I told you so… These are the magic words that everyone would like to utter after the event has been
The year was 2007, economic experts painted a rosy picture for the coming years. However twelve months later the world witnessed arguably the biggest financial crisis in over half a century. Asked about the global meltdown, the same experts enumerated its causes : monetary expansion under Greenspan, loose regulation of mortgages, flawed rating processes.. etc. In hindsight the Global financial crisis seemed quite obvious.
The hindsight biases is one of the biggest prevailing fallacies of all. We are all damn good at saying “I told you so”. In retrospect , everything seems clear and inevitable. When BJP got reelected in 2019, there were many people who said I told you so, people who credit themselves on their ability to predict the outcomes better.
The problem with hindsight biases is when you think you can predict events better and take actions based on your ability to predict and if the prediction is wrong, it could bring down you r whole house of cards.
The newspapers, Fund managers, Investment advisors all take it as if it is their bounden duty to predict about the near term economics of whats going to happen in the next 6 months in the stock market. Essentially they are going by their gut and also some basic data that is telling them that in the past a pattern of this nature resulted in a certain course of action. Using past data and using that as the sole basis of prediction could also be quite detrimental.
Based on the past data, the experts are currently predicting that the Indian Equity markets are at an all time high and the absence of economic progress supporting the same, most expect the equity markets to do a sharp correction. However the current global economic order in the midst of the Pandemic is quite new and has been unprecedented. There has been unprecedented cash pumped into the global economies by various Govts around the world to ensure that there is adequate liquidity. So it is also likely that if India were to recover faster from the Pandemic from the rest of the world, the stock market could be on a long term bull run, so might actually rise even higher and people awaiting a correction to enter may never find an opportunity.
So what is the learning ? It is a important to understand the future is unpredictable esp the short term prediction is extremely difficult, I dare say impossible.So do not base your entire investment theory on getting the near term predictions right. Your portfolio must be able to survive & grow even if the short term predictions are incorrect. Your investment portfolio must mirror your Financial needs, your risk temperament, your time horizon for your needs. If your portfolio is constructed on this basis, irrespective of the fact whether you got it right or wrong, you will make money.
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