History may rhyme it doesn’t repeat itself

The single greatest mistake investors make is to extrapolate recent history out into the future. They take the financial blogreturns 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. They believe that the recent gains are about to repeat to their great benefit when they should be thinking about what conditions allowed for those gains to take place and analyzing whether they are still relevant or not. Continue reading “History may rhyme it doesn’t repeat itself”

Why you should invest in Equity Market

Equity investing is something that can’t be taught or learned in a limited period.  It requires time, patience and rules blogthat you can bank on. I shared few principles from the famous book Beating the Street by Peter Lynch few days back. At the end of the book Lynch shared 25 Golden Rules of investing:   (Which is interesting because I count 26)

  1. Investing is fun, exciting, and dangerous if you don’t do any work.
  2. Your investor’s edge is not something you get from Wall Street experts. It’s something you already have. You can outperform the experts if you use your edge by investing in companies or industries you already understand. Continue reading “Why you should invest in Equity Market”

Mistakes that an Investor keep on repeating

Starting with Nassim Taleb’s sardonic story about forecasting. As the tale goes, a trader listened to the firm’s chief CDSDEFAULT-1-1economist provide a forecast about the markets and then lost bundle acting on it, getting him fired. The trader angrily asked his boss why he was fired rather than the economist, as the economist’s poor forecast led to the poor trade. The boss replied, “You idiot, I’m not firing you for losing money. I’m firing you for listening to the economist.”

Here is a different sort of “top ten” list of interrelated investment insights and recommendations – mistakes that are both common and deadly – for us to try to correct for 2015 and beyond :-

  1. We don’t prioritize properly in financial planning: Your savings rate is far more important than your rate of return in determining how bright your future is likely to be. However, we are far more likely to obsess over squeaking out a bit more performance out of our investments rather than thinking about ways to save more. Continue reading “Mistakes that an Investor keep on repeating”

Are Markets Overvalued?

Very common statement from the market analysts these days for the Indian stock market.  India Overvalued but the blogrally will continue.  Although based on valuation metrics, Indian equities are now trading at a significant premium to stocks in other EM countries some analyst claim this too.

We have consistently outperformed the market! … Sensex is now overvalued.

“The stock market is overvalued.” “The stock market is undervalued.”

Which one of these statements is true? Well I don’t know.  May be both

Thanks to quirks of the most popular way of measuring a stock’s valuation: the price/earnings ratio.

While no one disagrees about what the “P” is when calculating the ratio, there is no consensus on how to Continue reading “Are Markets Overvalued?”

Mistake made by the Investors – Past Performance

The single greatest mistake investors make is to extrapolate recent history out into the future. They take the financialblog 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”