Have you ever listened to the discussions on business channels when the stock market crashes? There would be a group of experts sitting in the studio. Each one would give their own reasons for the market crash. Uncertainty in global politics, selling by foreign investment institutions (FIIs), poor performance of companies, high valuations of stocks – they would serve up a feast of reasons. Listening to each argument, you would feel the authority of someone who has discovered the secret of the universe.
All this analysis can be seen as a form of entertainment. But to be honest, the predictions in this market were pretty much the same a century ago. The utensils may have changed, but the dishes taste the same.
The arguments of a century ago
The book ‘1929’ by renowned financial writer Andrew Ross Sorkin tells the story of the Great Depression that shook the world. The most striking thing about the book is not the drama of the crash, but the uncanny similarity of the discussions that led up to it to the present day. The essence is that the ‘tali’ of market wisdom has been on the menu for almost a century.
In early 1929, American stocks were soaring to unprecedented heights. Two arguments were strong in society at the time. One, the market was dangerously overheated. Two, these good times would last forever.
Bear warning
Senator Carter Glass, one of the architects of the Federal Reserve, the American central bank, railed against speculative trading in stocks and called for action against Charles Mitchell, chairman of National Citibank (now Citigroup), who had encouraged it.
Paul Warburg, another banker who played a key role in forming the Federal Reserve, described it as an “orgies of unrestrained speculation” and predicted a major catastrophe.
The bulls’ reply
But the market bulls were not idle. They came forward with their counterarguments. A Princeton University economist branded Glass and his associates as “primitively ignorant and passionate.” He also argued that Wall Street was a “society of innocents.” Another banker called for Glass to resign.
Alexander Noyce, the financial editor of the New York Times, accused Paul Warburg of “undermining American prosperity.” Each group had its own reasons for its arguments: the availability of credit, industrial growth, the monetary policy of the Federal Reserve, and the impact of new technologies such as radio and automobiles – all were discussed.
Same script then and now
Listen to these conversations. If you change just a few words, doesn’t it sound like an article that would be printed in tomorrow’s newspaper? It’s no different from today’s discussions.
- The radio of that time has become the artificial intelligence (AI) of today .
- The Fed fears of that day have become discussions about RBI interest rates today .
- The speculation of the day is like today’s derivatives trading and meme stocks.
The script is the same. Only the actors and dialogue change with the times. Both sides in 1929 believed in their arguments. All of their arguments were backed by logic. In the end, the bears who predicted the crash were right. But their timing was wrong. Many people lost a lot by short selling months before the market crashed.
What should the average investor learn?
Here is the most important thing for an ordinary Malayali investor to pay attention to. For the average person trying to build wealth over a lifetime, the promises of these experts are worthless.
Think about it. Imagine a man who started a disciplined savings program in 1929. He kept his investments going through the Great Crash, the Depression, World War II, and every crisis that followed. How much would his wealth have grown by the time he reached 1960 or 1970?
Imagine if someone else had tried to time the market by listening to these experts’ market predictions . Buying when they heard the market was going to go up and selling when they heard the market was going to go down. What would have happened to him? He would have suffered not only financial losses but also great psychological stress.
This does not mean that discussions about monetary policy or market valuation are irrelevant. They are very important to the country’s policy makers and large financial institutions. But for the average investor who is wondering whether to continue his mutual fund SIP or panic and sell, these discussions are just noise. Not only are they useless, they are also harmful.
Forget the experts, stick to the goal
These discussions create an illusion in us that we always need to listen to the opinions of experts for successful investing. But the reality is the opposite. The important thing is to ignore these opinions and noise and remain disciplined in your own investments.
If your goal is to save money for your children’s education, your own retirement, or to buy a house, you don’t need to be affected by the daily ups and downs of the market or the predictions of experts. Just keep up with your SIP. Understand that when the market is down, you will get more units for the same money, which will benefit you in the long run.
The next time you see pundits on television dissecting the markets, remember that you are watching a reenactment of a century-old drama. Watch the characters and dialogue with a sense of curiosity. But never let that influence your investment decisions. There will always be market noise. But if your financial goals are clear, those noises cannot mislead you.
