The pain of losing money - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

The pain of losing money

Dec 11, 2008

Over the past one year, we have witnessed stock prices fall like a pack of cards. Investors everywhere have deeply felt the euphoria of seeing the value of their stock portfolios swell to very pleasing numbers just around a year back. But what they have also felt, perhaps much more deeply, is seeing those numbers shrink faster than they could have ever imagined. The scars of that experience are going to be a big influencing factor on most investors' decision making for some time to come. Amongst many others, two things make investors' current attitude towards stocks very evident. Volumes have almost completely dried up on the stock exchanges, and IPOs are being treated like dirt. As they say, the pain of losing money is twice as much as the pleasure of making it.

But the crux of this article is just how much an experience of the past can influence decision making in the present. How much of that influence leads to wiser decision making is something that often goes unanalysed. At the valuations that many good companies are being given currently, investors are surely projecting out into the future what they have seen in the recent past. Warren Buffett likes to describe this by calling it investors' unshakable habit: looking into the rear-view mirror instead of through the windshield. What we observe looking backward, and what we are observing currently is making us very discouraged about the future. But the fact of the matter is that our excessive fixation on the past and the present is hindering the clarity with which we project the future. It is making sure that a certain amount of bias creeps into our vision of the future.

When times are good for long and many have made easy money, that's the bias that rules our projection of the future. And the same goes for now, when we have seen some very frightening events in the recent past. Investors are seeing the future as full of black clouds and impending thunder storms. Investors are projecting the credit crisis to continue. They are also projecting scarcity of capital and declining corporate profits to continue.

The fact that the current problem doesn't seem to be going away anytime soon makes today's situation even more frightening than the dot-com crash. The current problem is not of a single sector, it is of the entire economy - global and local. The current problem is a creation of years of monetary and financial mismanagement. And it will take some while for the issues to be resolved.

There simply seems to be no end in sight and no safe place to hide. And that is exactly why we believe that you should be buying stocks.

We are not sure which way the markets will move in the short run. In fact, given that the issues will still take time to resolve, do not be surprised if stocks continue to slide from their current levels. However, we believe that shares of companies with solid businesses and visionary managements at helm have been punished as bad as shares of companies with doubtful credentials. The former bunch is trading at discounted prices because of the Mr. Market's pessimistic mood.

As such, if you decide to buy these quality stocks today, we believe you will be more than pleased in a few years.

Equitymaster requests your view! Post a comment on "The pain of losing money". Click here!


More Views on News

Your Queries on the 8-Year Cycle Answered (Fast Profits Daily)

Sep 25, 2020

You've sent in your queries on my videos on the 8-year greed and fear cycle in the market. I'll answer them in this video.

It's When You Sell that Counts (Profit Hunter)

Sep 25, 2020

How I alerted readers to the impending crash last week.

Can the Nifty Fall to 10,200? (Fast Profits Daily)

Sep 24, 2020

The Nifty has reached an important support level today. If it breaks then we could see further downside.

How to Save Money by Exiting Stocks Before They Fall podcast (Views On News)

Sep 24, 2020

A penny saved is a penny earned. It doesn't matter where you enter. All that matter is where you exit. Watch this video to identify an opportune time to exit your investments and book profits.

ICICI Prudential ESG Fund: Aims for Sustainability (Outside View)

Sep 24, 2020

PersonalFN briefly explains the newly launched fund : ICICI Prudential ESG Fund.

More Views on News

Most Popular

The Demonetisation Debacle

Here are some insights on how the entire demonetisation drive unfolded...or should we say failed...

Why We Picked This Small-cap Stock for Our Hidden Treasure Subscribers (Profit Hunter)

Sep 17, 2020

This leading household brand will profit big time in a post covid world.

My Top Stock to Buy in this Market Selloff (Profit Hunter)

Sep 22, 2020

The recent correction offers a great opportunity to buy this high conviction smallcap stock.

What Do the Charts Say About Buying Smallcaps Now? (Fast Profits Daily)

Sep 18, 2020

Everyone seems to be excited about buying smallcaps now...but is it the right thing to do? What do the charts tell us? Find out in this video...

Can the Nifty Fall to 10,200? (Fast Profits Daily)

Sep 24, 2020

The Nifty has reached an important support level today. If it breaks then we could see further downside.


Covid-19 Proof
Multibagger Stocks

Covid19 Proof Multibaggers
Get this special report, authored by Equitymaster's top analysts now!
We will never sell or rent your email id.
Please read our Terms


Sep 25, 2020 (Close)