Market at all time high …

Sensex at 31,000 and Nifty above 9,500 – what should you buy?

In these times, the best investment would be to buy “Riding The Roller Coaster – Lessons from financial market cycles we repeatedly forget” and read it.

#RidingTheRollerCoaster

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Forecast gone wrong – once again!

Today P V Subramanyam posted on Facebook a comment on something he had posted last year.

Here are the two posts:

On 7th September 2015:

Shankar Sharma has called this a bear market..this means market has to drop 25% from here. So the sensex target should be 19000. Take care. 

PS: I am learning to write humor…

On 7th September 2016:

posted this a year back..no clue where is Shankar Sharma…but the sensex is not at 19000 for sure….

Just for records, Sensex closed at 28,978.02 points yesterday. It was at 24,893.81 points on 7th September 2015. So in the last year, it has risen by 16.41%. Does not look like a bear 😉

This is another case of a forecast going wrong. Why do the forecasters keep trying? Why do people keep listening and believing in these forecasts?

Well, there is a human tendency. There is an urge to know the future before it happens. However, it isn’t going to happen to anyone. Here is an excerpt from my book “Riding The Roller Coaster – Lessons from financial market cycles we repeatedly forget”:

There are many small stories in the epic Mahabharata. In one such story, a beggar comes to the Pandavas asking for some help. They are in the midst of a discussion, and Yudhisthir, the elder brother, asks the person to come the next day. Hearing this, his younger sibling, Bheema reminds Yudhisthir of the audacity of assuming that he would be alive tomorrow. This story highlights the importance of understanding uncertainty associated with the future.

Humans have always wanted to know the future. Astrologers and weather forecasters are among the most popular ones who make a living from this need. Someone who can see the future is called a “visionary”. This need to know the future is present in the world of business and finance, too. There are large numbers of analysts and forecasters, who make a living – in fact, many make a killing. However, the track record of such forecasts is not as impressive as one would like.

#RidingTheRollerCoaster – 235

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

A summersault just months before the Rio Olympics

The folly of forecasting, a volte-face, summersault – you may use any adjective to describe this, but those who followed are hurt real bad. And still, the more things become unpredictable, the more we want to know the future. So long as we expect to know the future in advance, the forecasters are in the game. We keep feeding them by expecting them to predict. They only supply something that a large number of people demand.

Read this nice blog post on a recent case of a summersault just months before the Rio Olympics:

Novice Investors Fume At Loss Of Mega Bucks Due To Faux Doomsday Call By Saurabh Mukherjea’s Ambit Capital

Incidentally, we had done a similar post on December 22, 2015. A sheer coincidence that not just the volte-face, but the surname too is quite similar.

Read the book “Riding The Roller Coaster – Lessons from financial market cycles we repeatedly forget” to know more about the folly of forecasting.

#RidingTheRollerCoaster – 179

 

Sensex or NASDAQ?

Did you know this?

During the technology (DotCom) boom in 1999-2000, investors got up in the wee hours of the day to watch the closing hours of the NASDAQ and to build their trading strategies for the day in the Indian markets.

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

#RidingTheRollerCoaster – 58

Meteoric rise

Sensex went up from 1957 on 1 January 1992 to 4387 on 2 April 1992 – a rise of a whopping 124% in three months

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