An SIP investing lesson from a Bruce Springsteen concert

livemint.com:

Lonesome Day. Fifteen minutes on, they were playing my favourite Springsteen number No Surrender, and the energy in the stadium had gotten people in the rows in front of us on their feet, and soon everyone was standing and singing along with the E Street Band. Of course, once people in front of us were standing we also had to stand up in order to get a better view of the stage.

Now, this forced those behind us and those behind them to stand up as well. The energy and the atmosphere in the stadium was responsible for this, but, so was the need to get a better view of the E Street Band on stage. Economists have a term for a situation like this: the fallacy of composition.

Or as Greg Ip writes in Foolproof—Why Safety Can Be Dangerous and How Danger Makes Us Safe: “This fallacy occurs when what benefits an individual is wrongly assumed to benefit an entire group. For example, if one moviegoer stands, he can see the show better. But if everyone in the audience stands, no one sees better, and everyone is uncomfortable." Something similar happened to those watching Springsteen’s concert seated.

The fallacy of composition ensured that they saw the concert standing. Of course, there was enjoyment in standing, clapping and singing along with the band, but there was discomfort as well, which wouldn’t have been experienced if everyone had seen the concert sitting. Dear reader, if you are wondering where I am going with this, allow me to explain.

India’s systematic investment plan (SIP) investors are in the middle of a fallacy of composition situation like those at the Springsteen concert. Further, the retail SIP investors have no idea about this and if they continue to be ignorant, somewhere down the line it’s going to hurt them. In