Sunday, October 09, 2005

Why do people lose out to Nature and Markets…

On the October 8, 2005 an earthquake of magnitude 7.5 on the ritcher scale hit South Asia. Thousands of people lost their lives and few lucky who managed to survive are shattered to have lost their loved ones. Suddenly I felt that of late natural calamities are happening more than ever before. Tsunami, Floods, Hurricanes, Earthquakes. All the intellects in the worlds, as to be expected, are trying to rationalize why is it happening what is happening. And they will come out with some reason or the other because people are rationalizing animals. If that reason is correct or not is not the subject of this write up.


I am of the notion that “Nature has nothing to contradict our survival rather it is we who think of ourselves as infallible and take nature for granted” We should understand the fact that all that nature asks people to do is reserve some space for it. We need to understand nature. How? That is the big question. We cannot understand nature per se. It is elusive. (Don't you feel I am also showing signs of a rationalizing animal).But we can take into consideration the effects that a given course will have on the nature.

Nature works as a perfect self balancing loop. The more the water on the surface of the earth, the more the evaporation, the more the evaporation, the more the rains, the more the floods and this cycle will go on. I think this is what they mean by Global warming. That is not the issue. The issue is what could have possibly caused Global warming. Here lies the purpose of my write up.

Instead of naming pollution, depletion of ozone layer, I would say that Human mind set caused global warming. Nothing objective is going to come out if I blame the whole group for which this write up is intended for. But If we can learn from it and apply this to our work something useful can come out. And I would try to see if this can help us in understanding what causes most of the investors or speculators lose out.

Understanding Markets:

Only small percentages of people are able to beat the markets. Why is it so? Is markets corrupt in a sense that it leaks the stock that it will quote higher to all these people, Certainly not. Then it is certainly got to do with the fact that the people who are beating the market consistently are doing the right thing. What is this right thing?

But first we need to understand another breed among investors—Speculators. They lose out in the long run to markets. They may make money for some time. Over the long run it is the market that beats them hands down. Why? I think because they underestimate markets. They start taking markets for granted. And market has got a self esteem of its own.

Markets & Success:

Now I will try to answer the question: What is the right thing that successful investors do? They reserve some space for the markets (ie) Margin of safety. What do I mean by margin of safety is that they are conservative in making their assumptions, expectations, and buy the stock with a considerable margin of safety. They consider all the factors that can possibly affect the outcome of their investment but never ever forget that markets are unpredictable. In the process if anything can go wrong it is from there side.

They never blame that market betrayed them. They attribute their failures internally and always consider the fact that they have no control over external circumstances, in this case—markets. And when they do that they win in the long run


I wanted to point out that most of the investors lose out, as we lose out to nature, because they try to overestimate themselves and underestimate markets. In short they behave like “Dam Fools.” (Please read this story over Mr. Bakshi Blog.)


Just because I have thought the above write up it does not give me the right to feel that I am infallibly right. In other words I firmly follow Munger’s word

An idea or fact is not worth more because it is readily available to you.”

So please feel free to criticize me if you have reasons to. I would welcome that.


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