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!



Investor behaviour

Investor behavior is so predictably uniform irrespective of time, geography and vehicles of investment/speculation – Dr. Uma Shashikant

#RidingTheRollerCoaster – 28

Irony of the bear markets …

While Greece was in the news, many across the world expected a market meltdown on Monday, 29 June 2015 as the markets opened after a weekend. Motley Fool twitted, “All past bear markets look like opportunities. All future bear markets look like terrifying threats. Understand the irony in this.”

It is an interesting as well as sobering thought! Many an investors have tried to analyse the situation at Greece. Many theories are floating around. Most are attempts to find the villain in the episode. Many have tried to find the reason behind the crisis with an objective to stop repeat of such a situation.

This is not the first time. History is replete with examples of ups and downs, booms and busts, bulls and bears. That is the very nature of capital markets.

Bob Swarup writes in his book, “Money Mania – Booms, Panics, and Busts from Ancient Rome to the Great Meltdown”: Rises and falls are as natural and vital to the economic condition as breathing is to the human condition.”

There is a roller coaster out there. This roller coaster impacts the human thinking. While taking decisions, often the emotional mind overpowers the rational mind. Many of our decisions are influenced by the emotions and we commit mistakes time and again.

While there is one roller coaster going on in the financial markets, our minds are going through an emotional roller coaster – swinging between greed to fear.

Any attempt at identifying “why this happens” is futile. It serves no purpose. We are unable to stop the next crisis. Very often, the solution to one crisis leads to the next one. The solution itself becomes the reason for the next one.

Accept that the markets are cyclical and the ups and downs are part of the nature of financial markets. Instead of attempting to stop or predict the cycles, one would be better off to find how one could protect one’s financial situation, including one’s investments.

But, we forget the lessons. Today, hardly anyone is talking about the Greece problem. Ever since China stole the limelight, Greece was forgotten. The Greek tragedy was replaced by the Great Fall of China. And life goes on …

  • Amit Trivedi, Author of “Riding The Roller Coaster – Lessons from financial market cycles we repeatedly forget”
  • These are the author’s views and should not be construed as investment advice.