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.

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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

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Demi-Gods

In every market cycles there are some who attain the Demi God status.

During the DotCom boom, we had many investment bankers achieving that state in the US. In India, we had our own Mr. Ketan Parekh. In the great Indian Securities Scam, Harshad Mehta had a very wide fan following.

Most humans always need a leader to be followed. Sometimes it could be Adolf Hitler and sometimes Mahatma Gandhi, but a leader is needed. The same behaviour is carried forward in financial markets, too.

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What is a “no-brainer” investment?

A “no-brainer” investment is one where one does not need superior intelligence to understand that one would definitely make money investing in this option.

However, when the investment looks like a “no-brainer” to many, it ceases to be a “no-brainer”.

During the Tech-bubble of 1999-2000, investors in India thought it was a no-brainer to invest in tech stocks. Ditto for DotCom companies in the US during the same period. Buying Japanese stocks and real estate in the 1980s was a “no-brainer”. Harshad Mehta’s midas touch in 1991-92 appeared a “no-brainer”.

Be careful when everyone thinks of something as a “no-brainer”. Use your own brain when everyone thinks that “this is a no-brainer”.

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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”

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Y2K – the problem that never was, or was it?

As we ring in the year 2016, it reminds me of a day around a decade and a half ago – the turn of the millennium.

Some of the computer programs running certain systems were about to get into some trouble due to the change in millennium. In the 1970s to 1990s, many computer programs were written in a computer language known as COBOL. In this program, the year field used only the last two digits of the year number. The year 1998 would be written as 98 and the year 1985 would be written as 85. As long as the first two digits did not change, i.e. remained “19”, all was fine. However, the change in the millennium meant that the first two digits of the year would change from “19” to “20”. It was feared that systems running with such programs would not recognize the new date and hence crash or stop working.

The fear was so high that many preferred to stay at home on the New Year night, fearing that a problem with the billing system of the hotels or the various systems of the airlines and airports may leave them stranded in an unfamiliar location.

Indian Tech sector benefitted immensely on account of this fear …

Read more about the Tech bubble in India and the DotCom bubble in the US in the book “Riding The Roller Coaster – Lessons from financial market cycles we repeatedly forget”

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Man and mania

Tulipomania, Ulipomania or IPOmania – “man” is the common denominator in all “manias”

 

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