Humans are pattern-seeking animals

Humans are Pattern-Seeking Animals! 

A man is a pattern-seeking animal. We see patterns where none may exist. We have seen Ganesh idol in the clouds and we have seen India map on highways between trees.
Those are fine, so long as our lives are not affected. However, when one starts putting serious money while looking at patterns, one may be in for a very big surprise.

Read the full article here …

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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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Rational humans, forgetful humans

“Unfortunately, it is quite possible to read about Dutchmen thinking that the world had an infinite hunger for tulips, and then go right out and buy some very snazzy computer stock because the world has an infinite hunger for computers.” Wrote Adam Smith in The Money Game.

We met Adam Smith in our previous post. He is not the author of The Wealth of Nations, but used “Adam Smith” as his pseudonym.

Every market cycle, whenever there is something new, we hear such stories. Overtime there are justifications given for the present valuations by extrapolating the current demand into an infinite future.

Read the chapter “On Valuations” in the book “Riding The Roller Coaster – Lessons from financial market cycles we repeatedly forget”.

“The four most dangerous words in investing are: ‘this time it’s different’.”: Sir John Templeton said. Every time the justification of current high valuations or even the low valuations comes from such thinking that this time it’s different from whatever happened in the past. After all, in 17th century Holland, when people were chasing tulip bulbs, these were not computers or internet websites.

Whatever the logic, we always have a story. We always have a rationalisation.

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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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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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