Journey to the darker alleys

Risk is about an uncertain outcome. When one has taken a risk and been rewarded, we tend to believe there was no risk at all.

This leads to overconfidence in one’s abilities, which then leads to the search for even more risks. One tends to start looking at something that nobody is looking at – the spirit of adventure in us wants to seize the opportunity. And we leave the shores and dive into the deep seas.

From bluechips to mid-caps to penny stocks; or from downtown to suburbs to rural real estate; or from mutual funds to listed stocks to private equity – the journey to the darker alleys starts. If we have knowledge and expertise, it is ok to venture into these areas. Without that, it is dangerous.

#RidingTheRollerCoaster – 73

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Time invested, not wasted

Nobody can stop an investor from asking questions before investing. Nobody can force an investor to invest after answering all his or her questions. Even being given the answers to the questions, the investor is free to walk away without signing the cheque.

Time spent in asking questions is time invested and not time wasted.

#RidingTheRollerCoaster – 72

Rise and fall are inevitable

Rises and falls in market prices are inevitable. They are part of the nature of the open markets, wherein a large number of people can come and transact, based on their perceptions and opinions.

#RidingTheRollerCoaster – 71

Ignorance, illiquidity and leverage

When you combine ignorance, illiquidity and leverage (or borrowed money), it can create havoc.

Very often, the ignorance is about liquidity and sometimes about leverage. Ignorance may lead to making rash decisions.

Remember the story of Abhimanyu in chakravyuh? (You can read the story here Abhimanyu in Chakravyuh)

#RidingTheRollerCoaster – 70

The $50 billion Internet company

Appearing before the Financial Crisis Inquiry Commission on May 26, 2010, this is what Warren Buffett had to say:

“The Internet was going to change our lives, but it didn’t mean that every company was worth $50 billion that could dream up a prospectus.”

 

Where does the liquidity go?

Liquid, as we all know, has a characteristic – it does not flow where one intends it to, but flows to lower levels. Similarly, liquidity pumped in the markets or the economy does not flow to where the central bank or the Governments intend it to, but to perceived lower levels of valuation, eventually.

#RidingTheRollerCoaster – 68

2016 – the year of Unicorns

Alexandra Suich has written an article in The Economist recently titled “The Year of the Unicorn“.

We will take up two points out of the article:

  1. Some of these unicorns are likely to file for IPOs
  2. FOMO (Fear of Mission Out) is a sentiment so common in Silicon Valley that it has its own acronym.

Now, the chances are that most of these Unicorns may not be easily available to Indian investors to invest in, in  spite of the IPOs, one important point comes to mind. At the same time, there could be some other firms that may raise money from the Indian IPO markets.

In the past, especially in the IPOmania, we have witnessed the FOMO phenomenon in India, too.

A word of caution: Be clear why you are investing in these IPOs, if at all. Please do not invest out of FOMO. Do your own analysis or take professional help before signing the cheque.

#RidingTheRollerCoaster – 67