English
language has certain words that change the meaning when used in the financial
markets. Take for example, two opposite words – “never” and “always”.
Over the
years, one has come up with many experts and common men use these words while
referring to the future. Let us look at some usages of these two words we often
come up with:
·
This thing will always going to behave like this
·
Investors will never learn
·
India will always be full of opportunities or
India will never be corruption-free
(The above are general statements used as examples. These are not the
author’s views)
When you hear
these (bulleted) statements, you start forming an impression. The mind starts
to believe things in “black and white”. Psychologically, it is quite difficult
to appreciate the grey areas for many.
However, real
life is quite different. I can be confident about the past but not about the
future. It is in this context that the meaning of the two words may be
different from that in the English language.
Very often, we
extrapolate the past events into the future. If something has never happened,
we assume that it will never happen. If something has happened very often, we
assume it has to be always like that.
It is
important to remember the mutual fund tag line: “Past performance may or may
not be sustained in future”.
Consider turning
point events – or a unidirectional price movement. The recent example of Gold
prices suggests that many had accepted that since gold prices had risen
continuously for almost a decade, gold would never give negative returns. One
has heard the same argument for real estate, too. One has heard the same
argument for equity prices in the past – remember 1999-2000 and 2007-08. In
fact, when the party is going on, the music is “never” supposed to stop. But,
it stops, eventually. The date of the “eventuality” is not marked in our
calendars.
My
understanding of these two words is very simple:
·
When someone uses the word “never” referring to
the future, it should be understood as a very low probability, higher than zero
·
When someone uses the word “always” referring to
a future event, it should be understood as a very high probability, less than
100%
The above
thinking keeps one’s mind balanced. One is able to absorb shocks better, when
they occur. This ability to absorb shocks allows one to avoid acting in panic.
Happy
investing. Happy thinking.
Your articles are NEVER boring. They are ALWAYS interesting.
ReplyDeleteThanks Harish
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