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


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