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Trading Psychology
The Equity Desk Forum :Market Strategies :Trading Psychology

Topic: Markets move first, reasons follow later!

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yogesh vaidya
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Posted: 27/Nov/2011 at 11:44am

Good observation.

Stock market is driven by sentiments.
Accumulate some stocks.
Creat sentiments in favour of the stock.
Make people feel greed to buy them.
Sell your holding to the motivated geedies
and than reverse the process .

But..... this can be done by big money only.(The involvement of company it self in driving the stock is also an interesting aspect in the matter)

The people with big money need not have knolege of real fundamentals.(That is why the so call real jems of yesterday becomes KACHARA all of a sudden )

Konwlegdge of fundamentals alone has hardly rewarded investors. Some times riding the sentiments have rewarded batter.

This is the stupidity Mr. Market has.

Yogubha

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zulfi
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Posted: 28/Nov/2011 at 12:58pm

excellent sir, hats off !!!!!!!!!!!

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satish23
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Posted: 28/Nov/2011 at 5:31pm

very educative & insightful article sir,
i always feel enlightened whenever i read your articles, keep up the charitable work!!!

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patientbull
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Posted: 28/Nov/2011 at 7:32pm

Thanks Basantji for insightful article. reating your article, few thoughts came to my mind. 1) many times Market moves first because institional investors (with access to previlaged knowledge which we mortals don't have)move it before that knowledge is available to all. example. S&P 500 suddenly drops 5% on Friday. S&P downgrades USA AAA rating after maket closes on Friday! GSPL GAIL, IGL all defensive names drops suddenly by 15% Today, I read in economictimes that drop is because concern of reducing gas output! I think that's why individual short term trader mostly loose in this game. As a long term investor it doesn't matter as short term fluctuations could provide opportunity to us for long term investment. 2) Market follows path of least resistance. On thinking about this, share price on a particular day depends upon demand and supply on that day which is largely created by institutional and individual short term traders. In established bear market speculators are more likely to make money on shorting stocks and outnumbered bulls more likely to loose money. It creates positive feedback for bears and they keep shorting until valuations no more makes sense and it can't go down any further. then the whole process reverses as path of least resistance is upwards now.

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rohit1889
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Posted: 28/Nov/2011 at 11:43am

I think this correction will be just a price correction lasting 1-1.5 yrs and not a major time correction mainly bcz when Sensex started current bear market, it was not too over valued. Its was @ P/E of 22-24.
The cruel bear market of 1990s where Sensex didn't go anywhere for 10 years was mainly bcz the valuations were overstretched @ 45 P/E in 1992. And it took that time for the EPS to grow to that level where the Sensex would be fairly valued.

The same happened with Nikkei which is in bear territory since 20 years !!
It was exhorbitantly priced in 1989 at its peak and is now valued at some 18-20 times.

So this is my gut feeling that the pain may last for 6-8 months more.
But again there comes a thought of Dow Jones in 1965-1980 where it didn't go anywhere for 15 years due to high interest rates and high inflation. And India is poised in the same scenario of high Interest rate and inflation.

This my inference from History but I may be wrong bcz its rightly said
The only thing we learn from history is that we never learn from history

If you're prepared to invest in a company, then you ought to be able to explain why in simple language that a fifth grader could understand, and quickly enough so the fifth grader won't get bored.

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basant
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Posted: 29/Nov/2011 at 1:13pm

Originally posted by rohit1889

The only thing we learn from history is that we never learn from history

The meaning of the quote is that we are supposed to learn from history but that we DON'T learn from history and not that we should not learn from history.

'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in

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rohit1889
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Posted: 29/Nov/2011 at 1:25pm

Originally posted by basant

Originally posted by rohit1889

The only thing we learn from history is that we never learn from history

The meaning of the quote is that we are supposed to learn from history but that we DON'T learn from history and not that we should not learn from history.

Apologies for my fooloshness!!
Basantji, isn't my statement valid about time correction?
In past major time correction was seen when the markets were exhorbitantly valued. Another example will be dotcom bubble. P/E was way too stretched and thats whyNASDAQ hasn't returned to that level yet after 10 years. This is indeed time and value correction.

If you're prepared to invest in a company, then you ought to be able to explain why in simple language that a fifth grader could understand, and quickly enough so the fifth grader won't get bored.

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basant
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Posted: 29/Nov/2011 at 1:42pm

Yes, it makes complete sense but the difference to making money in this market is knowing not only what will happen but also when it will happen.

'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in

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