The single greatest mistake investors make is to extrapolate recent history out into the future. They take the financial returns of the past 5 days or 5 years or even 50 years and assume the next few days or years will look just the same without any consideration for the historical context or conditions that provided for those returns.
They forget that, while ‘history may rhyme, it doesn’t repeat itself’ (Twain). Or that, “the only thing that is constant is change” (Heraclitus). These two famous quotes apply to the financial markets as much as anything.
Ignoring these truths and instead simply extrapolating is why investors are suckered into pouring money into the stock market only after a run of great performance. Continue reading “Mistake made by the Investors – Past Performance”
As I did a story few days back When to sell and When to buy ? Trying to recollect the some book rules for Investments that holds true in many adverse scenarios.
As all of you must be aware of that the field of behavioral finance has helped us to understand that we don’t always make rational investment decisions.We often make poor decisions because of our biases. And the designers of structured product are well aware of these “flaws” in investor behaviour. So they structure products that exploit our flaws. Continue reading “Getting the Basics right for Investment”
Not many people know about the convictions behind how MF global failed. This is how the destruction process works @ Wall Street and MF Global bankruptcy was one of the example of it.
They were very bad in Europe; leveraged 33:1 so there is no space of error when the firm is leveraged like that.
The three lessons that are can be shared from MF Global’s death:
- Accounting loopholes have to be closed and oversight improved.
- Non-bank financial firms should have a lead regulator.
- Rule-writers should consider “non-systemic” firms as well as “too big to fail” banks.
But there is a contrast view to it:
More regulation, more rules, Dodd Frank/EMIR/FATCA and to no purpose at all.
A banker wants to bet his firm on the direction of sovereign debt. If successful, we call him Soros and pat in him on the back. And if not, the firm is closed down. Regulations were pointless, because no rule book can reign in human ingenuity. Continue reading “How MF GLOBAL Failed”
The most generic question that I have found among the first time investors is how to select the Mutual fund, which fund to invest . Here are some tips that might help you .I do not write much on personal finance, and I doubt how many investors have the visibility on these 7 factors to invest in the mutual funds.
Seven Factors To Consider:
- Management Stability: If you find a great manager, hang on to them. Top managers usually continue to perform better in up and down markets, because they have the stability and experience to stay focused on their objective.Let them work for you and enjoy the stability.
- Management Participation: The management team of a great mutual fund usually invests heavily in their own fund. Continue reading “How to select a Mutual Fund:”
Whenever a stock is bought it is the temptation and hope but not the fear. Many times the trade is made without much of analysis no matter what the stock did in the past it assumes a new life once an investor owns its, and he looks forward to a rosy future. But these simple expectations become complicated by what actually happens it is greed which raises new doubts, new concerns, and conflicts and we wait for more profits and this waiting turns a profitable trade in to losses. So a psychic dilemma with ego, id, and superego turn the situation in a state of constant battle.
Lesser profits are better than no profits or losses. Control greed and take rational decisions about exiting the stock. The execution is more important than reading or writing. Continue reading “Buying and selling in the Stock Market: When to sell and when to buy”