Indian Stock Market is Critically Poised

It seems to me that all is not well with the Indian stock markets. I cannot help but be reminded of the set up in November 2010. Then as now, the Nifty had crossed 6000. Then as now, it was followed by across the board liquidation of midcap stocks. The liquidation was sudden and brutal! And it happened when the global markets showed no sign of a sell off. Then and now.

If the scenario were to play out like the last time, I am afraid it doesnot bode well for the Indian markets for 2013. The last time the Nifty crossed 6000, it was a precursor to the market declines of 2011. There appears to be a distinct possibility that what we have witnessed in the last 2 months is a precursor to a 2013 market decline.


  

Inequality is rising in Europe

1. “Spain is not Greece.”
Elena Salgado, Spanish Finance minister, Feb. 2010

2. “Portugal is not Greece.”
The Economist, 22nd April 2010.

3. “Ireland is not in ‘Greek Territory.’”
Irish Finance Minister Brian Lenihan.

4. “Greece is not Ireland.”
George Papaconstantinou, Greek Finance minister, 8th November, 2010.

5. “Spain is neither Ireland nor Portugal.”
Elena Salgado, Spanish Finance minister, 16 November 2010.

6. “Neither Spain nor Portugal is Ireland.”
Angel Gurria, Secretary-general OECD, 18th November, 2010.

7. "Spain is not Uganda"
Rajoy to Guindos... 9 June 2012

8. "Italy is not Spain"
Ed Parker, Fitch MD, 12 June 2012

Statistical Thinking when choosing one's spouse

Statistical thinking is essential to developing an ability to trade. Outcomes are never certain, but if you adopt a process that maximizes the chances of a positive outcome, you may be able to trade successfully. Maximising the chances of a positive outcome doesnot mean that you will be successful, it merely ensures that the odds of success is maximum.

In a book about mathematical puzzles that I read recently, called “How Long is a Piece of String”, the authors Rob Eastaway and Jeremy Wyndham explored the chances of finding one’s perfect partner. Selecting the perfect mate is a bit like trading because it involves serial decision making. One is not given all of one’s options at the same time, they merely bump along one after another . One isn’t really sure what or who will come next.

The authors contend that in this uncertain environment, the best way to maximize one’s chances of finding that special person is to first estimate the no of potential partners one is going to meet. One must then date the first 37% without committing but benchmarking the most suitable one. Once the 37% mark is reached, the time to settle down has come, and one must then select the first person one meets who is better than the benchmark. Naturally if one does not meet anyone better then the benchmark, then one just settles down with the last one. The authors call this the 37% rule. There are obviously many “unrealistic assumptions” in this, the most obvious one being that potential partners will always accept one’s overtures. But crass as it may seem, it does maximize the chances of one ending up with the most suitable partner. The point is that following this method will not ensure that you end up with your dream person, but it sure will increase the chances that you do so, more than a hit or miss approach.

Ergo, a statistical approach to trading will increase your chances of success over a hit or miss approach.

2012

Happy New Year! With sentiment so bearish, 2012 could surprise on the upside. Just go back and look at sentiment at the end of 2002 or 2008. Similar and precursors to bumper years. So you never know. One thing is sure though, markets will not follow consensus. And the consensus at the moment appears to be down!