EDUCATION IS A MUST.
One thing that most people would agree on is that the market is incredibly complicated so education is must. It is driven by a multitude of factors, most of which humans can’t control. But that never stops many from attempting to participate. It is also an acknowledged fact that returns and risks are higher in the market. Those that choose not to participate are the ones that are not willing to run the risks to get the returns.
That certainly doesn’t mean we shouldn’t try to eliminate the difficulties or deal with the complexities. When something is as complex as the market, it’s easy to manipulate public opinion with nearly inscrutable and voluminous data and interpretations. Today this has become the norm what with 24hour news channels, ever increasing Telegram and WhatsApp groups and other news analysis website. These have all combined to distort the actual information leading to the creation of maximum fear among laypersons.
Due to the complexity of the subject and its distortion, we should have some focus on the reality. Have the nearly endless streams of dire forecasts put forth over the last few decades actually materialized? If not, there is almost unquestionably something amiss with the various analysts, the various correlated events, the computer models etc. etc., that have repeatedly, and wrongly, predicted catastrophe. The fact of the matter is that the most extreme predictions have failed to materialize.
A chart of the Sensex or the Dow over the past 20-30 years would tell us indubitably that all forecasts for doomsday failed. Every now and then, a 2008 or a 2020 happens and everyone will go, I told you so. But the fact is that no one did. Not in 2007 or in 2019 before the proverbial shit hits the fan. In the annual forecast made by the revered Economist for 2020, there was NO mention of Covid or its impact!
And what is this reality? The market itself is the ONLY reality. And what is the market composed of? Price and Volume. That’s it. There is nothing more. All our analysis and postulations and theorising mixed up with our expectations playing out through or hopes and fears are captured in the price of the day. Fundamental and Technical analysts address the market in different ways, the latter a bit more in detail compared to the former. But, here too the biggest variable is the emotion of the analyst or the individual. Still in question that education is a must?
Behavioral finance emerged as an important element of market analysis as the inconsistencies in the performance of individual investors and traders as well as professional fund managers came to be studied. It identified the individual as the most important element contributing to success in the whole scheme of things. Many books and articles have been published about the factors that led to success of traders and fund managers. Almost none of them eulogised either technical or fundamental analysis. All of them created some sort of composite model that ahead primarily to do with how they “read” the market. A whole lot of behavioral aspects are found in these interviews. (See Jack Schwager’s Market Wizard series).
The fact that emerges is that it all comes down to the reality that we create within us. What we feel inside is how we see the outside. Van K Tharp, a famous market psychology expert, has stated it succinctly- ‘we never trade the markets but we trade our beliefs about the markets’.
In all the din surrounding us all the time, it is essential to stay rooted to the reality of the markets (i.e. price and volume) and read that information through all the inputs that we choose to take in from the environment. Since there is already a cacophonous amount of information out there, it is essential that we train ourselves to know what is important and weed out or ignore all those that are not relevant to us. This requires effort. It requires guidance from people who practice this. To know what is relevant and what is not, is itself a big step ahead. Only after that one would be able to accept or reject the bits of information that we being bombarded with.
There are few things in life that are really simple. But education is a process that seeks to make the complex simpler. We are all able to deal with matters only when they are reduced to a level of simplicity. Why then, would all the participants imagine that without the proper education they will be able to deal with something so incredibly complex? The genesis of the problems of 90% people losing money or most not making money is from this ignorance.
These are the days of technology and algos, trading bots, HFT etc., are ruling the roost. Over the years various approaches have worked. But the market eventually ground them to dust. As methods fail, people found new ones. The current ones also shall fail- for that is the way of the market. What looks good today shall be encapsulated by the market tomorrow and will change the expected profits, probabilities and the path of least resistance in subsequent periods.
We need to know the right kind of approach for every market condition. Or be able to know how to modify what we know to the current market condition. It is like a cricket batsman who has to read the pitch, the weather, the field placements and the kind of bowler he faces to decide what kind of shot he plays in order to score runs. The Tendulkar’s and Kohli’s of cricket learnt this alongside learning the stokes and that is what made them greats.
Education is a must – The market demands it. But it is up to you to provide it. Are you game for it? In that lies the answer to how well you shall succeed.
Awesome, indepth and invigorating Sir!
We need to know the right kind of approach for every market condition. Or be able to know how to modify what we know to the current market condition.Thank you sir for guiding us through the blogs.
Waiting for your blogs sir.
Really well articulated. Your weekly column on Bloomberg is also a delight to read, part of my education!