Market Volatility and Humility

These are times when many things don’t go our way. We suddenly come to a greater realisation that we have our own limitations and vulnerabilities. The time or money we had planned could be stolen away from us in a moment. It was the Socratic Euripides who said, “How can you think yourself a great man when the first accident that comes along can wipe you out completely?” 

If we were to look at the major stock market upheavals all across its history, we find that some were called “bubbles”, while others were called “crashes”. When we study the frequency of the past 59 upheavels, we find a very interesting signal. After "the Tulip Mania Bubble" of 1637, the next upheaval to rock the market happened in 1720, “the Mississippi Bubble”.  So, there was a period of 83 years of market stability. But since then, all the upheavels happened within a period of 6 to 12 years between them, or much less. It just shows how volatile markets can be universally. But it also shows that we cannot have a system for administering stock market prudence, even after all these years of maturity. 

The infamous “Friday the 13th” crash of March 13, 2020, in the Indian stock market is in the memory of most of us. The market has not seen a worse single‑day collapse than that. The Sensex crashed by 3000 points. The reason was the COVID pandemic. No one had a pandemic on their radar, and then it became a defining event of our lives.  

In these volatile economic times, the best thing is to convince ourselves that we don’t know what’s going to happen… Sometimes, we don’t even know what could happen. Politicians and economists all across the world struggle to keep their masses with all kinds of data and hope. It does work to some extent. But not to any extent. 

The screwiest thing we all can do is to think we’re the Master of the Universe… if not, at least our investments are. We aren’t, nor are our investments! We are only little cogs in the wheel that is the universe. And the universe wheels away, without us in its direction. The best we can do is to fit into it and adapt to it.

It is best to remind ourselves how luck has shaped our lives. How things out of our control have caused serendipity in each of us. Investors or everyday folks, we all have many a serendipity story to tell others. Malcolm Gladwell’s book ‘Outliers’ tells us this page after page. 

One of the most important realisations is that the more a market is studied, followed, embraced, and popularised, the fewer bargains there are around it for the asking. In any market, a crowd will flock to what is popularised, followed, or embraced by the majority. It takes close study and observation to get value investments in them. It is here that we need more novelty and courage. Maybe we must fish in more unknown and unpopular ponds to catch something other's haven't thought of.
People like John Templeton and Aswath Damodaran believe that any asset, however ugly, can be worth buying if the price is low enough.
So, one essential and primary question investors must ask about any investment comes in three words: “Is it cheap?” 

Staying humble helps us see our own vulnerability. Reminding ourselves that we’re not perfect and that life is short keeps us grounded. This protects us from becoming overconfident. It’s not about being negative, but about accepting that uncertainty is a part of life.

It is Daniel Kahneman who said, "It's frightening to think that you might know something, but more frightening to think that, by and large, the world is run by people who have faith that they know exactly what's going on." Let this unsettling idea lodge forever in our brains. 

FINE