History repeats …

Look at this interesting article about Indian start-up boom of recent times:

Dotcom deadpool returns as India’s start-up boom turns to bust

Sir John Templeton has famously said, “The four most dangerous words in investing are: ‘This time it’s different’.”

#RidingTheRollerCoaster – 225

 

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Pillar two: History of financial markets

William Bernstein wrote a classic “Four Pillars of Investing”. It is a must read for any student of investments.

In the chapter “Introduction”, he writes that the second pillar of investing is knowledge of history. He writes:

… a study of previous manias and crashed will give you at least a fighting chance of recognising when asset prices have become absurdly expensive and risky and hewn they have become too depressed and cheap to pass up.

… the investor who is unaware of financial history is irretrievably handicapped.

Those who are interested in removing this handicap cannot ignore studying the history.

And this is what I have written in the book “Riding The Roller Coaster – Lessons from financial market cycles we repeatedly forget”:

In the beginning, all the events looked different. In spite of the apparent differences between the origins, as discussed above, there were too many common threads and parallels. It was hard to ignore the signals and still the world ignored ouches to ignore them. And that  confirms to what Bishop Desmond Tutu or Jeremy Grantham said. Remember the golden words of Sir John Templeton, “The four most dangerous words in investing are: ‘this time it’s different.'”

Ignore the history at your peril. Learn the lessons and remember those. If required, re-read the book.

#RidingTheRollerCoaster – 173

A recipe for disaster

The combination of high valuations, huge inflows and leverage is a sure-shot recipe for disaster. In the hot times, one section of the market or a particular market would receive huge inflows. The valuation would go high, but the recent past performance would continue to attract more and more money. Leverage starts. Borrowed money come to the market (or the sector). And we will have very strong stories to believe “that this time it’s different” and that “this would last forever (or at least till the time I have made enough money”.

Such is the story of a bull market.

And then, the inevitable happens.

#RidingTheRollerCoaster – 95

#RidingTheRollerCoaster – 5

“The four most dangerous words in investing are: ‘the time it’s different'” – Sir John Templeton

What is different in each episode of financial market cycles? What remains the same? Read the book “Rising The Roller Coaster – Lessons from financial market cycles we repeatedly forget”