Blind Belief’s

Belief is defined as “an acceptance that something exists or is true, especially one without proof.” Focus specifically on the underlined portion for that conveys all that is wrong with belief’s in the first place.  Investing is a belief that what you are doing is the right thing and the only thing that should matter.

Speaking on CNBC, Irfan Razack, Chairman and Managing Director, Prestige Estates says the time is in fact right to buy property because the fall in property prices is unlikely. Then again, he is in the business of Selling Real Estate and its highly unlikely that he would speak otherwise.

Ambit the other day came out with a bearish view on Indian GDP, but even after that, they managed to provide a positive target for the Sensex (by extending the time frame further). Any surprises given that they are Sell side advisory firm?

On 2nd November, with Nifty 50 trading at around 8500 levels, Porinju Veliyath who runs a portfolio management service tweeted that he foresaw Nifty 50 trading at 9120 levels if Donald Trump got elected within 6 weeks. With markets down 600 points from that point, he tweeted today that this fall was similar to the bottoms we had seen in earlier times.  Then again, being a long only fund manager, he cannot tweet about a oncoming bear rally, can he?

Today I came across a tweet by a Value Investor who claimed that he is bullish on India since he is 100% invested in Equity.

International experience has shown that you have a much higher probability of great returns in Equity vs Bonds but even there the result is not 100% since there have been times when the bond returns was way higher than what markets provided (unless you were invested in a time when there was no way to invest in the way we do now – Index ETF’s).

While its important to be optimistic, its doubly important that we are realistic in our assumptions for faulty assumptions can and shall lead to a outcome that we least desired when we started out on the journey.

The other day I tweeted out the following;

Draw-down in Nifty & Nomenclature 🙂
Bloody: 10%
Rare: 20%
Medium well: 30%
Burnt: 50%

If you know your beef, you know where I borrowed the expressions from.

10% falls are common. After the great crash of 2008 and the amazing recovery we saw in 2009, markets fell by a bit over 10% 4 times in between June 2009 to November 2010. While Nifty was trading at 4500 at the time of its first   10% reaction, it was at 6300 before the reaction took a more serious turn.

In between 2003 (July) to 2008 (Jan), we saw 7 falls of 10% of which only 2 times did it turn more serious with the falls finally getting contained at around the 30% barrier (all percentages calculated from previous peak or 52 week high).

Baron Rothschild, an 18th century British nobleman and member of the Rothschild banking family, is credited with saying that “The time to buy is when there’s blood in the streets.”

When markets are flying we think we shall buy when there is a correction / reaction. But do we really buy when markets are falling. For example, right now markets are falling and yet rather than buying I see people anticipating lower (Am guilty of posting one such chart today) levels where Nifty 50 could come.

But will it go down to those levels? What if markets jumped back from current levels back to new high – is your exposure to equity good enough to overcome the regret bias. On the other hand, if you are over invested, would you be able to psychologically sustain yourself even as markets continue to drift lower and showing better opportunities if only you had waited.

Given that investing is a belief, ensure that the beliefs  you hold dear to your heart are supported by evidence. Skepticism is the highest duty and blind faith the one unpardonable sin.” — Thomas Henry Huxley