A recipe for disaster

The combination of high valuations, huge inflows and leverage is a sure-shot recipe for disaster. In the hot times, one section of the market or a particular market would receive huge inflows. The valuation would go high, but the recent past performance would continue to attract more and more money. Leverage starts. Borrowed money come to the market (or the sector). And we will have very strong stories to believe “that this time it’s different” and that “this would last forever (or at least till the time I have made enough money”.

Such is the story of a bull market.

And then, the inevitable happens.

#RidingTheRollerCoaster – 95

Advertisements

Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s