Avoid the Froth

We have been bombarded over the past few weeks by the billion-dollar sale days from e-commerce sites of all hues. We were induced by these sales into buying even what we don’t need. And, people were so enticed by the discounts that they were willing to buy more than they actually planned. In fact, a lot of buying on these sale days were impulse and discretionary spends. Most people also bought stuff they didn’t really need just because they were cheap. There is a lot of reckless buying as much as there is responsible buying happening on these days. The stock market is also seeing a fair degree of reckless buying. People are buying stocks on impulse and the valuations, unlike the billion-dollar sale days, are hardly attractive. In stock markets, price behaviour seems to be the opposite of what happens on Snap deal. The lack of liquidity in popular stocks is taking their prices higher. So people are paying a higher price to buy. Naturally, this will translate into short term performance. NAV watchers get the sense that this froth is actually investment performance. And, more people are buying like there is no tomorrow. Investors must learn to manage investment purchases just the way they would shop responsibly on billion-dollar sale days. If not, their investing can descend to the ordinary and even far below.

“Rational behavior requires theory. Reactive behavior requires only reflex.”  – W. Edwards Deming

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