Seeking patterns

Man is a pattern seeking animal. We see patterns where none may exist. We have seen Ganesh idol in the clouds and we have seen India map on highways between trees.

Those are fine, so long as our lives are not affected. However, when one starts putting serious money while looking at patterns, one may be in for a very big surprise.

Take for example, the recent successful IPO and a blockbuster listing of Avenue Supermart – the D-Mart company.

The success of this IPO brought out some pretty interesting observations from people:

  1. What is common between R K Damani, Rakesh Jhunjhunwala and Nimesh Shah? There wives’ names are “Rekha”. So now you know what to do to become wealthy.
  2. The most successful people wear the same clothes to office daily – e.g., Steve Jobs, Mark Zuckerberg, R K Damani. So you know what is required to be successful.

Now, in both the cases, someone has picked up a trait common to some of the successful people (some and not all) and jumped to an easy conclusion.

It was exactly this kind of thinking that led droves of investors to buy any company with “Technology, or “Software”, or “Infosys” in the name during the tech boom. It was exactly this kind of thinking that people biought into emerging markets between 2003-08.

History repeats – it is just that the players change, but many things don’t – human behaviour being one such thing.

“Riding The Roller Coaster – Lessons from financial market cycles we repeatedly forget” is a book that is full of many such examples.

#RidingTheRollerCoaster

Advertisements

What is a no-brainer investment?

“It was a no-brainer: higher risk equals higher return. What junk bond investors had forgotten is that higher risk does not guarantee higher returns; it merely offers the chance of higher returns. When they closed their books on the eighties, they discovered that they had lost the gamble. Ovewr the course of the decade, money invested in the average junk bond grew just 145 percent – substantially less than the 177 percent investors would have earned in US Treasuries, without taking any credit risk whatsoever.”

Whenever someone says an investment is a “no-brainer”, one is indicating that you don’t need any brains to figure out that there is money to be made.

However, in real life, majority of such no-brainer investments turn out to be no-brainers in another way: You do not need any brains to understand the high risk involved.

Be careful. Losing an opportunity is far better than losing your capital.

#RidingTheRollerCoaster

Advisers catch the writing bug – coverage in www.morningstar.in

More than a dozen advisers have published their books on a wide range of topics which is helping them build credibility among prospects and inspiring people to start saving.

 

The number of authors from the advisory community is only increasing. Mumbai based IFA trainer and author of ‘Riding the Roller Coaster’ Amit Trivedi believes that dearth of Indian books in the financial planning space and publisher’s thirst for good writers is fueling this trend. “I delivered a presentation on how to write and publish your book at an event recently. After my presentation was over, five advisers approached me to seek my help for publishing their book,” says Amit. Amit’s book has sold 8,000 copies. The book’s success also depends on the popularity of the author. The more popular the author, the higher the chances of the book becoming a bestseller, observes Amit. “It’s one thing to write, it’s another to make it popular. If your publisher is renowned, they will take care of promoting your book. If not, you have to put in a lot of effort to get visibility,” says Amit.

Source: http://www.morningstar.in/posts/40472/advisers-catch-the-writing-bug.aspx

Are all the market crashes bad?

Amit Trivedi of Karmayog Knowledge Academy on why the great Indian securities scam resulted in a better and safer market for the investors.

Click on the link below to read the article:

Are all crashes bad?

#RidingTheRollerCoaster

Humans are pattern-seeking animals

Humans are Pattern-Seeking Animals! 

A man is a pattern-seeking animal. We see patterns where none may exist. We have seen Ganesh idol in the clouds and we have seen India map on highways between trees.
Those are fine, so long as our lives are not affected. However, when one starts putting serious money while looking at patterns, one may be in for a very big surprise.

Read the full article here …

Identifying bubbles

Typical characteristics of a bubble:

  • Rapidly rising prices
  • High expectations for continuing rapid rise
  • Overvaluation compared to historical averages
  • Overvaluation compared to reasonable levels
  • Several years into an economic upswing
  • Some underlying reason or reasons for higher prices
  • A new element, e.g. technology for stocks or immigration for housing
  • Subjective “paradigm shift”
  • New investors drawn in
  • New entrepreneurs in the area
  • Considerable popular and media interest
  • Major rise in lending
  • Increase in indebtedness
  • New lenders or lending policies
  • Consumer price inflation often subdues (so central banks relaxed)
  • Relaxed monetary policy
  • Falling household savings rate
  • A strong exchange rate

 

Source: “When Bubbles Burst – Surviving the financial fallout” by John P. Calverley

Cycle is the destiny

This is what the history of financial markets suggests. Cycle is the destiny. Cycles are destined. However, one tries – and that includes large corporate houses, or banks or financial institutions, or regulators, or governments – one cannot change the destiny. At most, one can only delay the inevitable.

Cycle is the destiny