Humour in turbulent times

There is a popular saying in the stock market, “Bulls make money, bears make money, but pigs get slaughtered.” However, the year 2008 was different. This year saw the death of a bull (Merrill Lynch) and a bear (Bear Sterns), but the pig (Piggy bank – people who kept money outside the markets) survived.

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Sir John Templeton on bear markets …

Sir John Templeton further writes in the forward to Roger C Gibson’s book “Asset Allocation – Balancing Financial Risk”:

It is only common sense to prepare for a bear market. experts do not know when each bear market would begin, but you can be certain that there will be many bear markets during your lifetime. Commonsense investing means that you should prepare yourself both financially and psychologically. financially you should be able to live through any bear market without having to sell at the wrong time. in fact, your financial planning should provide for additional investment funds so that you can buy when shares are unreasonably low in price. Preparing psychologically means to expect that there will be many bull markets and bear markets so that you will not sell at the wrong time or buy at the wrong time. to buy low and sell high is difficult for persons who are not psychologically prepared or who act on emotions rather than facts.

We have mentioned in the book, “If you cannot predict, prepare.” Nobody better that Sir John Templeton to advice on preparation and articulate what that preparation is.

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Intellectual and emotional level understanding

On an intellectual level, most investors have no trouble understanding the notion that high past returns result in high prices, which, in turn, result in lower future returns. But at the sam time, most investors find this almost impossible to accept on an emotional level. By some strange quirk of human nature, financial assets seem to become more attractive after their price has risen greatly. …

… If prices fall drastically enough, they become the lepers of the financial world. Conversely, if prices rise rapidly, everyone wants in on the fun.

William Bernstein wrote in “The Four Pillars of Investing – Lessons for building a winning portfolio”.

Eventually, it’s all in the mind. The value of an asset is always in the way it is perceived. When you think of market price, it often gets misleading. The crowd sets the prices of the assets and the crowd depends on the same. This often becomes a vicious or a virtuous cycle. The crowd leads itself astray.

Here is an excerpt from the book “Riding The Roller Coaster – Lessons from financial market cycles we repeatedly forget”

Speculative euphoria as the Pied Piper

Large-scale speculation in any asset is a recurring phenomenon. History suggests that every now and then, we will witness euphoric activities – the asset may change, the people may change, the place may change; but there will always be some such events at an amazing regularity.

This is the period when common sense takes a back seat. Incidentally, the current indicators, all point in only one direction – that of the current momentum. The Pied Piper of speculation is at work. Just like the story above, the music is heard only by those who get into the spell of the market and they cannot control themselves from following it. In the story, the Pied Piper took the children to the other side of the hill never to return. In real life, the Pied Piper of speculation takes investors’ money to the other side of the mountain (called expensive markets).

People chase the hottest fad assuming that this is never going to end. The immediate past is extrapolated into infinite future.

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Thinking in a bull market and a bear market …

If you attend investor meetings in various market cycles, you realise that there is a pattern in the questions. In a typical bear market, the questions tend to focus on challenges and risks, whereas in a bull market, the focus shifts to opportunities.

See the following post and the article on which it was based:

Unicorns, cockroaches and investment decisions

A good story is seen with suspicion in a bear market under the influence of fear and doubt, whereas questions are set aside when greed takes over – a typical bull market.

It is important to understand that in all market citations, there are opportunities and challenges. However, neither can be controlled by individual investors or advisors. We can at best take advantage of these. Or we can protect ourselves from the negative impacts of these.

That is possible only if we focus on what is in our control and what is not.

Read the “Serenity Prayer” (Page 199 of the book) and the subsequent discussion.

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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.

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Why are markets taking a nasty “U” turn? – from the archives

The year 2016 has begun on a threatening note for the global stock markets with China leading the way. The current events remind one of the phrase “bull in the China shop” – just that this time it’s a bear, in the stock market lingo.

Someone sent a note suggesting the leveraged positions that retail investors had in the Chinese stock market.

Here is one of my old articles, written in 2007 for http://www.moneycontrol.com.

Why are markets taking a nasty “U” turn?

In the book “Riding The Roller Coaster – Lessons from financial market cycles we repeatedly forget”As I have quoted Bishop Desmond Tutu: “What we learn from history is that we don’t learn from history”

Enjoy reading!

#RidingTheRollerCoaster

Day and night and market cycles

While day and night come at a regular frequency, the same cannot be said about the financial market cycles

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