Take the example of stock trading. Greed is the worst enemy of a stock trader or a investor in stocks. Most of the investors or traders who lose money lose on account of their greed. When the price of the stock held by them is rising they hold on to it expecting the prices to go up further and further. This is the most foolish thing to do. Share prices are determined by the emotions of the millions of investors and traders. So it is impossible to predict the future prices or the levels upto which the prices will go up. In such a situation the prudent way to behave is set an exit limit based on your trade plan and get out of the trade once the prices cross that limit. There may be strong reasons for you to expect further rise in the prices beyond the limit set by you. In that case you should automatically raise your stop loss limit to the exit limit. This will ensure that if the price retreats you will exit after making the planned profit as per your trade plan.

You have to accumulate wealth and achieve financial freedom. You should have a limit to achieve. This should be a logical limit based on your life style requirements. If you run towards accumulating wealth beyond your requirement it will not give you the financial freedom and happiness that you are looking for.

Often, investors forget the rules of value investing. This book "Value Investing and Behavioural Finance" by Parikh Parag explores behaviour anomalies in the context of the Indian market.

December 2007 in Mumbai. A well-known investment advisor (IA) gets a call from one of his clients, also a family friend. The client complains about the inability of IA’s brokerage firm in giving fresh ideas. IA makes his point: stocks are very expensive, and it’s best to wait for a buying opportunity. But the client is determined to make some quick money. The simple language and the Indian touch in the book will help investors connect

Swearing by tips offered by other brokers, he shifts business to them.

This gentleman had approached IA after making huge losses during the tech boom. After IA explained to him the rules of value investing, the client accepted that it was his own greed that led him to buy stocks with ridiculous valuations. He was doing fine, until he got carried away once again by the rising markets in December 2007.

It’s not important to know how the gentleman’s stocks fared. But the incident showcases the behaviour demonstrated typically by equity investors. There are many other emotional and behavioural issues that lead investors to losses.

The advisor was Parag Par-ikh, chairman, Parag Parikh Financial Advisory Services, who has narrated the incident in his book, Value Investing and Behavioral Finance: Insights into Indian Stock Market Realities.

Peppered with similar anecdotes and case studies, the book explains how behavioural anomalies become counterproductive to wealth maximisation.

The issues raised by Parikh, an alumnus of Harvard Business School, are not completely new and have been discussed at length by the investing academia in the West. The novelty is in the fact that it talks about the Indian stockmarket. Parikh builds in the book his 3-decade-long experience in the Indian stockmarket. The jargon-free language of the book and the Indian touch will help investors connect.

In an earlier book, Stocks to Riches: Insights On Investor Behaviour (2005), Parikh predicted that 2005 would mark the start of the biggest run in the history of the Indian stockmarkets. Stocks were cheap, profits were high and FII money was flowing in. He started getting uncomfortable with the market run-up towards the end of 2007, as reflected in the anecdote mentioned above. People started believing that the only way to make money was through stocks.

It is now increasingly becoming clear that emotions are the biggest challenge in wealth creation. As Parikh puts it: money is good as long as it is in the pocket. It becomes dangerous once it goes to the head.