This is part II of the article Stock Market pricing and fluctuations: Part I. Please read the first part before proceeding with this one.
“Vasudhev Kutumbakum” or the “World is a global village” factor cannot be left behind. So
The next turn was for the European markets. BNP Paribas, one of the leading banks of
Who’s next on the list? Predictions are that
Coming to
So what do we see here? Let’s look at this from the very beginning. ONE SINGLE company in US has problems. The final result: Stock Markets ACROSS THE GLOBE collapse, big banks shut down their funds, investors left at the mercy of the divine because their “Investments were subject to MARKET RISKS”.
Can anyone predict such a thing? Who would believe that the problems will ONE SINGLE company can affect the stock prices across the globe? But it has happened!
Most of you may be reading financial newspapers like the Wall street journal, financial times or economic times. These papers are full of quarterly company report, publishing their balance sheets. Fund managers and researchers look at these results, trying to analyze the performance of the company and base their investment decisions on these figures presented. However, one important thing to note is that the reports are printed with a big word “UNAUDITED”. What it means – the results are prepared internally by the company, and there have been no audit, or verification, by an external company or agency. And this is what causes problems. It is always possible to question to results of a publicly listed company, but by the time the audit is over or the truth comes out, the damage is already done.
Subprime mortgage case is just a typical example of how stock market investments can collapse within a matter of just few hours. It takes decades for building businesses and reputation; it hardly takes a few minutes for it to collapse completely. You may not be having any investment in subprime mortgage – your investments may be only in Indian mutual funds and Indian stocks. Same goes for the Australian or French investors. But just because of one company collapsing somewhere in another country, losses are made by people across the globe.
At the time of writing this article, the nifty has gone down by more than 3%. DowJones situation is more pathetic. No body knows how long will this position continue. CNBC yesterday even quoted this situation as “Bubble 2.0”, which indicated that this may be a second version of what we have seen as internet bubble burst in 2000-2001. Personally, it seems to be an extreme case to me.
This article was aimed at presenting the sequence or chain reaction that is going on in the world stock markets. How a single company can result in the collapse of the entire world market. Take risk in equities because they have proved to be good investments over long term, but set a target when you get into an investment - and exit when the target is achieved.
Keep visiting this blog for further content.
Please read the comments and post your views and queries in the comments section which helps in open discussion and avoid duplicity of questions.
You may be interested in reading my previous articles. Here is the link to Table of Contents in a chronological order.
9 comments:
Thanks a lot Sir for the wonderful article.
Over the past few days I was just wondering about this issue of subprime after hearing it on news channels. Could not make out anything from it. Your article has helped me clear all the doubts. Thanks a lot for your explaination
Kind Regards,
Vilas
NICE ARTICLE. KEEP UP THE WORK
Hi Shobhit
Thanks for clearing the air on Subprime Mortgage. Today only i have gone one article in ET but unable to understand. Your explaination is so simple and easy to understand.
Secondly this article is exactly in line to what you have disucssed in your previous articles.It seems all readers are having theory and practical classes at the same time :-)
Keep up the good work, we are waiting more from you.
Thanks
Anshul
Suchintya,
It's good that you have knowledge about the exact names of the company & u know about the market values, but it's better to have some level of decency in posting your comments.
In the past, there have been instances where ppl differed from SHobhit and his ideas, while he was always able to prove his point with facts and figures. In this post itself, one of the readers have left comment that "Theory as well as practical cases are being covered".
Read all the articles in this blog - if you have the understanding, things will become clear to you. Its easy to say that 2.2 billion dollars is nothing compared to 30 trillion dollars. What if you had been one of the unfortunate investors in the affected companies or funds that have closed down?
As mentioned by Shobhit, there are readers who are playing complimentary role for this blog (like Shashi, Anil, etc.) Just because you dont understand the concepts presented and you dont realize the truth does not mean that you have got the authority to tell others what to do and what not to do.I request you to please dont start instructing others about what they should write and what they should cease to write : You have no authority to do so. In case you dont find the concepts correct, you should cease to visit this blog.
Suchintya,
More over it was mentioned that 2.2$ billion lost as BNP's mutual fund were closed and not size of US market.
Karun
It is always so easy to point fingers as Mr Suchintya has been able to attempt. If he is able to deliver one such article pertaining to investment and trading and the standard of the article is half as good, the readers of this blog would be grateful to him.
Sobhit has been able to write in such a way that readers of this blog have now started looking forward to waiting for his articles in just the same way as we wait for the newspaper first thing in the m'ning.
Hats off to him.
First of all - thanks to the person who left the link to this post in rediff. I am reading these articles for the past one week, hats off to Sobhit. He cleared most of my wrong assumptions about the market and particularly the article about insurance is beautiful. Keep up the good work Sobhit. We need more articles from you.
Thanks,
Hari.
Hi Suchintya,
You may not remove your comments :-)
Its OK that people have different thinking ideas. Let them come freely. It also helps me in questioning my assumptions and calculations.
Basically, what you've mentioned is also correct that "only 2.2 billion as compared to more than 30 trillion $ US market value". However, as I've mentioned in my previous article, this is nothing but percentage reference point. A 10 $ discount on 25$ items looks more beneficial (as it is 40% of 25$), while same 10$ discount on 300$ does not look that good.
However, what we end getting or loosing is the same 10$ value.
2.2 billion is a real big amount. Look at it in an absolute way, not in a relative way.
Another thing is that I'm not against equity investments. All I am saying is that be aware of the dangers and risks of equity investments. Over the long term, equities have given good returns as compared to other instruments. When you are investing over a long horizon, make sure you set yourself a target and exit when your target is achieved.
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