An Investor in Panic Mode
With equity markets running into rough weather, the resolve of even the most steadfast investors has been tested. And rightly so, When equity markets were surging northwards, not many would have foreseen such a drastic turnaround. Now, its rather commonplace to find investors in panic mode. We recently interacted with such an investor. His panic was the result of acting on half-baked information and poor execution of right ideas. Since the case entails some common investment mistakes, knowing more about the same can prove beneficial for investors across the board.
Facts of the case
Rajiv is a 35 Year old software professional. His family comprises of his wife and 3-Yr old son.
Among other objectives, Rajiv wants to
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While Rajiv was aware of the potential of equity investments over the long-term, he failed to appreciate the high risks that equities could expose investors to over shorter time frames. Having seen equity markets rise almost secularly over the last few years, Rajiv (like several other investors) was never exposed to the downside (read risks) of equities. Therefore, the present volatile phase resulted in Rajiv being caught wrong-footed and hence, the panic. It can be safely stated that as a result of our interactions, Rajiv has transformed from a panic-stricken investor into an informed one, with better control of his finances. Conclusion…
Rajiv was afflicted by problems like a random investment style (lack of a defined investment plan), absence of a core investment portfolio (investments unsuitable for him) and investments based on half-baked information, all of which are commonly observed investment mistakes. The result was that even the best of intentions came undone. Investors on their part would do well to steer clear of such investment mistakes, so that they stay on course to achieve their financial
The purpose of this paper is to provide a summary of the article called “Can We Keep Our Promises?” by Robert D. Arnott, and to help better understand the three key risks facing each investor.
It is often said that perception outweighs reality and that is often the view of the stock market. News that a certain stock may be on the rise can set off a buying spree, while a tip that one may be on decline might entice people to sell. The fact that no one really knows what is going to happen one way or the other is inconsequential. John Kenneth Galbraith uses the concept of speculation as a major theme in his book The Great Crash 1929. Galbraith’s portrayal of the market before the crash focuses largely on massive speculation of overvalued stocks which were inevitably going to topple and take the wealth of the shareholders down with it. After all, the prices could not continue to go up forever. Widespread speculation was no doubt a major player in the crash, but many other factors were in play as well. While the speculation argument has some merit, the reasons for the collapse and its lasting effects had many moving parts that cannot be explained so simply.
The United States signaled a new era after the end of World War I. It was an era of hopefulness when many people invested their money that was under the mattresses at home or in the bank into the stock market. People migrated to the prosperous cities with the hopes of finding much better life. In the 1920s, the stock market reputation did not appear to be a risky investment, until 1929.First noticeable in 1925, the stock market prices began to rise as more people invested their money. During 1925 and 1926, the stock prices vacillated but in 1927, it had an upward trend. The stock market boom had started by 1928. The stock market was no longer a long-term investment because the boom changed the investor’s way of thinking (“The Stock Market Crash of 1929”). The Stock Market Crash of 1929 was a mass hysteria because of people investing without any prior knowledge and the after effects that eventually led to the Great Depression.
Even more difficult than defining art is coming to an agreement of what constitutes art. Along this extensive history of debate came the consideration of whether film is art. Films were not considered an art form and had not been seriously debated until film theorist Rudolf Arnheim challenged what art could be with his theory. Arnheim, who claims that the more a film differs from reality the more it should be considered art, would certainly argue that a film like Black Swan (Aronofsky, 2010) is art in that it significantly displaces the viewer from their lived reality. He rejects the “assertion that film is nothing but the feeble mechanical reproduction of real life” (“Film Theory and Criticism” 228), instead postulating that human perspective and choices should be involved in the process of making a film to meaningfully shape elements of our lived experience. In Black Swan, director Darren Aronofsky uses multiple tools and aspects of the medium of film to create a surreal narrative. The film Black Swan qualifies as art by Rudolf Arnheim’s standards because of the ways that the viewers’ experience of the film differs from our experience of reality.
Despite having been around for over one hundred years, people began developing poor judgement when it came to investments in the late nineteenth century. Out of desire to participate in the ever growing popularity of the stock market, people took out large amounts of stock on an installment plan, with money they did not have. As Harry J. Carmen and Harold C. Syrett described in their publication of A History of the American People, as investing in stocks increased in popularity, “the exchange became more of a betting ring.” (Document 5) and “security prices were forced up by competitive bidding rather than by any fundamental improvement in American (business).” (Document 5). The stock market became a game, a challenge that was not fully thought through. This lead to certain businesses getting ahead of others, not due to their success, but because of the uneducated support they were getting from those who knew nothing about the businesses they were investing in, trying to get rich quick. Since those who took out stocks on installment could not pay them off, the stock market eventually collapsed all together. On October 29, 1929, the New York Times published an issue with the headline “STOCK PRICES SLUMP $14,000,000,000 IN NATION-WIDE STAMPEDE TO UNLOAD” (Document 3). Leading up to the ultimate crash, people began to see it coming and at the last second
At the end of September and the beginning of October, stock prices began to decrease. The crash was caused by the nervous investors, which sold 16.9 million stocks on the New York Stock Exchange in one day. Many businesses invest most of their money in the stock market to make more money, but when the stock market crashes, so do businesses that have to shut down because they have no money. Most of the nation’s banks also failed because they had to put the depositors money in the stock market to increase, but when it crashed people lost most of their money. Many people started to lose faith in the stock market and “you can’t have a healthy economy without confidence in the market.”
In an era of superficial prosperity and indulgence, most Americans “threw all care to the wind” (Danzer, Klor de Alva, Krieger, Wilson, Woloch). Ron Chernow observed that “in the 1920s you could buy stocks on margin. You could put 10 percent down and borrow the rest against your stocks.” Buying on margin is exactly what reflected the American public of the 20s- reckless and optimistic. By using leverage to invest, buyers can maximize their profits through the stock in a bull market ("Buying Stock on Margin"). This idea of using brokers’ money to gain profit for themselves appealed to many Americans. The great bull market that had lasted for six years further instigated irrational exuberance- or the extreme confidence in investors that they overlooked the degrading economic fundamentals- in the American public (Shiller). However, this overvaluation proved to be deadly. Margin loan, like a double-edged sword, eventually stabbed Americans in the back- and stabbed them hard. The
According to Munsterberg’s film theory, the motion picture is an original medium in that it aesthetically stimulates the spectator’s senses. Although both still picture and theatrical play can possibly leave images on the spectator’s retina or brain, each element of motion picture, including camera angle and work, lighting, editing, music, and the story itself, appeals to somewhere more than just retina or brain— the element of motion picture truly operates upon the spectator’s mind. Speaking of Darren Aronofsky’s Black Swan, the film unfolds a story of physically and mentally repressed ballerina’s life. Due to the film’s effective filming and editing techniques, the film successfully increases excitement as well as suspense in the story. Since Black Swan captures not only the real world the ballerina lives in but also the other side of the world the ballerina has within her mind, its spectator would experience a fantastic world where one ballerina lives in two different worlds at the same time. Even though the still picture and the theatrical play also give the spectator either a visual or an aural image, motion picture is the one that stimulates the spectator’s senses with its story, color, sound, acting, filming, and editing.
William Sharpe, Gordon J. Alexander, Jeffrey W Bailey. Investments. Prentice Hall; 6 edition, October 20, 1998
In turn everything in the present and the future is judged through the stocks as they hold a high importance in industrialized economies showing the healthiness of said countries economy. As investing discourages consumer spending over all decreases, it lead...
As the market was crowded with inexperienced but feverishly eager investors who lacked capital reserves, the falling prices produced a shock effect...
A crucial reason in favour of mental accounting and overconfidence is decision efficiency. Real-life investing scenario changes every moment Time-consuming and systematic thinking process seldom is allowed during the intense decision-making (Stewart Jr et al., 1999, Busenitz and Barney, 1997). Additionally, the ‘small world’ used by the economic theory, which only applied to strict condition, is not necessarily applicable in the practical investment decision. As the assumption in those analysis approach may not conform with real life well and for most of times, cognitive heuristics is more suitable for the uncertainty(Gigerenzer and Gaissmaier, 2011). However, there is also a few argument against them, for it may hinder people from examining their investment choice thoroughly. Research shows that they did not perceive themselves as risk taker, but in fact, they are more likely to take relatively low return alternatives as ‘opportunities’, indicating that they are risk-taking to a great extent(Palich and Ray Bagby, 1995). As a result of the illusion created by such factors, decision makers tend to be narrow-minded in composing strategies and unable to bring enough information into thought(Schwenk, 1988). It was demonstrated by several researches that decisions made by means of biases and heuristics impose
I became an enthusiast of finance ever since I was at high school. At the political economy class, my teacher asked us: if you have a million RMB, how would you use it? She then introduced us the concept of investment, and I was intrigued specifically by the stock. For the latter two years of my high school, I have been reading books and articles regarding the stock market in the U.S. and in China. As one of the outstanding students ranked top 1% in College Entrance Exam in Hainan Province, China, I was accepted by the City University of Hong Kong with a full scholarship. With the strong interest in finance, I chose quantitative finance and risk management as my major.
... stock fluctuations. If a financial advisor cannot be afforded, it would have been in the best interest of the investor to read more on the stock market news regarding what stocks were predicted to have a profitable growth. The investor could have stayed with energy and renewables, just cold have chosen different corporations then the ones chosen.
Machiraju, H. R. , 2002. International Financial Markets And India. 1st ed. New Delhi: New Age International.