Pillar two: History of financial markets

William Bernstein wrote a classic “Four Pillars of Investing”. It is a must read for any student of investments.

In the chapter “Introduction”, he writes that the second pillar of investing is knowledge of history. He writes:

… a study of previous manias and crashed will give you at least a fighting chance of recognising when asset prices have become absurdly expensive and risky and hewn they have become too depressed and cheap to pass up.

… the investor who is unaware of financial history is irretrievably handicapped.

Those who are interested in removing this handicap cannot ignore studying the history.

And this is what I have written in the book “Riding The Roller Coaster – Lessons from financial market cycles we repeatedly forget”:

In the beginning, all the events looked different. In spite of the apparent differences between the origins, as discussed above, there were too many common threads and parallels. It was hard to ignore the signals and still the world ignored ouches to ignore them. And that  confirms to what Bishop Desmond Tutu or Jeremy Grantham said. Remember the golden words of Sir John Templeton, “The four most dangerous words in investing are: ‘this time it’s different.'”

Ignore the history at your peril. Learn the lessons and remember those. If required, re-read the book.

#RidingTheRollerCoaster – 173

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Liar loans

Do you know that during the boom before the sub-prime crisis, in there US there was a category of loans that was known as “liar loans”?

Apparently, this was a brilliant innovation (!) to give away loans to people who may not have supporting financial strength. These borrowers could take loans by simply stating that they had enough income and/or assets to qualify for the loans. No documents were checked.

As we have written elsewhere, “… seeds of disasters are sown in boom times …”

Well, if this sounds familiar to the current situation in India, remember Bishop Desmond Tutu’s words, “What we learn from history is that we don’t learn from history”.

#RidingTheRollerCoaster – 89

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

#RidingTheRollerCoster – 8

“What we learn from history is that we don’t learn from history”  – Bishop Desmond Tutu

In fact, this quote is also attributed to Warren Buffett and a few others