Skip to content

NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Basics of Behavioural Finance

Caselet: Mr. Iyer, 45, fixes his mental 'worth' of a stock at its 52-week high of ₹500 and considers it cheap at ₹400, though earnings have halved since that high. Which is the most appropriate adviser response, and what does it reveal?

Mr. Iyer is anchored to the 52-week high of ₹500, ignoring that earnings have halved. The adviser should move him toward valuation based on current earnings and fundamentals, rather than a past price reference. Encouraging a purchase because the price is below the old high would reinforce the anchoring bias.

  1. AHe is anchored to the past high; the adviser should redirect him to valuation based on current earnings and fundamentalsCorrect
  2. BHe shows regret aversion; the adviser should encourage immediate purchase at ₹400
  3. CHe shows mental accounting; the adviser should treat the stock as a separate portfolio
  4. DHe shows herd behaviour; the adviser should follow market consensus

Explanation

Judging cheapness against a past high ignores that earnings have fallen; this is anchoring. A good adviser reframes the decision around current fundamentals and intrinsic value. Encouraging a purchase simply because the price is below the old high would reinforce the bias.

Did you get it right without looking?

One question tells you little. A timed set on Basics of Behavioural Finance shows your real accuracy, how long you take and where you lose marks.

Practise Basics of Behavioural FinanceFree diagnostic mock

More Basics of Behavioural Finance questions