Investors are like deer in the headlights

This post rhymes with my earlier post on investor fatigue. Fear and uncertainty are at all time highs. The frequency, intensity and persistence of negative news has frozen people into inaction and made them disengage from financial markets.

We see this phenomenon clearly playing out in the Indian markets. As investors have disengaged, underlying cash market volumes have plummeted. Many stocks outside the top 200 have not traded in weeks and some in months (beyond a few hundred token shares). More...

Fatigued !

Fatigued, in one word captures what market participants around the world are feeling, especially in India. The Indian market peaked in October 2010 and has been on a downward trajectory since then. The markets have endured every imaginable kind of bad news during this period. More...

Everyone is an Efficient Market Theorist!

At some level, we are all believers in the Efficient Market Theory (EMT). When the mispricing of a stock persists for an extended period of time, most of us begin to believe that the markets are right and that the pricing of the stock is justified. This is true as much with overpriced stocks as it is true with underpriced stocks.

The longer the mispricing lasts, the easier it becomes to justify the price of the stock based on the EMT. Commentators explain valuations that don’t make any sense with the concept of a market rating and explain sudden (and sometimes explosive) changes in the price of a stock with extended concepts of de-rating and re-rating. More...