Extrapolation …

One of the most common approaches to estimate future is extrapolation of the past. We have been taught to identify trends and extrapolate these into the future – sometimes into the infinite future. However, many things in life, especially the financial market returns, are cyclical and they do not move on the same trendily forever.

This is where the fallacy of forecasting lies. Very often, we are able to correctly forecast so long as the trend continues. However, identifying the trend reversal ahead of time is almost an impossibility. That makes our prediction track record unreliable. We are right some time, and wrong at other times.

Be careful of forecast based on extrapolations.

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Believe in predictions?

When you look at predictions, please remember that even a broken clock shows correct time twice a day.

Check the track record of the forecaster and you would be amazed at the results …

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Simplify …

Most financial products have seen complexity rising over the years. As we spend some time in the financial services, there is an itch for innovating. many innovations end up as complexities. Now a research conducted in the US finds that majority of consumers choose the wrong plan for their financial and health needs because they do not understand basic health insurance concepts. The study recommends standardisation and simplification of health insurance plans.

In the absence of any regulation doing so, at least the consumers should stick to simple plans – to what they understand – be it health insurance or investment products. Simple is beautiful, at least it is less risky.

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DotCom deadpool

Came across this article in Mint titled Dotcom deadpool returns as India’s start-up boom turns to bust

We have covered this topic in detail in the book as well as in many of the blog posts. A small list of these blogs is as under for quick reference:

It is always interesting

Here is an excerpt from the book:

Throwing money at every start-up without proper due diligence would look silly years later. Sachin Tendulkar came from Shardashram Vidyamandir School, but that does not mean that every Shardashram pupil would be picked up by the indian cricket team.

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History repeats …

Look at this interesting article about Indian start-up boom of recent times:

Dotcom deadpool returns as India’s start-up boom turns to bust

Sir John Templeton has famously said, “The four most dangerous words in investing are: ‘This time it’s different’.”

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11 times in 18 months …

In September 1998, Kothari Pioneer launched a new scheme – a sector fund, Kothari Pioneer Infotech Fund. By February 2000, i.e. within 18 months, the NAV had multiplied close to 11 times.

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