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Wednesday, June 30, 2010

Learn and earn folks

"Investing is not a game where the guy with the 160 IQ beats the guy with the 130 IQ.Once you have ordinary intelligence,what you need is the temperament to control the urges that get other people into trouble in investing"-Warren Buffet.

Coming from the legendary investor,this piece of advice should serve as the guiding post for all those who want to be successful investors in equities.The world"s most successful investor believes that emotions play a major role in influencing investors into making grave errors which are then compounded by taking further rash actions.This creates the kind of market fluctuation that we are now witnessing.

Sometimes back I read an article, I assume its a couple of years ago when i was 20,it struck me a lot.It was by Whitney Tilson,which said "Peter bernstein in "Against the Gods" states that evidence reveals repeated patterns of irrationality,inconsistency and incompetence in the ways human beings arrives at a decisions and choices when faced with uncertainty.

It means that when we are faced with uncertainty,like in the stock markets where different opinions exists,the decision making is often irrational and inconsistent and such errors are most likely repeated by individuals. While after every debacle most investors seems to believe that they have now learnt their lesson,but many of them repeats the same mistakes.

Almost everyone in the equity markets makes huge mistakes.They often buy dud stocks,Invests on rumours despite knowing that it is not advisable,refuse to sell when prices fall etc.Examples are in numberable check in our very own orkut stocks community itself.However only those who are able to avoid repeating their mistakes are ones who succeeds.Such individuals are very,very few.This also reinforces the buffet advice that it does not need extra brilliance to make profitable investment decisions but it needs a lot of discipline.

I know these article of mine would find a lot of people who would be influenced after going through the full coverage.But to be very frank and honest most would find it like an ind ultion.Still I am making these points because i believe that we are headed for volatile times in equity markets over the next few months.Even a bit of discipline and caution may prove to be a world of good for all.Times would come where investors would be torn between fundamentals and strong newsflow.Crude prices,expensive valuations,FII trend will create uncertainty.The indices could swing wildly as bulls and bears will slug it out according to their faith.

Amidst all this,investors could swing between extremes of panic buying and selling.In such times,it would be important to remember Buffets"s advice."Avoid herd mentality and keep your own counsel.

Extra labouring over market volatility,diverse analyst opinions and unsolicited broker advice would confuse investors.It would be important that they maintain balance and avoid panic reactions while buying or selling.

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