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Sunday, July 20, 2008

Learning and earning should be your mantra

This time it"s different."You surely heard this in the last few months until january set in from people when you showd concern about the continuos rise in stock prices and the sustainibility of the then bull run?Conventional wisdom was in doubt and every valuation parameter was challenged.When this happened,people started joining the herd and did what the majority does.Thus,you had everyone talking about the great indian growth story and everyone started buying stocks at any available prices.Everyone bought stock at stretched valuations and remained equally confident of succesfully offloading to another fool who will be willing to buy at a stillhigher price.Cut back to 6-7 years ago:can recollect the heydays of the technology boom.If my recolections are solid i am pretty sure the these similar phenomenon was happening then too,only the rules of the game were very diffrent.People chose not to look at profits,instead,the mantra then was eyeballs".During that time if you went by conventional wisdom and asked someone the sanctity of the euphoria you were also told"This time its diffrent".The new economy is emerging.

Coming back to the present.The new buzzword was "real estate".To cash on this craze you had managements selling stories about plans to develop and grow there real estate businesses.The euphoria of real estate was so overpowering that even companies having car parking spaces were given valuations in view of high real estate prices.But what happened after that?I dont need to put more salts in the wounds i guess?

Why do such things happen during a bull run?Why do people behave in such an irrational manner?The unique part about stock market is that it is devoid of any institutional memory.Stock markets being gambling dens,attracts diffrent typs of peoples in guise of investors.People starts entering the market in a bull run,swayed by the lure of easy and quick money.When things comes crashing down,these people exit the markets vowing never to return.

In the next bull phase,you have a very different set of players entering the stock market who do not have any memory of the past crash.Until they loose they dont relaise that its a dangerous game.Thus at any time in the market we find that those with memories constitutes only baout 25% which includes confident hardcore long term genuine investors.So irrespective of the bull and bear cycles,it is these 25% who survive the storms.The only time they get hit is when they turn greedy.

Stock markets as i have discussed several times are interesting places for the wise who are willing to be investors and stay invested for the long run.If u want to be succesful,understand that they are no shortcuts of making money.Do not be swayed when you hear stories of how people have made big fortunes in the stock world.It needs lot of patience,discipline,conviction to make such kind of a money.Further another thing which sud be noted is you are not aware of real facts,people dont like to talk about losses too.As warren buffet says"I have always beleived that of all the seven deadly sins,envy is the silliest.When you are envious,u r making urself miserable.At least,with the other deadly sins,you are enjoying urself.

"Sometimes its better to conserve money than to loose it"."After excitment comes the devil on to your door".

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