporates seeking capital and as a counterpoint to the
borrower perspective is that of the lenders within the space. The
market operates to serve dual interests and as an investment
strategy, engaging in private lending has proven very lucrative
for the investment portfolios of many private lenders. As long as
this continues to be the case, the greater the likelihood that
the alternative sources of funding associated with private credit
will continue to command the market share it has carved out for
itself.


The impact of private credit

The impact of the more recent global events relating to the
Covid-19 pandemic, elevated inflation and ongoing regulatory
pressures for banks (particularly regarding issues such as
regulatory capital requirements for banks) has stifled bank
lending over recent years. While the worst of the pandemic now
appears to be in the rearview mirror and some indicators point to
an ease in interest rates on the horizon in the not too distant
future, the regulatory pressures seem less likely to abate. On a
macro level this means that we are likely to see
a favourable environment continuing for private credit
transactions which has developed over the past several years.

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It is difficult to deny the appeal of the flexibility associated
with private lending. The availability of tailored lending
solutions means that, unlike traditional bank lending (which in
many ways remains locked into operational practices which can be
viewed as cumbersome), private credit lenders have the
flexibility to offer borrowers customised solutions for facility
size, the form of financing and even timing for completing
transactions, all taking into account the specific needs of
borrowers. Many private credit transactions also feature floating
rates which adjust as interest rates change. The innate
flexibility of this approach is one which many borrowers find
appealing (particularly when compared with alternate
fundraising sources such as fixed-rate bonds). 


While in more recent times it has become clear that private
credit transactions involving larger corporates are also on the
increase, primarily small and medium-sized businesses (arguably
the backbone of most economies) in need of capital for both
operational and expansion purposes have benefited most, having
found a ready market in private credit. 


Over the last few years, during a period of fiscal stress
for many SMEs in particular, the optionality available to them
has been a welcome boon. 


Whether the solution for the particular borrower comes in the
form of direct lending (which is often made available to private,
non-investment-grade companies offering a source of steady
income), mezzanine financing or preferred equity (which typically
takes the form of junior capital, providing a source of junior
debt for borrowers while providing an equity incentive for
private lenders) or distressed debt (helping financially
distressed companies navigate their way through balance sheet
restructuring and operational stabilisation), there is undeniable
appeal for borrowers in dealing with lenders with (in stark
contrast to traditional bank lending) flexible and innovative
approaches to lending.


Navigating the nexus: Private credit and the offshore
world


Having established its value to the global credit system, private
credit now plays a role in facilitating global capital flows in
ways which are both similar and dissimilar to that played by
traditional bank lending. 

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Increased market share across Europe, the US, Asia and beyond,
fuelled by the demand for credit by borrowers and an enhanced
investor risk appetite has positioned it to function on a level
akin to banks within the context of cross-border financings which
typically involve both onshore and offshore elements. 


The same features (such as tax neutrality, efficient regulation
and well-established legal jurisprudence) which make the use of
offshore vehicles domiciled in jurisdictions such as the British
Virgin Islands and Cayman Islands attractive for use in bank
financed lending transactions hold true for non-bank
financing. 


The flexibility associated with private credit transactions
marries well with the flexible nature of offshore corporate
vehicles which feature in many cross-border finance transactions.
As the market continues to grow and evolve and parties continue
to explore ever more innovative financing options, we would
expect the commonalities between the world of private credit and
that of offshore to continue generating synergies between
the two.  

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