What is the idea behind the title of your new book ‘Riding the roller coaster’?
The books tells readers about the lessons various market cycles teach us. Financial markets are cyclical in nature and there are always ups and downs. Along with markets, humans also go through ups and downs emotionally by reacting to these events. You can’t remove volatility. You simply have to ride it.
What kind of lessons do financial markets teach us?
Psychologists say that we are driven more by emotions than by logic, especially when dealing with money. Sometimes, our fear gets replaced by greed. These are extremely strong emotions which blind us. They impair our ability to make rational decisions. If you take the recent examples of problems in China and Greece, many Indian investors feared about the safety of their investments.
Logically, one should invest when the market corrects.
Do you think investors have become savvier now? We see more people investing in mutual funds when markets correct…
I hope if it happens that way. The message this book is trying to convey is that you learn from your mistakes and prevent them from happening in future. Only time will tell us whether investors’ behavior has actually changed.
How do you think advisors react where there is panic in markets?
We all are prone to mistakes, including advisors, AMC officials and fund managers. During the Great Depression, Benjamin Graham lost more money than the markets. He is considered the Guru of Warren Buffet. He realized his mistake and in 1931-32 he lost less than the market. He lost money in 1929-30 because he was highly leveraged and he invested in not so good companies.
Sometimes, people get euphoric and at times they become cautious too early. For instance, when Jeffrey N. Vinik took over as the fund manager of Fidelity Magellan Fund (which was the largest actively managed fund in the world) in 1996, he felt that the markets were overheated. He took a cash position and the Bull Run continued for three more years. So if fund managers can mistakes even advisors can make mistakes.
Is your book also useful for advisors?
The book is meant for everyone. Even an advisor is an investor. Any advisor who reads this book can use the knowledge to apply in his day-to-day dealings with clients. While the book is written for investors, it would also be useful for advisors.
What inspired you to write this book?
There are three reasons why I wrote this book. Firstly, I’ve been writing articles in media but they are short articles. I wanted to challenge myself to see if I can write a book which requires considerably more effort. Secondly, there is a dearth of good books which explain various market cycles in the Indian context. Third reason is that writing gives me a high.
What made you write book on this subject?
I like studying history. If you can figure out how not to lose money then you can make money in markets. I started studying scams, various market cycles and frauds and in the process developed a keen interest in history. Along with Harish Rao, I developed a program on lessons from market cycles. The program was very well received by people.
When the publisher approached me to write a book, I shared a few topics with them, and one of them was ‘lessons from market cycles we repeatedly forget’. They liked it and I pursued it.
Can we forecast markets?
There is a chapter on forecasting in my book. We can predict outcomes but forecasting the exact time when a certain event will occur is impossible. In 2007, IMF came up with a report on world economy which said that long recessions are a thing of past. In 2008 the markets crashed!
What are the key takeaways from your book?
There are four main takeaways. Firstly, if we are not emotional then we are not normal. Secondly, we don’t know the future. The third learning is that even experts can make mistakes. The fourth takeaway is that financial markets are cyclical and we can’t predict the length and depth of the cycle.
What is your advice to investors?
They have to accept that they don’t know how long the cycle will last. They can position their portfolio in such a way that the damage is minimum. Their focus has to be on reducing risk rather than on increasing the upside. For most investors the key differentiator is knowledge. If you are sure that you know, only then chase the upside. If you don’t know then protect yourself from the downside. They should stay away from products which they don’t understand.
How has been your personal experience in investing?
I have made most of the mistakes which I have mentioned in my book. I have leveraged, dabbled in derivatives without having much knowledge about them and bought shares based on tips. I have done technical and fundamental analysis and after doing all this I realized that it is not worth doing all this. Today, I invest in mutual funds.
I have realized that you need to accept your mistakes and move on. Sometimes, we stick to our bad investments and end up making more losses. You have to accept your mistake and get out of bad investments.
Below are the links to the pre-order page:
