Learning about the Stock Markets - The Right Way - From the Experts

Stock market reminds me about the story of six blind men who once went to the jungle & banged into something huge. All of the six blind men could not figure out what exactly they have had an encounter with. A passerby told them that it was an elephant & soon they started to decipher the physical attributes of an elephant with whatsoever little knowledge they gained by touching / feeling it. The poor elephant was kind enough to remain stagnant & allowed them to explore itself while enjoying the way the group of six made a head or tail out of his huge physical layout. The conclusions of the six men were as follows :

“Hey, the elephant is a pillar,” said the first man who touched his leg.

“Oh, no! it is like a rope,” said the second man who touched the tail.

“Oh, no! it is like a thick branch of a tree,” said the third man who touched the trunk of the elephant.

“It is like a big hand fan” said the fourth man who touched the ear of the elephant.

“It is like a huge wall,” said the fifth man who touched the belly of the elephant.

“It is like a solid pipe,” Said the sixth man who touched the tusk of the elephant.

They began to argue about the elephant and everyone among them insisted that he was right. It looked like they were getting agitated. A wise man was passing by and he saw this. He stopped and asked them, “What is the matter?” They said, “We cannot agree to what the elephant is like.” Each one of them told what he thought the elephant was like. The wise man calmly explained to them, “All of you are right. The reason every one of you is telling it differently because each one of you touched a different part of the elephant. So, actually the elephant has all those features what you all said.” “Oh!” everyone said. There was no more fight. They felt happy that they were all right. The moral of the story is that there may be some truth to what someone says. Sometimes we can see that truth and sometimes not because they may have different perspective which we may not agree with. So, rather than arguing like the blind men, we should say, “Maybe you have your reasons.”

Stock market is also like a big huge elephant. A lot of people – investors, traders, speculators, trainees, casual traders / speculators visit the stock market on daily basis & decipher it in their own way based on the experiences they had with the stock market or the manner in which the stock market behaved during the period they were active in the stock market. Everybody is 100% correct within the limited scope of their observation. Stock market is ever changing like flowing water. As you cannot touch the flowing water twice, similarly, you cannot have exactly the same situation is the stock market at micro / macro level again. One has to remain ever-flexible to decipher the ever-changing stock market – this is an additional requirement to understand stock market vis-à-vis understanding the elephant which remained same at all the timesJJ

For example, a person who visited the stock market for the first time on say, 20^th of September, 2018 when the stock market was stagnant shall have a different story to tell than a person who visited the stock market on 21^st of September 2018 when the stock market suddenly turned ultra-volatile and made sudden huge moves. A person who is a seasoned trader & investor for last 20 years would decipher the events of 20^th & 21^st September 2018 in a totally different manner. The probable comments of the three would be :

1.      The gentleman who visited the stock market for the first time on 20.09.18 – “Stock market is a good & easy way to make money. Anyone can step in, buy some good shares & sell them at higher price on subsequent date & make profit. The stock market works as expected, is predictable & its movements don’t deviate from the laid down path. This is how the stock market generally behaves.”

2.    One who visited the stock market for the first time on 21.09.18 – “No one can make money from stock market. It’s a trap & you are bound to lose money. The movements in the stock market are totally unexpected & non-predictable. There is no path which the stock market follows. This is how the stock market generally behaves.”

3.   The version of seasoned trader & investor who was present in the stock market on 20.09.18 & 21.09.18 and has been working in the stock market since 1998 – “Since the stock market was volatile for last couple of days & was also in an overbought zone, it was expected to correct or take sudden sharp turns. It was clearly visible on a couple of indicators. This generally happens when the VIX is high & it was not an unexpected event. This is how the stock market generally behaves.”

Its interesting to note that all three of them concluded the same thing – “This is how the stock market generally behaves”, but had different reasons for their respective conclusions. It’s their respective exposure, experience & education about the stock market which lead to their differential reasoning about the behavior of the same stock market on the same set of days.

Therefore, its very important to possess the correct set of skills, complete theoretical knowledge about the stock market & the manner in which it behaves in short-term, mid-term & long-term before venturing into it. Although, practical knowledge can be gained only after gathering courage to jump off the diving board (obviously towards the poolside!), but certainly the fruits are worth an effort & time spent in learning.

Welcome to the enormous world of leaning the stock markets, the right way, directly from the Experts.