Vantage point

Friday, February 09, 2007


How would you feel if people kept predicting Australian wins in cricket and then puffed their chests like vain frogs at being right?(Maybe a wrong example to give just after England have beaten Australia in the 1st match of the tri series final, but you get the point). You would think, such deluded idiots.

Something similar has been happening in India for the last couple of years. The stock market is booming. A lot of yuppies have money. They invest their money in the market. Obviously, their portfolio grows. They start resembling frogs. Extremely amusing!

Here's a newsflash - EVERYONE is making money on the market right now. Everyone. And when everyone makes a lot of money, you know what ensues? Check out the CPI(no, not the political party) and the WPI. For that matter, check the real estate prices as well as the rents.

Another funny thing about boomtime investments is, their success, especially in India is confounded by so many different factors that it is like a lottery. When all scrips are doing well, some portfolios will often outperform others on a purely arbitrary basis.

But watching the reactions of newbies in the stock market is, for the lack of a better word, cute. They will track their portfolios every hour, feel jubilant at the few hundred rupees they've made in a few hours, compare notes with each other, have silly little games, and generally behave like kids at a party.

As the venerated Chairman of Berkshire Hathaway wrote during the course of a different market boom -

"The line separating investment and speculation, which is never bright and clear, becomes blurred still further when most market participants have recently enjoyed triumphs. Nothing sedates rationality like large doses of effortless money. After a heady experience of that kind, normally sensible people drift into behavior akin to that of Cinderella at the ball. They know that overstaying the festivities -- that is, continuing to speculate in companies that have gigantic valuations relative to the cash they are likely to generate in the future -- will eventually bring on pumpkins and mice. But they nevertheless hate to miss a single minute of what is one helluva party. Therefore, the giddy participants all plan to leave just seconds before midnight. There’s a problem, though: They are dancing in a room in which the clocks have no hands."


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