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Value investing and human Behavior Case Solution & Answer

Value investing and human Behavior Case Solution

Though it has been expected that Trump may disrupt the US markets in which limited industries would be affected such as construction may grow in the market while other may require redeveloping the financial stability. However, the whole financial market behaved opposite to the prediction and it gained the momentum resulting increased interestrates, more government revenues, investments, business growth and trade benefits, all resulting in increased market efficiency and thus value of the business.

Perhaps, there are certain other factors that define the role of the Value managers. According to Charles, there are many times, that the value invest or feels the pressure due to opposite movement of the markets as compared to the stance of the value managers. According to him, the nature of the value managers(contradictory) creates the high risk for the clients which may believe that acting in a particular market trend is beneficial.

Upon discussion, Charles outlined that human behavior is the key element to drive the market.According to his analysis, the human behavior is pruned to act on short term returns and goals as it is believed that the future is unpredictable, however these theories failed to perform in modern era where profits and revenues are to be measured in long-term and sustainability is the key driver of the business.

According to Charles, such change in behavior is important for effective value management in business, since many times the clients suffered or become disgruntled with the decision of doing nothing when markets crash or behave in an abnormal way. His famous word “Do nothing” when markets are down, many times creates jeopardy for the client either to act accordingly or switch to other side.The theory presented by Charles suggests that when markets are in sudden transition phase, it’s better to sit back and relax and see where the market turns instead of moving with the market.He quoted the example of technology boom which greatly effected the American markets and his suggestion to sit back and relax worked under those market trends.

Since every player tends to catch up with the change in the market, it increases the size of bubble and offers great returns and high profits and value, however, the bubble life is not very long and when it bursts, it takes away the gained value and puts businesses at the scratch point.So the smart move in such times is to build the business values on the learning from the bubble burst.

In addition to this, Charles also talked about the humanbias the value manager faces while moving in the market. Such bias includes the standalone offering of the single value manager along with the contradictory behavior. These stand alone stance depicts, that clients prefer to work with the group of consultants rather than single value manger, since it is believed that a group or a proper organization may offer better value to the client as compared to single personnel, ignoring the fact that the service provided under the business umbrella is also from a single consultant or value manager.

However, he also suggested that since the value managed by the single value managers is far more flexible and inexorably strong, they tend to offer more flexible and excessive value and sustainability to clients in the long-term.Quoting the example of Microsoft, Charles determined that even at the current stage, the company might seem to lose the value due to reduced Pc usages and introduction of cloud, however according to Charles predication and value management the stock will raise in the market up to 60%.He suggested that the best option today is to wait until the market settles and Microsoft may lose the share today but its value will sustain in the long term.

Apart from the interview of Charles, Kim-an other value manager, outlined the behavior of the value manager.She commented that Value managers need to be rebellious and contradictory in nature; they need to be against the markets.Such comments of the Kim might outline the reluctance of the investors to work through value mangers however, she commented that, ina situation where markets are extremely fragile and volatile like stock markets, the value managers need to take the risk and act against the market trends.She quoted the example of Bubble burst and commented that the decision to take no action in volatile market movement is best, however the human bias creates the problems since it is human tendency to act in situation or market behaviors that are on favor of the business.

Taking the example of 9/11, Kim suggested, value mangers needs to be against the market. During and after the incident of 9/11, Kim suggested that though markets opened up after a week in US and after 2 days in Europe, however, it has been the best time to buy the shares.Hence outlining the fact that the value investors irrespective of the market needs to identify the opportunity in every event.

Adding to this, she also suggested that, since the value manager are prone to change in market trends and faces the humanbias while making certain decision, the best way to avoid such bias is to act against the markets and develop the constraining mindset. Such depicts that in order to deal with the bias, the value managers needs to act against themes and have to deal with the client consent and trust in the value managers……………………….

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