In the financial market arena everyone is pundit and everyone has a say on one market or the other, sharing some of the unfortunate truths about investing some of them are from the past, and they stand true with the present scenario
- Saying “I’ll be greedy when others are fearful” is much easier than actually doing it.
- The gulf between a great company and a great investment can be extraordinary.
- Markets go through at least one big pull back every year, and one massive one every decade. Get used to it. It’s just what they do.
- There is virtually no accountability in the financial pundit arena. People who have been wrong about everything for years still draw crowds. Continue reading
The last two post were on forecasting the markets, so I decided let me continue on forecasting. The Atlantic published a challenging article on the decision-making abilities of financial experts sometimes back, I like the arguments and the study outcomes are not surprising to me 😉
There are experts, and then there’s everybody else. In finance, experts have studied the subject and follow the markets closely, so you’d expect that they’d be superior at betting on the stock market as well as on other financial matters, right? Well, perhaps not so much. As the psychologist Philip Tetlock—who did a 20-year study on the subject—famously said:
Experts are poorer at predictions than dart-throwing monkeys. Study after study has shown that low-cost index funds—investments that track major financial market indices—outperform “actively managed” mutual funds. Continue reading
The financial markets have come a long way in terms of technology, transparency, accuracy and speed. But there are few basics of the market that never changes, be it thoughts by the great Benjamin Graham, Warren Buffet, Charlie Munger or Peter Lynch.
Here are some thoughts by Jesse Livermore written in 1940 and they apply in today’s market scenario as well:-
- Nothing new ever occurs in the business of speculating or investing in securities and commodities
- Money cannot consistently be made trading every day or every week during the year
Recently an article published on Bloomberg, Richard Thaler is not only a famous economist and author, but is also part of a very successful fund, the 70-year-old University of Chicago professor, whose stock-picking theories drive the Undiscovered Managers Behavioral Value Fund, is getting discovered in more ways than one:
- “Behavioral economics [is] a field that only exists because regular economics is based on an idealized economic agent, sometimes called Homo Economicus. In the book we refer to such creatures as Econs. Econs are creatures that can calculate like a super computer, never get tempted by fatty or sweet foods, never get distracted, and probably aren’t a whole lot of fun to be around. In contrast, real people, who in the book we call humans, don’t make any appearance in standard economics. Behavioral economics is economics about humans. Continue reading
I have done series of random posts on this topic; it always questions the investor’s behavioral aspect. The term “Greed” may not be a better word for the society but as Gordon Gekko said “The point is, ladies and gentleman, that greed, for lack of a better word, is good.
Sharing you a classic example of an institutional investor – NatWest markets bought shares of HDFC Bank in 1995 for Rs.40 crores.
Few years down the line, in 1999, they sold the same for Rs.400 crores. Money multiplied by 10 times in 5 years
NatWest might have patted themselves on their back for such a wise decision. It’s a rarity to make 10X money in 5 years. Continue reading