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?



Stupid or victim?

Very interesting article regarding how Deutsche Bank is being positioned as a victim rather than one who committed a mistake:

Deutsche Bank’s Troubles Touch a Nationalist Nerve

The following line is especially interesting:

“Instead of parceling some of the blame on Deutsche’s management, many Germans are circling the nationalist wagons. The idea that Deutsche Bank is in large part a victim feeds into an increasingly popular narrative that Germany’s traditions, standards and institutions are under threat from outside.”

Read that in line with the point we made in the book:

After every crisis, there is a post-mortem process. We all want to know whom to blame for our miseries. Hence, after every market crash, a committee is set up to investigate the reasons for the crash. No committee has ever come up with the conclusion that the rise itself was the reason behind the crash.

Even the governments and the regulators are not left behind in this finger-pointing exercise.

There seems to be a deep psychological reason behind such thinking.

And the need to lay the blame on someone else.

Failure is a part of life for those who try. It is unavoidable and in many cases, even when one has made the efforts to win, victory eludes one and failure stares one in the eye. It is not easy to embrace this situation for most. In almost all such cases, when you do not get the desired results and the enemy is not visible (market forces in this case), one is considered either a fool who got to the situation on account of some stupid decisions and actions; or a victim of the circumstances.

It is better to be known as a victim rather than a fool. A fool would get ridicule; whereas a victim would get sympathy – the latter appears to be a better choice.

#RidingTheRollerCoaster – 254

Hindsight is 20:20

Whether it is euphoria or panic, it is often only in hindsight that we can clearly see what it was. At the time, it often appears to be the truth. Every action appears to be rational and based on some fundamental factors.

#RidingTheRollerCoaster – 149

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

Perspective on the recent market crash

“Sensex falls by 807 points” – this was a major news item in many leading dailies – general purpose or the pink papers. It looks threatening. Losing more than 800 points in a day is scary. Sensex lost 807 points on 11th February 2016.

It has happened only the 13th time since 1980. In other words, this was 12th largest single day drop (measured in points) in Sensex (on 10th Oct, 2008 Sensex lost 800.5 points, which was the 13th largest Sensex fall – the lowest among the 800+ point falls).

In other words, we have witnessed 800+ points falls 13 times in 36 years, which is roughly once in a three-years event. Once in 3-years does not look as threatening as 12th largest fall. See the beauty of the language. The same event presented differently, looks less threatening – emotions at play.

However, if we dig deeper into the history, it was only in May 2006 that we saw the first ever 800+ points fall in Sensex. And then, it has happened 12 more times since. So now we can say that in the last 10 years, this has happened 12 times. Oh God, the markets have become so volatile of late! See, the same thing looks scarier now.

Having said that, it was only on 8th April, 1990 that Sensex closed above 800 points. Hence, there was no way it would have dropped by 800 points in the first decade of its existence.

However, a “points-drop” should not bother an investor. It is the percentage drop that matters and not the points drop.

So how big was the Sensex fall on 11th February 2016 in terms of percentage of the previous day? It was -3.40%.

Once again, we looked into the historical data. Such a fall has happened 188 times in the history of Sensex (I have data since 2nd January 1980. So, if something happened before that, I have no idea). This makes it roughly a little over 5 times a year.Something happening more than 5 times a year may be considered as normal. Mumbaikars expect to lose one day a year due to heavy rains and water-logging. People travelling to (or within) North India expect delayed flights / trains due to heavy fog at least for a few days every winter. Such events happen. One need not and cannot plan to avoid such events.

The first time (as per the data available), Sensex lost more than 3.4% on 6th June 1980. Incidentally, the drop was 5.76 points and Sensex closed the day at 122.55 points.

See the wonder: it is often not the event, it is how it is presented that evokes the emotions.

807 points loss looks threatening. 3.4% makes it look acceptable.

It is important for investors to develop the ability to put things in a proper perspective, else the environment has the ability to test our resolve, often without substance.

Rise and falls are natural to the markets. So long as people can transact based on their opinions, the prices would remain volatile.

To be a better investor, you need a balanced mind. If you still need help, consult someone who has one.

Enjoy the roller coaster ride. Happy investing

#RidingTheRollerCoaster – 84

You can’t direct the winds

Remember the old saying, “You can’t direct the winds, but you can adjust the sails.”

Translated in the context of the book, it should read as, “You can’t prevent market crashes, but you can safeguard your portfolio.”

#RidingTheRollerCoaster – 78


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.

#RidingTheRollerCoaster – 71