Fooled By Randomness

The beginning of 2008 was great for Indian stocks. Reliance 'Power' IPO had energized the markets. A collegue who shared the cab with me to office was in total frenzy.

Call up the wife intermittently and make decisions on the fly. The wife would watch 'cnbc tv 18' all day and call back her husband whenever Udayan Mukherjee would make an interesting prediction.

Hey, he looks handsome and smart. How can he go wrong?

"Where do you invest your money" the collegue asks me.
"I don't know. I use what I need and pass on the rest to my Dad."
"Dude, You should invest in the stocks. People are getting 30% returns".
"Hmm."

My roommate, an IIM grad who writes financial reports for Investment bankers decides to get into action too after reading 'The Intelligent Investor'.

"Dude, I need some money. " he said excitedly. "Need to 'round off' my portfolio."

Now, the tides have receded.

The same colleague who was riding high is now in debt. No more calls to the wife.

"Dude, I need some money." still says the IIM grad. He needs it to invest more to 'average' his losses. So that he looks less of a fool.

'Fooled by randomness' is an excellent book on stock market dynamics and explains at great length the folly of investors who try to make a quick buck, 'riding' the stock market.

It is the same folly which makes people quit jobs, and invest their 'VRS' money on the stocks. The folly which makes everyday people switch on their TV's daily to financial news and act within the hour to make a quick buck.

The same people look like smart asses when they win but total idiots when they lose. Their happiness index often, a reflection of the Sensex.

Success really seduces a person into thinking he cannot go wrong.

to be contd..