Habits

Financial Independence, Uncategorized

I just finished reading the book The Power of Habits by Charles Duhigg.  I had bought this book long back but it was lying on my Kindle… forgotten.

It has been my habit, that whenever I saw a new recommendation, I ended up buying the book.  Especially so when it was available on Kindle because then there was the instantaneous gratification of having the book in my possession.  This was not a good habit because I always had a huge backlog of books to be read.  Now I have taken a sabbatical from buying any more new books, till I finish the complete set lying on my bookshelf as well on my Kindle.   I haven’t bought a book in 3 months and I have a feeling that I may not need to buy for another 6 months because of the backlog.

This book is a very interesting read and Charles shows with very interesting examples of how it’s very difficult to break a Habit He talks about the loop – “Cue – Habit – Reward”.  If you are not cognisant of this loop you cannot change behaviour.

Recently on ETNow there was a news item which mentioned that the amount of SIP flows had not changed dramatically even-though the stock market had been faltering over the last 12-18 months.  {If you have been following my posts then you would know that a SIP is a Systematic Investment Plan where money is directly debited from your bank account every month automatically}

This news item came as I was finishing this book and it got me thinking – is it that the flows have not reduced because of a habit as Charles Duhigg says or because of inertia or because the investing population in India has become so mature that they realise that in equity investment the short term rise and fall of markets have little significance.

Only one of my friends asked me, if she should change the scheme in which she had the SIP to another scheme for the SIP.  She did not mention about stopping her SIP.

I doubt if the population investing in Mutual Funds has become more mature.  This could be pure conjecture but the SIP culture in India is not more than 5 years old.  So a population maturing in 5 years becomes doubtful.

What could play is that people have inertia. So they do not go to the mutual fund agent or to the mutual fund site to stop the SIP.  My wife I think is from this constituency and the fact that I keep telling her that equity is for long term.

After reading the book I realised that there could be a third play here.  The media and the association of mutual funds has made SIP investing more like a movement. Now as Charles points out, once something becomes a movement then it creates leaders from individuals at the community level and the movement keeps going from strength-to-strength.

He gives a clear example of Rosa Park and Martin Luther King and how that one incidence in the bus and the links that Rosa Park had propelled the civil rights movement in  the USA.

I have a feeling something similar is happening here with the SIP movement.  Since people in offices and homes are now all talking about SIPs there will be a lot of peer pressure on a person if she thinks of shutting – off their SIPs.

Another thing which I think could be happening is that since the individuals have got into the Habit of living on a smaller amount in the bank, they do not feel a pinch if the amount they have out into a SIP does not appreciate for a few months.

Due to the amount of SIPs continuing the amount of money coming into the stock market has not fallen dramatically.  Due to this the market has not fallen because when the foreign institutional investors take money out the domestic institutional investors keep buying.

the AMFI and channels like ETNow need to be congratulated on creating this movement with their sustained initiatives in India.

Do you know of any such movements for creating a better financial future in your country…I would like to hear.

Till next time….

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