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Shortcuts, Experience and Expertise

I am not an expert in programming or technology. But technology in itself has evolved to such an extent that anyone can put up a website on his own without the attendant needs of learning to code programs  with such exotic names such as Python (Snake), Ruby (of course, what can it be but a stone), C (character in English) among many others.

But as a very good friend of mine who also happens to be an expert in programming and infrastructure at systems says, the tougher part is not the programming but the maintenance of that website.

I personally am learning that first hand as this site repeatedly encounters issues that happen right at the time I am thinking of writing something or have posted something I loved writing on. It’s disappointing to get into a situation where you are ready for the visitors but the visitors are stuck because the elevator has a load issue.

So, what does that have to do with finance you may be beginning to wonder.

Well, in many ways, Finance, especially investing in the stock markets – directly or in-directly has become a whole lot easier than it was say a couple of decades back. When I got interested in technical analysis for example, getting data and the software that could plot the charts was the biggest challenge.

Today, a whole lot of sites provide for free what couldn’t be got for a price then. Exposure has also brought about a better understanding of markets and finance for the current generation compared to say the generation just above us.

Yet, as this cartoon clearly tries to convey, it’s one thing to know history and yet another to see while others fall into similar traps that one has experienced earlier.

An Engineer is certified after four years of rigorous training, a Doctor after 6 years, Lawyers after 5 years, Stock Markets Experts on the other hand – we don’t need that rigorous training for we are all self-certified.

This is not due to lack of Certifications – CFA – CMT – CFP are the top recognized in the Industry but given that these again are self-study courses and there isn’t a legal requirement to have such a certification, why even bother.

SEBI does require passing of exams if you want to be a distributor to Mutual Funds or become a Registered Investment Advisor but are in no way comparable.

Then again, Education in no way is really the determiner of success. As Warren Buffett put it wonderfully

“Investing is not a game where the guy with the 160 IQ beats the guy with a 130 IQ. Rationality is essential,”

Bull markets like the one we are currently in makes investors think that miracles do happen every day. Access to advisors who promise the moon only means that most become blind to the reality of what markets are all about.

Among factor investing, two key factors that stand out are Momentum and Value. Both require different style of thought process to be able to stay the course. Value requires a great amount of patience as you need to wait first for the opportunity to crop up and once you find a opportunity, for the market to recognize.

Momentum on the other hand requires you really ride the tiger, keep getting chunks of you eaten up and yet wake up every morning ready to try and ride another tiger. In short, if gut crunching volatility will not scare you, you should do well.

But these cannot be learnt by reading a couple of books or hearing to a few podcasts. Yes, they help provide you with the right context, but when you are down 30% or 40%, it’s not the bookish knowledge that drives you as much as the fear of losing everything you own.

FOMO – the Fear Of Missing Out.

If you were a Value Investor, your biggest trouble is to maintain sanity even as you see every tom, dick and harry minting money out of thin air. It’s hard to maintain that conviction in the face of the constant pressure of missing out

History teaches us what many of us learn – mostly the hard way. The ability to understand our skills and match it with what works for us the best. You cannot be a great Lawyer if you cannot argue much.

When markets were climbing new peaks, along with the rush into Mutual Funds there was also a pretty strong rush into subscribing to advisories who claimed to have finally found the holy grail – lose less when markets fall while making a lot more when markets rise.

Even though the markets haven’t exactly started a bear run, there are already grumbling voices about how they were misled, taken for a ride among many other excuses that are bound to be seen when one is caught on the wrong foot.

Reminds me of this dialogue from V for Vendetta

“Well certainly there are those more responsible than others, and they will be held accountable, but again truth be told, if you’re looking for the guilty, you need only look into a mirror”

The reason Real Estate or Gold was and in many ways still is the preferred way to invest large sums of money was that it required no real knowledge other than some simple guidelines. But those easy options are gone.

Markets are unforgiving and yet if one doesn’t invest much, he cannot escape the daily routine that he wants to get out of. But invest much and voila, suddenly you may find yourself in a deeper darker hole than you ever imagined.

Advisors in my opinion are like Psychiatrist’s. You need to go to them to find yourself. They can provide a good base for learning and understanding concepts and while they do advise to use them as they recommend, it finally your money on the line and who is a better judge of that than you.

Discussion

2 Responses to “Shortcuts, Experience and Expertise”

  1. Hi Prashanth!

    I am in awe of the data crunching you perform. Especially the unique charts which you post on twitter. Inspired by your data backed views, I’d like to try my hand at parsing and interpreting data.

    Your “contact” page is not responding so I’m forced to send the message here.

    I just had a few questions –

    1) Do you use any other software apart from Amibroker?

    2) Who’s your vendor for price volume data?

    3) Any books or resources which you think are an absolute essential read?

    4) Any guidance which you wish someone would’ve told you when you started off in the markets?

    5) Your view on whether it’s beneficial to incorporate a blend of technical and fundamental analysis into one’s style?

    6) Do you use survivorship bias free data?

    Eagerly waiting for your response.

    Posted by Tushar Daga | 4th June 2018, 5:36 pm
    • Apologies, shall check why the Contact page isn’t working. Thanks for the alert.

      With regard to your queries,

      1. Nope, AB suffices for both Charting + Testing.

      2. Its basically cleaned NSE Bhavcopy. Source: http://groups.yahoo.com/neo/groups/indiantradermall

      3. Nothing specific, my opinion – read History (both Financial and non Financial). Whatever will happen has happened before 🙂

      4. Depending on whether you choose the fundamental approach or technical, try out CFA or CMT. Passing doesn’t mean you are a expert but passing requires more than a passing knowledge and this can help a lot in the real world.

      5. I have tried for long, but honestly I would say stick with one. I do check the fundamentals of the companies I invest based on Momentum but reason for pulling trigger is Momentum alone. Fundamentals is just to ensure I don’t invariably get caught in some dead stock.

      6. Yes. Testing without that creates biases enough to make a Billionaire 🙂

      If you have further queries, you can also reach me at Prash454.ta AT gmail dot com.

      Posted by Prashanth Krish | 16th June 2018, 7:18 pm

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