Hot Hand Fallacy: Why Should I Retire?

Published: January 26, 2017 at 9:52 am

Last Updated on November 25, 2021

Nearly 11 years ago, I sat down to face my IIT, Madras faculty interview. One of the faculty members who I knew from my student days sat beside me as he was waiting for his promotion interview. When he found out that was a particularly troubled time for me he said, “Pattu, I am glad that you facing so many hardships at such a young age. It will give you the necessary maturity to handle the problems that you will face later”.

At that time, I was not impressed by that. But today, I can truly appreciate the depth of that statement. The reason I bring it up, is when there is a discussion on planning for future financial needs, especially retirement, often someone says, “why should we retire? why can’t we keep working for as long as we can?”

Sure we can if life is a fairytale. Who does not want to be “active” until they die? Just because we wish it, does not mean life will accept!

The reason we need to take retirement seriously is not because we need to stop working after a “certain age”, but because we may be unable to work anytime from now.


Consider this: Five years ago, at age 38, at the peak of my fitness (I had just lost 20+ Kg), never having been sick for the past 15 years, I thought if I maintain a healthy lifestyle, I should do “all right”. Then like a switch, I got an auto-immune condition, that still prevents me from working full time. Had I been in a corporate set up, I would have been forced to retire.

Retirement planning is a form of insurance.

Just because we have enough corpus saved up, does not mean we need to quit working and rot away. And just because we are active and productive today, does not mean we will continue to be in the years to come.

We are all victims of our experiences.

“Victims” because good (or bad) experiences in the past make us extrapolate that to the future. Victims because this can lead us to make bad choices/decisions. Our optimism or pessimism depends on our past.

I have seen many people assume that their life would turn out like an Excel sheet and that they would cross a bridge when they get to it. When it comes to money management, we need to prepare for known bridges and have contingency plans* for unknown bridges.

*: emergency fund, life insurance, health insurance etc.

Optimism is not a bad idea at all, but one cannot afford to be that optimistic that there is no plan “B”.

Plan “B” (C,D,E ..) are all part of the pessimism package 🙂  Many readers have called me a pessimist or a conservative investor. This is because I am a victim of my experiences.

What is hot hand fallacy?

A gambler who has won the first four rounds believes that she cannot lose the fifth. So much that she fails to consider the consequences – earnings from the first four are wiped out. Not just gamblers, we all suffer from it.

Note: The hot hand fallacy is often associated with basketball.

Whenever I write a post suggesting X or Y or Z has risks with it, someone always comments, “I have been doing it for so many years, and never had problems with it” – hot hand fallacy.

“Individual investors can always beat mutual fund managers because I have done it”.

“ELSS mutual funds have always beat PPF, and therefore they always will”

“Liquid funds have beat fixed deposits with 9% returns”

“Why do you expect only 10% from equity, equity mutual funds have offered 18% returns in the last 10 years?”

Every asset bubble that we have seen is due to a hot hand fallacy.

If you want more examples, come be part of FB group, Asan Ideas for Wealth. It rains hot-hand fallacies there.

As for me, I suffer from cold hand fallacy: when I said “s**t can happen”, my wife corrected me, “s**t will happen”.

Everyone has a plan until they get punched in the face! – Mike Tyson.

PUNE DIY Investor Meet Feb 26th, 2017

The second Pune DIY meet will be held on 26th Fb 2017. You can register via this link

You Can Be Rich Too With Goal-Based Investing

Your first investment should be buying this book

The (nine online) calculators are really awesome and will give you all possible insights

Thank you, readers, for your generous support and patronage.

Amazon Hardcover Rs. 266. 33% OFF

Kindle at Amazon.in (Rs. 244.30)

Google Play Store (Rs. 244.30)

Now just Rs. 280  with additional 10% discount with code: Republic10 at Infibeam

If you use a mobikwik wallet, and purchase via infibeam, you can get up to 100% cashback!!

  • Ask the right questions about money
  • get simple solutions
  • Define your goals clearly with worksheets
  • Calculate the correct asset allocation for each goal.
  • Find out how much insurance cover you need, and how much you need to invest with nine online calculator modules
  • Learn to choose mutual funds qualitatively and quantitatively.

More information is available here: A Beginner’s Guide To Make Your Money Dreams Come True!

What Readers Say

Also Available At

Bookadda Rs. 371. Flipkart Rs. 359

Amazon.com ($ 3.70 or Rs. 267)

Google Play Store (Rs. 244.30)

Do share if you found this useful

About The Author

Pattabiraman editor freefincalDr. M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over nine years of experience publishing news analysis, research and financial product development. Connect with him via Twitter or Linkedin or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation to promote unbiased, commission-free investment advice.
Use our Robo-advisory Excel Template for a start-to-finish financial plan! Now with a new demo video!  More than 700 investors and advisors use this!
Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! More than 2600 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter what the market condition is!! Watch the first lecture for free!  One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Our new course!  Increase your income by getting people to pay for your skills! More than 600 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts you and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!   
My new book for kids: “Chinchu gets a superpower!” is now available!
Both boy and girl version covers of Chinchu gets a superpower
Both boy and girl version covers of Chinchu gets a superpower.
Most investor problems can be traced to a lack of informed decision making. We have all made bad decisions and money mistakes when we started earning and spent years undoing these mistakes. Why should our children go through the same pain? What is this book about? As parents, if we had to groom one ability in our children that is key not only to money management and investing but for any aspect of life, what would it be? My answer: Sound Decision Making. So in this book, we meet Chinchu, who is about to turn 10. What he wants for his birthday and how his parent’s plan for it and teach him several key ideas of decision making and money management is the narrative. What readers say!
Feedback from a young reader after reading Chinchu gets a Superpower (small version)
Feedback from a young reader after reading Chinchu gets a Superpower!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.
Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Did you know? We have more than 1000+ videos on YouTube to explore! Join our YouTube Community!

Want to check if the market is overvalued or undervalued? Use our market valuation tool (will work with any index!), or you buy the new Tactical Buy/Sell timing tool!
We publish mutual fund screeners and momentum, low volatility stock screeners .every month.
About freefincal & its content policy Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on developments in mutual funds, stocks, investing, retirement and personal finance. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified from credible and knowledgeable sources before publication. Freefincal does not publish any paid articles, promotions, PR, satire or opinions without data. All opinions presented will only be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
Our publications

You Can Be Rich Too with Goal-Based Investing

You can be rich too with goal based investingPublished by CNBC TV18, this book is meant to help you ask the right questions, seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now. It is also available in Kindle format.
Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want Gamechanger: Forget Start-ups, Join Corporate and Still Live the Rich Life you wantThis book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.

Your Ultimate Guide to Travel

Travel-Training-Kit-Cover-new This is an in-depth dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, how travelling slowly is better financially and psychologically with links to the web pages and hand-holding at every step. Get the pdf for Rs 199 (instant download)
Free android apps