knowledge is very important when you are investing … writes Anup Bhaiya

Another book I read recently is ‘Riding the Roller Coaster: Lessons from Financial Market Cycles We Repeatedly Forget’ authored by Amit Trivedi. As the name suggest it gives us various lessons on business cycles. The book is spread across the 5 centuries involving 4 continents. It covers the market hysteria, the trading bubble and the subprime mortgage crisis. The author has decoded the complex subject into simple language. The book has taught me that one should not predict the market. Secondly, knowledge is very important when you are investing in a particular product. If you do not understand the product refrain from investing in it.

Read the full text here

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Why understanding investor psychology is important

he subject of behavioural economics, or behavioural finance, or plain simple investor psychology has been around for decades. However, it came into limelight only in last few years. Today, more number of people are talking about this subject.

This is not new. The role of emotions in our daily life has been explained by our Upanishads. As the famous Amrit Bindu Upanishad says

its-all-in-the-mind

(The mind alone is the reason of our bondage or our freedom.)

The fact is, ever since humans started dealing with other humans – even before money was invented – the relation between price and value has always been a subject of debate. There have been opinions justifying the price for the value and there are opinions questioning the price with respect to the value. Probably trade happens only due to such differences in opinions.

However, when cold logic is applied, it is often difficult to arrive at a decision. Add a pinch of emotions and you are able to arrive at a conclusive decision and act on it.

However, emotional decision making has its own flaws.

It is important to understand the role of emotions in our life and the flaws associated. These emotional flaws reduce the upside in case of our financial decisions or they increase the costs and the risks.

#RidingTheRollerCoaster – 246

 

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

11 times in 18 months …

In September 1998, Kothari Pioneer launched a new scheme – a sector fund, Kothari Pioneer Infotech Fund. By February 2000, i.e. within 18 months, the NAV had multiplied close to 11 times.

#RidingTheRollerCoaster – 224

Humour in turbulent times

There is a popular saying in the stock market, “Bulls make money, bears make money, but pigs get slaughtered.” However, the year 2008 was different. This year saw the death of a bull (Merrill Lynch) and a bear (Bear Sterns), but the pig (Piggy bank – people who kept money outside the markets) survived.

#RidingTheRollerCoaster – 208

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.

The more I know, the more I realise how little I know

Came across this beautiful line from the blog post of Farnam Street, “Ego is the enemy: The legend of Genghis Khan”:

The physicist John Wheeler, who helped develop the hydrogen bomb, once observed that “as our island of knowledge grows, so does the shore of our ignorance.”

(Farnham Street’s post can be accessed here. The title of the post is borrowed from a book “Ego is the enemy” by Ryen Holiday)

The real wisdom is in knowing that we do not know everything. John Wheeler may not have said it better.

However, even the pursuit of knowledge may also be driven by the same driver – “Ego” – the word used in the title of Farnam Street’s blog. To know more: the objective behind this may be the quest for controlling more.

#RidingTheRollerCoaster – 183