Why do stocks go up & down all the time?
In this issue:
» Dangerous to take India's growth prospects for granted
» The Indian Govt has turned into a dictator!
» The secret behind Germany's economic success
» BRICs in easing mode to prop up growth
» ...and more!
---------------------------- Yet Another Bailout... Speak out before it's too late! ---------------------------
When millions don't even have food to eat, our government is busy bailing out companies...
And this time, again, it's Air India.
This PSU gets a Rs 4,000 crore equity infusion... funded by the taxes we pay.
Not to mention the huge debt restructuring is basically a bailout in a different garb. And this runs into tens of thousands of crores.
Is this government really made up of our representatives or is it on the payroll of those corporate giants?
We at Equitymaster feel strongly about this cause, and thus have started an Urgent Poll where you can read all about this and cast your vote to make your voice be heard!
We strongly recommend every Indian, who wants to make a change, to take a look at this.
Click Here to read more and cast your Vote... Before it's too late!
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Why are stocks markets so insanely volatile? Do the underlying fundamentals of a business, or an economy at large, change every few seconds? Why do investment managers engage in excessive trading that often sends markets in a tizzy? Wouldn't following Buffett's wisdom help them create wealth for their clients?
Jeremy Grantham of GMO, a global investment management firm, has an interesting perspective to present. He cites 'career risk' as one of the most important factors driving investment behaviour. As per him, professionals who manage other people's money are primarily driven by the imperative to protect their own careers than to make money for their clients. If an investment manager were to make a mistake of his own, there would be a good chance of him losing his job. But what if he made a mistake that everyone was making? Most likely, he would be pardoned. This incentivises them to pay close attention to what other investors are doing. And very often, they merrily follow the herd. But this act of aping other investors gives enormous momentum to stock prices, driving them either too expensive, or too cheap.
Individual investors who invest their own money have a tremendous advantage over investment managers. Unlike the latter, investors have no compulsions that would force them to make hasty decisions. They can afford to make their own mistakes without the threat of losing their jobs. So do not be perplexed by the volatility in stock markets. Instead use it to your own advantage. Buffett comes in handy yet again when he says, "Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it."
Does the extreme volatility in stock markets affect your investment decisions? Share your comments with us or post your views on our Facebook page / Google+ page.
01:12 | Chart of the day | |
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Data source: Ministry of Statistics & Programme Implementation *with 2010 as base year |
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Thus, rather than going down the path of fiscal spending and hoping that all will turn out well, India should start taking steps right now. Foremost amongst these include stopping crony capitalism that is so rampant in India and also making farmers leave their farms and venture outside. Mr Sharma wouldn't have been more on the ball we believe.
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The answer to this question is actually very simple. It is something that The Economist has termed as 'ordered flexibility'. The leadership of Germany has in the past and even in present, introduced reforms as per the changing needs of time. It increased pension age, introduced labour reforms, cut benefits that were hurting the fiscal system, liberalised temporary work among other things. And all this in a controlled and disciplined manner. The result was the flourishing and healthy manufacturing sector, the benefits of which have helped Germany become what it is. Though there are several countries that have tried to copy Germany but so far they have all been unsuccessful in recreating its success. A big reason for this is that these countries have tried to adopt a piecemeal approach rather than adopting the whole. And that is why they have not really been successful. One cannot be selectively flexible when it suits their purpose and adopt a rigid style elsewhere. That is a recipe for disaster and not success.
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But, on the other hand, developed economies are being relatively tight fisted. The Bank of England took a hawkish stance and the European Central Bank (ECB) is in a monetary mess. Bank of Canada and the US Fed are also hawkish in their stance. Seeing a global slowdown, emerging markets are doing their best to try and revive their economies. On the other hand, developed countries are being more cautious. So is this a change in the world order? Or have the BRICs acted too soon?
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This signifies that slowly but gradually bureaucratic and environmental issues are being ironed out. However, there is more to come. Apart from improved execution, the current pipeline of outstanding projects is also encouraging. In fact, it is so huge that even if no new project is announced over the next 4-5 years, India can continue to grow at as brisk pace. Thus, for growth, it is the execution that will matter from now on rather than new project announcements.
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04:50 | Today's Investing mantra |
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5 Responses to "Why do stocks go up & down all the time?"
G R CHARI
Apr 19, 2012I think an investor should avoid looking at the broader picture of the market as global money flows will continue to impact stock prices and market volatility. He would then become bewildered and liken the market to a gambling den. The trick may be in following a stock-specific and sector-specific approach to stock picking. And the best time to buy will be at a time when the market (or the preffered stock)gives a good correction. Market always provides opportunities to a patient investor.
Rick
Apr 19, 2012"The Indian Govt has turned into a dictator!"
So, what's new? All politicians are beggars before the elections and suddenly turn into dictators the minute they are elected to turn back into beggars, begging for our votes, when the next elections come around. This will continue as long as we remain sheep-like following their diktats without ever asking WHY?
One of the power holders’ main activities is robbing Peter to subsidize Paul. No one wants to be Peter and everyone wants to be Paul, so the victims use various forms of bribery and other political games to curry favor with the power holders. And the whole civilization just rots away. I remember watching Milton Friedman in an interview once. He said that as far as he could tell, the collapse of every previous civilization — the Romans, Egyptians, Chinese and on and on — was preceded by the rise of a huge, powerful, ravenous government, which either grew up from within the civilization or was imposed from the outside. A big government means your days are numbered. Political power corrupts because it is, itself, corruption. It is the legalized privilege of using brute force on persons who have not harmed anyone. Only governments have this privilege. It’s what sets them apart from all other institutions. No one in a church, charity or business can use force except in self defense. Only governments have the legal privilege of initiating the use of brute force. Power corrupts not only their morals, but also their judgment. -- Richard Maybury
R VIyengar
Apr 19, 2012Watching the market currently , one sees that the wild fluctuations are totally driven by sentiments.
As Warren Buffet says, one should take advantage of it.
My own view is that the average retail investor, does not watch the market on an everyday basis. Such behaviour is the prerogative of a day trader. Day trader in general is looking at few specific scrips and their movements. He should in my opinion be classed as speculator.
An investor has to look at the value and the fundamentals which are long term issues.
If you are selling a scrip / or a mutual fund it is only under two conditions viz. need for funds or to switch investment. My own take is that if you are switching first decide as to where are you going to park the money and sell only then.
sivaraman
Apr 19, 2012farmers off late get a good return on investment by selling the land and lead a good life.
This ternd will lead to food shortage and increase in prices.
secondly the mass consumption levels have gone up and the cause is all the Yojanas and Govt.aided wage rise and down trodded public get a min.wage of Rs.100 or more.
Jai Ho for the inflation on food and other consumer products.
N.M.R.Shreedhar
Apr 20, 2012No doubt what Buffet and his colleagues advocate makes sense, but how many times do investors take rational decisions? It is exceedingly difficult not to get swayed by the constant barrage of market news and info pouring forth from all media, with stories of investors who have made a killing (conveniently ignoring the vast majority who have lost their shirts) by investing in stocks. I think the best approach is to decide an amount of money which you can afford to lose in the worst case, and then speculate using this amount, leaving the balance invested in solid stocks. regds