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

Advertisements

Easy money

When easy money becomes available, investors tend to take more risks with money that would otherwise lie idle.

#RidingTheRollerCoaster – 231

“Will the market fall?” – A wrong question to ask …

Here is a very interesting paragraph from Ronnie Screwvala’s book Dream With Your Eyes Open – An Entrepreneurial Journey:

Understanding and accepting failure now will give you the clarity and the resolve you need to survive the big bumps. No matter who you are, how solid your connections, your financial status, or any of the thousand other factors that determine success of a business, understand one thing: At some point, you’re going to fail. And not just once. Internalise that reality and make it part of your entrepreneurial and leadership DNA. The only question you need to answer is: When I fail, how will I respond?

A wrong question to ask for any entrepreneur is: “Will I fail?” The correct question to ask is: “How do I respond when I fail?” Similarly, the wrong question to ask is, “Will the market fall?” The right question is “When the market falls, how do I respond?”

Asking this second question is all about preparedness. We have repeatedly said in the book Riding The Roller Coaster – Lessons from financial market cycles we repeatedly forget: “If you cannot predict, protect”. And protection must start with preparedness.

He further adds:

What’s worked for me over the years is to recalibrate and consider my worst-case scenarios, gauge my ability to cope, and work on viable solutions without panicking. Once you can do that, you’re already on the road to recovery.

This is also important to be a good investor. And in order to recalibrate and consider your worst-case scenarios, it is important to read the history and see the follies of others in the past. You do not need to walk the whole path all over again. You can start with reading Riding The Roller Coaster – Lessons from financial market cycles we repeatedly forget. The book highlights many episodes that happened in the world of financial markets and how people responded to the situations.

Learn from the events and learn from the way people responded. You would be able to build a solid investment strategy for yourself. If you are an investment advisor, it would help you build investment advice for your clients. You may also consider gifting the book to your clients as reading the same would help them appreciate your perspective.

#RidingTheRollerCoaster – 207

Timing the market …

Who says timing the market is impossible? Look at the behavior of most of the investors and you will be amazed to see their impeccable sense of timing: Consistently, they buy high and sell low.

Read the excerpt below from the book, “Riding The Roller Coaster – Lessons from financial market cycles we repeatedly forget”

If the market valuations are high, an investor would be better off having a lower allocation to equity and vice versa. Let us check this with the reality. Do investors at large follow this rule? Some of the data points are presented here for a quick check on the above.

During the quarter of December-2007 to February-2008, the Sensex was at around 19,000 points. It was in the same range in the quarter of July-2013 to September-2013. However, in the first period, investors across the country invested close to Rs. 25,000 crores in equity mutual funds, net of redemptions. In the second period, mutual funds saw an exodus of Rs. 3,600 crores after adjusting for purchases. Subsequent to the huge inflows, the Sensex went down from 19,000 to 9,000; whereas after the huge redemptions, the same went up from 19,000 to 28,000. If the investors were right as a group, the reverse should have happened. (These numbers and periods have been taken randomly. To put things into perspective, compare the Sensex level with the net flows in equity mutual funds).

Buy high, sell low seems like the mantra that people follow on average. However, as logic would suggest that mantra would be the surest road to disappointment, if not ruins.

#RidingTheRollerCoaster – 181

The seeds of the crash are planted in times of the boom and vice versa

The proximate causes of these successive crisis are very different – emerging market debt problems, the new economy bubble, default on asset-backed securities, the political strains within Eurozone – yet the basic mechanism of all these crises is the same. They originate in some genuine change in the economic environment: the success of emerging economies, the development of the internet, innovation in financial instruments, the adoption of a common currency across Europe. Early spotters of these trends make profits. A herd mentality among traders attracts more and more people and money into the asset class concerned. Asset misplacing becomes acute, but prices are going up and traders are mostly making money.  …

… Yet reality cannot be deferred forever. the misplacing is corrected, leaving investors and institutions with large losses. Central banks and governments intervene, to protect the financial sector and to minimise the damage done to the non-financial economy. that cash and liquidity then provide the fuel for the next crisis in some different area of activity. successive crises have tended to be of increasing severity.

The above paragraphs have been taken from John Kay’s book “Other People’s Money – Masters of the Universe os Servants of the People”.

Different market cycles appear different, but there is a lot of similarity in each. I have written about the anatomy of a market cycle in the book “Riding The Roller Coaster – Lessons from financial market cycles we repeatedly forget” that echoes the above words to a great extent. If you observe, the parallels are often staring you in the eye. However, very often, we choose to ignore the signals.

The seeds of the crash are planted in times of the boom and vice versa. As Lord Krishna tells Arjun in the Bhagvad Geeta

Bhagvad geeta 2-27

#RidingTheRollerCoaster – 174

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

Market crash or reputation crash?

If you want to see what market booms and busts can do to one’s reputation, Professor Irving Fisher’s statement in October 1929 would be a most appropriate example

Read more in the book “Riding The Roller Coaster – Lessons from financial market cycles we repeatedly forget”

#RidingTheRollerCoaster – 111