Bond markets and maturity

There is a popular joke about the bond markets:

“What is the difference between bonds and bond traders? Well, bonds have maturity”

Look at the history of financial markets and you will realise that at the root of most of the crises, leverage was involved. People borrowed too much and invested the proceeds in a risky investment that did not appear to be too risky then. Risk was not absent, it was just not visible for various reasons. One of the most significant reasons behind this invisibility of risk had nothing to do with the risk, it had everything to do with the eyes of the person involved – the sight was clouded by greed.

#RidingTheRollercoaster – 212

Advertisements

A must read for everyone …

Lessons from financial market cycles is a must read for everyone . Learnings from various financial cycles have been put together for readers by Amit in a very simple way , easy to understand . One should Learn from these cycles and learn to invest when others r fearful and disinvest when others are greedy.

Hope is a very bad investment strategy

This looks like an interesting development. Another “new” thing has cropped up. Some regional language movies are doing great – low cost and high revenues – amazing success stories and very high RoI (I mean, return on investment). Many investors are looking at the “alternative” investment to “diversify” their portfolios and at the same time earn very high returns.

Even start ups have come up to help people channelise their money into such ventures.

Regional movies are the buzz at crowd-funding startups

This seems to be great for regional movies, at least. There are many talented movie-makers, who could not compete against the mega-star, big-banner movies with deep pockets. Now, they seem to have found their source of funding.

Well, here is the caveat for the investors. This seems to be another case of “too much money, where to invest?” for the investors. Once one has run out of investment options (psychologically, at least), we start searching for newer options.

If you get success in some early investments, please be even more careful. The chances are that you might simply be lucky. However, we love to attribute all the success to our superior abilities – that is a human tendency. This would build your confidence, which eventually turns into overconfidence.

This overconfidence in one’s abilities leads to the search for even more risks. One tends to start looking at something that nobody is looking at – the spirit of adventure in us wants to seize this opportunity. And we leave the shores and dive into the deep seas.

Just as a side note, please check why did you think  of investing in movies? Is it because nobody else was doing it and you wanted to take the early-mover advantage? Or is it just that someone told you this was “exclusive”?

The combination of overconfidence, exclusivity and greed lead us to take interesting decisions.

Let us analyse this option from an investment point of view. Do regional movies make money? Well, yes they do. Do all regional movies make money? No. If we are clear on these two answers, any prudent investor should ask the next question: “How can one identify the next many-making movie? Do I have the capability? Or can I hire someone who has the capability?”

If I cannot identify the next money-spinner or if I do not know someone who can, it is imprudent to put my money on the block. That is not an investment, then. It is hope – a really bad investment strategy.

In the event of an investor recognising one’s inabilities to spot the right investments, the tendency is to look for what is cheap. This could be another trap.

Be careful. Understand the economics of the business before investing your money. If you don’t, stay away. Warren Buffett has famously said, “Invest within your circle of competence. It is not how big the circle is, it is how you define the parameters”.

 

#RidingTheRollerCoaster – 168

Imagination …

Humans are believed to be the only animals with the power to imagine. We can imagine situations that are not there yet, or events that have yet to take place. This ability has probably been one of the major factors behind all developments.

So when we are feared, we imagine the possibility of an event with unacceptable or bad outcome. And imagination of profit leads to en emotion known as greed.

#RidingTheRollerCoaster – 161

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.

#RidingTheRollerCoaster – 126

 

 

How much land does a man need?

Greed knows no end. The Great Russian writer Leo Tolstoy wrote a short story titled “How much land does a man need?” This story is a wonderful account of what greed can do.

If you haven’t read this story, I strongly recommend it.

Greed is a basic emotion. It can lead to ruins as the story suggests. One must be ambitious, but avoid greed.

In the financial markets, we have seen many falling prey to the greed and losing capital.

#RidingTheRollerCoaster – 88

Imagination

Humans are believed to be the only animals with the power to imagine. We can imagine situations that are not there yet, or events that have yet to take place. This ability has probably been one of the major factors behind all development.

So when we are feared, we imagine the possibility of an event with unacceptable or bad outcome. And imagination of profit leads to an emotion known as greed.

#RidingTheRollerCoaster – 83