What we witnessed in the Indian market and other markets is the herd instinct in operation. The tendency for investors to follow the herd is not unique to any particular group of investors. What I do not know is the extent to which margin is permitted in transactions in the Indian markets because the use of margin in funding stock purchases can result in forced liquidations if the market/stock valuations fall beyond a certain point creating a margin call.

What is also a common thread to all markets which have had a decent bullish run, is that the “unsophisticated” investor makes his/her appearance because he/she has heard stories about the amount of money that friends and associates have been making in the market and decided they would like to partake in the bonanza. These are usually the so-called “weak hands” who are neither able nor willing to withstand losses during a decline and will exit in a hurry when the market turns down.

Not really. a consultant by the day and an indo-market phile by the night

i guess it doesn’t tax your planet-sized brain to study indian financial markets, but have you written a lullaby yet?

the first real arb hedge fund was long term capital management, run by a bunch of geniuses, some of whom had nobel prizes. well they where holding similar govt bonds betting that the prices would converge…and in a rational world they had too. but alas, the world is not rational all the time. in 1997 there was an east asian currency crisis that rocked the world markets, causing these bond prices to inexplicitly diverge.

Now, LTCM was heavily leveraged, meaning that the longer these securities kept diverging the less collateral they had to maintain their loans. eventually they had to sell to repay their loans and in stepped warren buffet, who had loads of cash from Berkshire Hathaway and could therefore hold onto the arb bet for a much longer time.

but bill gates invited him to vaca in Alaska at the time so buffet couldn’t negotiate in person. the fed eventually stepped in to arrange a private bailout squashing buffets deal. eventually the prices did converge and ever since buffet says that vaca with gates was his most expensive vacation ever, costing him $3billion.

Elliot labels investors in the Indian market as unsophisticated b/c they drove prices to an irrational level. so when they sold off had they suddenly become sophisticated. No. according tho Elliot the selling in the face of a sound fundamental economy was also unsophisticated.

presumably, since its so easy to tellwhen the market’s overvalued, he sold or shorted at the top then bought back in or covered after the sell-off. but something tells me he did neither, or else he wouldn’t have to work for TWX for a living.

Not really. a consultant by the day and an indo-market phile by the night (after the opening bell over there). So, i could be talking out of my aRs.e or a$$, depending on which market I am talking about.