Why does one have to focus on daily stock volumes. If I am small investor and confident that the I am buying a good company at a discount, how does the daily volumes matter?
How do elections matter ? have they mattered in the past ? how does the long term economics of a company such as Colgate palmolive change if congress comes to power ? Will I use more toothpaste if they came to power ?
Why do people base their decision on CNBC or other financial channels ? do any of the anchors talk anything useful ? All that I can see is minute by minute commentary of what is happening in the market. Even the cricket commentators provide a more in depth analysis than these talking heads
Why do people base their investment decision based on brokerage report ? The best you can get from a brokerage report are some facts and data. The worst is to depend on their price targets. The same analysts cannot be a 100% sure of what will happen to him after 6 months, but can pin point a precise price target for a stock
Why people blame others and the stock market for the losses, but themselves for the gain ?
Why people constantly want to stock tips and think that the stock market is an easy way to make quick money, but know of no other activity in life that gives something for nothing?
Why every new investor in the bull market after investing for six months thinks he is the next Rakesh jhunjhunwala or warren buffett?
Why some investors after investing for a few months think they are smarter than a buffett or a jhunjhunwala if they make a mistake on a stock?
20 comments:
Some people prefer to make decisions emotionally, or just like excitement; some others prefer to have their hands held rather than seek out value themselves.
Also, there are the quick-win stories that keep others hoping. The influence of that kind of story [exciting but infrequent and very hard to duplicate] has led some to compare the stock market to a casino. The market really isn't, but there's a behavioral similarity between the gambler and the excitement-driven speculator.
The answer to all you questions is:
Humans are irrational and act in irrational ways.
Rohit
the biggest reason i believe for this is lack of clarity and focus among traders . They often mix up investing and trading .
This can happen both ways . A investor who can not control himself lots of time to sell the stock because of a short term negative news beleiving that he will be able to buy it again after some days , which quitefully converts himself into a short term trader than a investor .
This happens other way to . The best way to avoid this is to control self by understanding what you exactly want in stock markets .
I have written an article which tells newcomers about how they should prepare themself in stock markets and understand there priorities , Link : http://www.jagoinvestor.com/2009/06/understanding-what-exactly-you-want-to.html
Manish
http://www.jagoinvestor.com
Many many why's .... well simple answer is that because we all are human :-)
Hi all
i agree with your comments. my post is mostly rhetorical. some of the points are obvious to people who have been around for some time in the market but still they believe in fooling themselves
i dont think that all these fallacies are due to being irrational. Some people are able to see their baises and overcome them and some prefer to keep their heads in the sand
regards
rohit
Hi Rohit glad to see someone wrote on this. I feel its so simple if all these people who are making all these recommendations were so confident then we would have many millionaires instead of the tons of experts who keep giving tips without any basis. If a company has had strong fundamentals for 10 years it has survived elections, budgets and all kinds of news. The reason I enjoy seeing such stuff is that there is hope my favourite stocks will be coming into discount values due to market irrational behaviour.
regards,
sumi
Hi,
Please give poor homosapiens some credits..These things work better in emotional / non financial landscape..(girls who are reading this blog can write something on this)
I frequently recieve tips on good cinema's..I find solace in temples than stock markets (though I am die hard evolutionary biology fan)
Still I am still not accustomed on following things
1) How to keep sanity when you surround with people who are insane
2) How to keep your rationality in check when you surround with irrational pepole (without offending them?)
3) How to say NO when someone armtwisting you do something very stupid esp in a social setup
Finally it is very hard to change people’s opinions or beliefs. On the other hand, this is understandable. As the author Jacob Braude said: “Consider how hard it is to change yourself and you’ll understand what little chance you have of trying to change
others.”
Regards
Vishnu
Hi sumi
all the people recommending stocks, have an axe to grind. so i dont think we can avoid conflict of interest with these folks
regards
rohit
Hi vishnu
i 100% agree with you..emotions and irrationality have a role in various aspects of life.
dont get me wrong - rationality is not absence of emotions ...life would dry without them. it is recognizing them and take the correct decision inspite of them
I concern myself with rationality only in investing. personally i am not different from anyone else. i only try to work hard to insulate or compensate for my own irrationality in investing.
in other spheres of life ...dont even get me started. i am a complete sucker
- my wife and kids can arm twist me easily into buying or doing stuff which is wasteful or irrational
- i follow others in almost all other aspects of life except investing
- on the issue of finding solace ..same here ..temples and spirtual literature is the place to find it for me
and the list could go on ...
its in investing i try to focus on my and others irrationality and try to profit from it or avoid it
"The moment one starts believing blindly in something, is the moment one lays the foundations for one's own disaster" --- Swami Anon2
I think with all the hoopla around value investing and anointing Warren Buffett as the grand messiah who followed the precepts of Ben Graham only to reap unmeasurable wealth...One needs to stop and ask -
Is Warren Buffett doing classical Value Investing?
Has he never done any trading before?
What does he do when he commits mistakes?
What %age of his bets have been mistakes? and What %age wins? What %age has just lied idle over the ages without yielding anything?
Is value investing the only way to make money? What have been the other ways of making money? For example George Soros, Peter Lynch, Dreman??!!
-Some more rhetorical thoughts from Swami Anon2..
Hi anon
why should anyone be followed blindly ? even if it is buffett.
all the great investors make mistakes ..that does not reduce the value of what they teach us.
i personally have read books and writings by peter lynch, dreman, phi fischer, buffett, marty whitman and have been following rakesh juhunjhunwala, mohnish pabria, chandrakant sampat and other value investors.
there is a lot to learn from all these investors.
also there are lots of ways to make money in the market ..trading, shorting, via options etc. i dont think value investing is superior or inferior to any other form of investing. it is an approach to investing ..in my case it suits my temprament.
there is a big difference between learning and following someone blindly ..that said i would still prefer to follow the above superinvestors than some dumb guy on CNBC whose claim to fame is 6 months of great performance
regards
rohit
Dear Rohit,
I need to stress that I concur with all the folks who heap opprobrium on CNBC analysts/experts. Its not only that these folks mislead, but they mislead on purpose, they are dangerous. I would agree with you and request any serious investor to avoid watching CNBC, especially the trading calls.
On the other hand I have found Phil Fisher and even his son Kenneth Fisher, Dreman, Munger and some others to be at least as worthwhile as Graham or the books written on Buffett. But how also about things such as CANSLIM? or others..
I suspect that the markets are multi-faceted and so are economic cycles. Unless you have a multiple set of approaches in your armory, you might become too predictable and therefore liable to not anticipate Black Swan's...
I have noticed that value investing has attracted some adherents who tend to market and position value investing as the holy grail of investing...also they tend to quote Buffett or others like Schloss, Ruane...
Then they talk about people like Charlie Munger who was never a value investor. I think before we swallow hook line and sinker all the arguments eulogizing value investing, we need to be at least somewhat critical in our thinking and thus eliminate any biases that might lead us to violate rule#1..
just my $0.02 worth.
regards,
anon2
Hi anon2
good points and i agree with your comment in entirety.
the people you mention are mostly salesmen, trying to pitch their stuff by wrapping it up in various ways ..in some case they will wrap up it up as value investing and quote buffett or some other such investor.
i agree that it is important for an investor to read widely and learn from varying sources and exercise your own judgement. i would say one has to read beyond investing to be a good investor
regards
rohit
Hi Rohit,
BTW, since you mentioned Chandrakant Sampat, I checked out his posts at the Capital Ideas website. His investing style is poles apart from Buffett/Value Investing or call it what you will.
Sampat seems to be more bothered about Macroeconomics, Market forces, Sector dynamics etc..as compared to understanding Individual companies looking at a bargain compared to their intrinsic value.
Thought I would share my thoughts on the same.
Regards,
Anon2
Hi Rohit / Anon
There is a age old saying " Never smoke your own dope". I have watched the blokes who come on CNBC and have interacted with ppl in the securities business and the sense that i get is that beyond the malacious intent there is a genuine case that they start smoking the dope that they sell.
I divide investing between "Value Investing" and the "Greate Fool investing". Ppl seem to have a narrow view or the word value investing conjures up images of low PE, cash on the balance sheet, staid businesses.
To me value investing is buying a company at a price bcos u believe that the company is going to deliver value to u at that price. This is irrespective of whether the "greater fool" exists or doesnt exist around the corner to buy it off you at a higher price.
Cheers
Ninad
Hi Ninad,
Had a look at your blog. Its very interesting! Will be visiting there more often.
About the first point you made, I have an addendum - http://en.wikiquote.org/wiki/Benjamin_Graham
Pls. read the para on Humor.
About the investing part I happen to agree with you. Although Buffett says that he would never do greater fool investing, I think you mean "greater fool" in the way Ben Graham talked about Mr. Market in chapter 8 of Intelligent Investor.
So you will get your MoS only if you get deep chasms like the one which one got recently or which should be around the corner again.
Although, I have read Phil Fisher and others...like Dreman and completely agree with Rohit on things like determining MOAT and Contrarian investing themes.
The most important distinction that I see here is that these themes -
1. Value
2. Greater Fool
3. Good Companies
4. Contrarian Investing
4. Arbitrage/Special situations..
Are not mutually exclusive. One can look at overlaps as the opportunity of lifetime. If one constructs something like a venn dia...
I don't know whether I am making sense here and will stop.
Regs,
Anon2
Hi Anon2
I am with u that these themes are not mutaully exclusive but the underlying theme running is that can i buy a dollar worth at 50 cents.
On the MOS being available only when there are deep chasms is true when u find the overall market being underpriced. You can still get stock level MOS because markets tend to misprice individual stocks even if the market is fairly priced.
And look forward to seeing u on my blog.
Rohit: I am hogging space on u r blog and marketing my blog :-)
Cheers
Ninad
Hi anon2
chandrakant sampat is 80+ year old guy and has been investing for the last 50 odd years. he is an extremely wise gentleman, invests for the long term.
he does not publicise himself much and does not go on TV promoting himself. however he is a very smart person and it is worthwhile to read whatever he has to say. from whatever i have read about him, he follows a buffett type approach to investing
ninad, anon2 - feel free to use this blog to exchange thoughts and have discussions. i think all the readers benefit from it. if it promotes your blog ..that is good.
i agree with your comments on investing ..i personally feel the terms or labels are just that ..as charlie munger has said ..all intelligent investing is value investing ..which is buying something for less than it is worth.
how we value something may differ, but the fundamentals are the same
Rohit,
i agree with most of your points but elections do matter. We now have a stable govt for next 5 yrs- markets love stability. We also know that this govt. will not harm business sentiment that in itself is a big bonous.
Hi aseem
in the big scheme of things i agree with you. however my post was more on stocks and election. market returns in the long run depend on the valuation and company specific performance more than elections. actually in the last 15 yrs i have not seen any specific correlation between a stable government and stock returns
regards
rohit
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