Thursday Trivia ~ But this time, they’re different!

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Thursday Trivia ~ But this time, they’re different!

Recently, Equity Markets are going up by the day. Sensex and Nifty, premier indexes of Indian stock market are showing no signs of slowing down. During such bullish times, new investors are always born. However, like always, ‘But this time, they’re different’ applies perfectly well. Not only euphoric investors are born who feel equity markets will never go down even if it corrects slightly, but also a new breed of cautious investors are born. Let’s call them, ‘cyclically cynical investors’. This new breed, believes in everything that they listen and read. They are well informed about market / company data and market cycles.

Cyclically cynical investors are looking into a possible great crash. They have all the reasons which are no better than views available on internet or television. Just that some words are different, new jargons are used and conviction seems to have reached it’s peak. Have a look at this logic, “after a tech bubble and bust in 2000, 2008 saw a global meltdown. Hence, going by the same logic, 2016 was anticipated for a crash, however, there maybe a delay of 1-2 years.” Does it not generate an immense conviction when someone talks like this?

Talking about macro economics is a new way of showing an authority. These cyclically cynical investors are the founders of endless debates and detailed conversations that take place over a cup of coffee or dinner. However, there is no reason provided which can be converted into action with a sense of conviction. In the end, for them it’s about trying to clone the big investors and getting rich quick. Because let’s face it, when such investors don’t understand what they are doing, then whatever the big fishes say on media is the gospel of truth. It’s no surprise that often times, such investors put the blame of market performance right from Prime Minister of India to the Governor of Reserve Bank of India. Since, normal investors are highly prone to confirmation bias, such information with reasons outside their control sound like music to their ears. Confirmation bias  is the tendency to search for, interpret, recall information in a way that confirms a person’s pre existing beliefs. Hence, when the general belief is that government is at fault for stock markets, then it’s easy to fall into confirmation bias due to cyclically cynical investors.

Coming to macro economics, let’s face the truth, it is intense. Which means, it is not as easy as it sounds. There are tonnes of devils hidden inside details of macro economic data. Macro economics as a thumb rule, can always be argued on both sides of the coin.

Let’s take a small example, if markets are in a bullish phase, for reasons attributed to macro factors such as foreign investors then a parallel set of arguments can be drawn. First reason can be, markets will continue to go up as foreign investors will pump in more money or domestic investors have pumped in household money through different instruments of investments. Second reason can be (contrarian view), markets will crash because foreign investors want to take their profits home or domestic investors seems to have lost faith in our country hence pulling their money out. This argument can be coupled with many new sets of argument too. For example, problems in their home country of foreign investors, currency risk, anticipated world war, etc. Such confirmatory claims are usually based on limited amount of information obtained. Truth is, most cynically cynical investors don’t travel to such countries, so for them it’s impossible to exactly know the nature of problem. They receive such data and reasoning which is fed by their friends. brokers or media whether on online, offline or television. Yet, it’s appears to be a form of convincing mechanism since it sounds being intelligent to talk about problems in someone else’s house. These days, it’s known as being ‘well informed’.

Let’s spot these cyclically cynical investors around us. When they come in contact with you, these are few points which they will speak to you about.

  1. There are no fundamentals in the stock market, so no point studying balance sheets of the company.
  2. Rakesh Jhunjhunwala, Motilal Oswal, etc. entered the market at the right time. If they enter now, then even they won’t be able to make so much money.
  3. Intra-day trading is far better than taking delivery of shares. 2-3% can be made doing such trades a day.
  4. Concept of money management should be left to big investors, we don’t have enough money to buy a new Mercedes also.
  5. Mutual funds are subject to market risks, it’s better to invest directly into equity.
  6. Liquid funds, debt funds don’t generate any money, buy shares that will double your money quickly.
  7. Union Budget will set the trend of the markets.
  8. Governor of Reserve Bank of India doesn’t understand his job fully, look how his policies are hampering the stock markets.

The list can go on and on. For a novice investor, these reasons prove to be a confirmation of whatever little he has known about investing his hard earned money into stock markets. The truth of the matter is, stock markets provide a jazzy feeling to people. It is seen as machine which will churn out immense cash immediately. That’s why we see, novice investors rushing to buy into the market when it’s all time high and with a little crash they are the first ones to pull their money out. Resulting in massive disappointment while some of them swearing never to return.

As the title ‘But this time, they are different’ suggests that previously we saw a certain type of investors who wanted to make some quick money as some of their friends, relatives or some brokers had suggested. Stock markets were in an extremely bullish phase, nobody thought anything can go wrong from here, there were no contra opinions so on and so forth. But this time, it’s not the same. Cyclically cynical investors have taken the army of data, news and so called information as their weapons to induce everyone into believing that it’s easy to make that quick money.

In the recent years with the advent of social media, news reaches our computers, laptops and mobile phones in an instant. We are always connected to the external world. As a result too much of enough information being poured. Time to take rational investment decisions is always under a constant threat. There is always an external factor which wavers the minds of novice investors. It’s like, just when an investor finally decides to buy a mutual fund, a news flashes on his mobile phone which shows last week’s returns of a particular share in a company that just doubled in a few days. In such a world of instant gratification, slowing down has become extremely difficult. While bombarding of jargons in any topic seems to have become a new social status. It’s better to keep away and invest slowly and safely.

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–  Jinay Savla


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