Secret Behind Market Movements
Over these past few decades, we see markets going through its cycles of booms and busts. However, if we really think about it, it’s actually the same thing happening over and over again each time. While the event resulting in the boom may vary each time, however, fundamentally it is the same thing. Look at the dot-com bubble, the pre-Asia Financial Crisis, the events leading up to the Subprime Mortgage Crisis and the recent few bubbles we are seeing appear – Social Media and China.
With each event, it always started out as a logical and valid thesis. If asked, I would totally understand the reasons for buying Social Media companies or the China Growth Story. However, we have to ask ourselves are we adopting a buy high, sell higher mentality. If we came in from the start when valuations were cheap and all, yes it would perhaps make a good investment depending on your strategy. However, at current valuations, are we letting ourselves get blinded by the story? Very often, we tell ourselves that this time it is different. These companies are supported by strong earnings, strong fundamentals, the macro-thesis is sound and all. However, things are always sound until it isn’t.
I came across the above picture, which sums up 10 of the most spectacular bets over the past 300 years of financial history. From these 10 notable individuals we see one common factor. They are all doing the same thing – either buying when everything is dirt cheap and people are panicking or selling when valuations are getting lofty. While I may not have personally experienced many bubbles and recessions, I strongly believe that past history serves as one of the best teachers in preparing us for such events and taking advantage of it when the opportunity arises.
The Children's Investment Fund Management LLP is a London-based hedge fund firm better known by its acronym TCI. Founded by Sir Chris Hohn in 2003, the fund has a global mandate and supports the Children's Investment Fund Foundation (CIFF). Q3 2021 hedge fund letters, conferences and more The CIFF was established in 2002 by Hohn Read More