- Psychology: The fallacy of price anchoring after a bull run
- Number Talk: The history of market bottoms and rebounds
- Concepts: The dynamics of timing the market Vs buy-and-hold
- Personal Finance: How the risk of the unknown affects us?
- Contra View: Buying the dip strategy may not always work
- Pop Quiz: A quiz question that can win you a little gift from us
Going 5×5: Five articles summarised in five lines 🌟
We summarise long-firm articles into five sentences or less so that you get the maximum value out of your time spent here.
Of course, reading a five-line summary is not as good as reading the whole thing – but hey – it’s much better than not reading the article at all.
When markets seem too easy… 👀
- To buy when there is blood on the streets is great advice.
- But do you have the foresight to pick the next Apple or Amazon from all the stocks that are down ~80%?
- Price Anchoring – Not concentrating on the value of the company’s business but on the drawdown w.r.t recent highs
- An entire generation of investors grew up seeing the markets go up with rocket emojis.
- Once the truth is realized, it can’t be unlearned. As a kid, once you find out that Santa isn’t real, you can’t just decide to believe in Santa again. It doesn’t work.
[Read More] – Price Anchoring and Broken Stories
How bad can it get? 🍀
- The Russia-Ukraine war might have put brakes on the post-Covid global market rally, but the final nail in the coffin came in the form of the Fed and RBI
- Nifty made its recent high of 18,614 on 19th October and is currently down by exactly -15% as of writing this. How much more will the NIFTY fall?
- The Nifty has fallen by 15% almost every second year. A common occurrence.
- After falling 15%, the NIFTY typically falls another 10%
- After falling 15%, it takes 49 trading days to recover and generate a profit of 5%
Should you time this falling market? 🎯
- “Experts” want us to believe that “time in the market” is much better than timing the market. We trust them because we have failed to catch the tops and bottoms.
- S&P Data suggests that a half-decent buy strategy aimed at constantly timing the market doesn’t work most of the time. But, it does wonders for the rest of the time.
- Consistently reacting to market changes and actively managing your positions does seem to pay off in the long term.
- There’s no fixed formula one must latch on to. The key is in thinking long-term and sticking to a reasonable timing strategy that works.
- The focus should be on trying to win the big war even if it means losing the small battles.
[Read More] – Right Now, But Wrong Later
(There’s a similar analysis we did on Nifty 50 data on timing the market. If you wish to read it, just reply with a “YES” to this email)
Risk of the unknown 👻
- The biggest risk, and the one that hurts the most, is always what no one sees coming – Covid, 9/11, Russia Ukraine war.
- If you’re only saving for the risks you can envision, you’ll be unprepared for the risks you can’t imagine every time.
- The same goes for how much debt you think you should handle – whatever you think it is, the reality is probably a little less.
- The same goes for cash – you think you have enough to get by and then inflation hits.
- It’s like that for everything. It will be like that forever.
[Read More] – Never Saw It Coming
The dip can be deep! 🚀
- Buy the dip is to buy stocks when they fall because the market always bounces back.
- It has been a fantastic strategy since 2009 always giving positive returns.
- Why has this strategy been so profitable and painless? Well, because stocks have been in a bull market for thirteen years.
- Analyzing the data from the 2000 peak suggests that buying the dip can be a long & painful journey to just breakeven.
- Sometimes the game changes and we don’t even realize it until it’s too late to adjust our strategy.
[Read More] – When Buying the Dip Doesn’t Work: An Analysis of the Dot-com Crash
Pop Quiz ⚡️
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Question: Way back in and around 1875, a few people gathered under a banyan tree in South Bombay for their business activity and started an association by contributing Rs 1 each. This organization was started by a cotton merchant Premchand Roychand.
Name the organization. (You surely know the answer!)
Last week’s quiz results💡
Answer: Force Majeure
Quiz Winner – Prempal Singh 🎉
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