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
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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%
[Read More] – Where will the Nifty bottom out?
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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