X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Are you ready for the next big bull market? - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Apr 19, 2010

    Are you ready for the next big bull market?

    So, are you ready for the next big bull market yet?

    There's one coming up some time in the future. Its timing is not certain. But the fact that it will come, is. Infact, you can expect it to be a very euphoric and frothy one. Just like the one whose peak we witnessed in January 2008. One where stock prices will once again reach extremes. And best (or worst) of all, no one will complain, or find it unusual. Most investors big and small will fall for the 'stock-prices-are-going-to-touch-the-sky' theory all over again. Including, maybe, you.

    How can that happen, you ask? After all, haven't we learnt our lesson well enough? After what happened right after January 2008, we surely cannot be stupid enough to bid up stock prices to such insane heights once again. We surely cannot fall for the same trick twice. Or can we?

    If history is any pointer, we most certainly will. Investors have, since the beginning of free markets, gone through a cycle of booms and busts in the stockmarket. And each time a boom or a bust happens, most swear that they will not make the same mistake of paying ridiculous prices again. And then they do, all over again.

    But why does this happen? Aren't humans supposed to be one of the smarter species on this planet?

    Yes we are. But at the same time, our minds are far from perfect. The human mind has a number of weaknesses. Weaknesses that cause it to fall prey to many psychological pitfalls.

    One among these is what is called as 'availability bias'. Availability bias is nothing but the human mind's tendency to give more importance to what's most easily available to it. And most often, what is most easily available to the mind is something that is recent and vivid. Recent and vivid events play most strongly in our mind. We over-weigh such events to a great extent in our decision making.

    Not very surprising then that as time goes by, events that have occurred a while back become less recent, and consequently less vivid. In turn, they are replaced in our minds with events that have happened much more recently. These new events in turn become the ones that are more 'available' to our minds. They are the ones that we now give more weight to on a subconscious level. Indeed, the human brain tends to drift into working with what is easily available to it.

    This tendency is reflected in many spheres of life. For example, if you have just seen a deadly plane crash shown on TV, you may fear traveling by plane for some time. You may feel even more fearful of air travel if you've just seen a detailed and graphical account of the same. You may feel no such fear, however, while going for a ride in your car. This is despite the fact that you stand a much greater chance of death in a car crash when compared to in a plane crash. The number of people that die in car crashes every year is far greater than those that die in plane crashes.

    Our behaviour in the stock market too is no different. Investors that have just lost money in a stock market crash have that event at the top of their minds. An extremely vivid and recent event for them. It is this that keeps stock prices from touching euphoric levels anytime soon again. But as time goes by and memories of the crash are replaced, the markets slowly progress to increasingly higher levels. If this continues for a while, it is this new phenomenon of rising stock prices that is now given more importance. This ends up giving a psychological boost to investors. They then start giving lesser and lesser importance to the more distant and less vivid phenomenon of a stock market crash. Once this effect starts kicking in, investors start paying lesser and lesser attention to the prices they are willing to pay for stocks. It is no coincidence that the peak of a boom in the stock market is usually reached when the fear of a stock market crash is almost completely gone.

    And in this manner, gradually the seeds of a new bubble are sowed. As we have just explained, the 'availability bias' almost ensures that this should happen. It is because of this psychological flaw that one can be sure that it just a matter of time before another bubble is formed. Only to start with the cycle all over again.

     

     

    Equitymaster requests your view! Post a comment on "Are you ready for the next big bull market?". Click here!

    1 Responses to "Are you ready for the next big bull market?"

    Ramana Kumar

    Apr 29, 2010

    Valid and very pertinent write-up. The 'psychology' of investing is probably more important than any other factor in investment success. Investors need to be aware of the pitfalls they are likely to fall into and guard against them. Study of these aspects of investing has become a separate field by itself, under the banner of 'Behavioural Finance'. Equitymaster has brought out series of articles on Warren Buffet, investing principles, etc. Series on Philip Fisher is underway. It may be a good idea to generate a series entirely on behavioural finance, which should act as a ready reference point for investors.

    Like 
      
    Equitymaster requests your view! Post a comment on "Are you ready for the next big bull market?". Click here!
     

    More Views on News

    How to Ride Alongside India's Best Fund Managers (The 5 Minute Wrapup)

    Jun 10, 2017

    Forty Indian investing gurus, as worthy of imitation as the legendary Peter Lynch, can help you get rich in the stock market.

    Why NOW Is the WORST Time for Index Investing (The 5 Minute Wrapup)

    Aug 18, 2017

    Buying the index now will hardly help make money in stocks even in ten years.

    Trump Takes a Beating (Vivek Kaul's Diary)

    Aug 18, 2017

    Donald J Trump, a wrasslin' fan, took a 'Holy Sh*t!' blow on Tuesday.

    How To Read Your Mutual Fund Account Statement Correctly (Outside View)

    Aug 17, 2017

    PersonalFN simplifies the mutual fund account statement for you.

    This Small Cap Can Drive Chinese Players Out of India (and Make a Fortune in the Process) (The 5 Minute Wrapup)

    Aug 17, 2017

    A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    S&P BSE SENSEX


    Aug 18, 2017 (Close)

    MARKET STATS