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Monday, April 13, 2009

Zeitgeist, They Say!

Got a few lakhs lying around? Invest in the stock market! Before you get a fairly long and sturdy stick to whup my ass with, let me say this: the market is not going to bottom, at least this much, anymore. I will not forget the chance I had to pick up Larsen & Toubro at around Rs 500 and today it’s around Rs 800. How much would I have gained? Sixty per cent in a few weeks. If I had invested a lakh I would have earned Rs 60,000 without doing anything at all and that too in a stock with little downward risk. Looks good enough? Where else can you get such appreciation in such a short while?

Markets are never bad. Wise investors, the sort who watch the market and play according to rules still make money in the market. Ask Warren Buffet. He is the one who said "When the market is all ecstatic, sell, and when the market is weeping over spilled shares and debentures, buy."

Robert Shiller has written a thought provoking book in Irrational Exuberance. His basic theory is that during a bubble “people who communicate regularly with one another think similarly. There is at any place and in any time a zeitgeist, a spirit of the times. So if everybody around is investing in the stock market, the tendency for potential investor is to do the same. Like sheep in a herd, investors in a bull run find it cozy to be inside the herd rather than outside it.”

Except that now people are shy of the market and whatever communication there is is: “don’t buy!” One is so scared, ones pants are still yellow after the ride in the bullock cart that the market felt like in the past few months. But if you have a few lakhs lying idle in the bank this would be the right time to invest. However, I wouldn’t bet my last lakh of rupees on this. So take this piece of high-falutin, irrational wisdom with a pinch of salt.

Zeitgeist, they say, is all wrong!

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