Haphazard Linkages

Today is the 80th anniversary of the Stock Market Crash of 1929. Its an interesting time to reflect back on the 80 long years that have passed by to see if things have changed. Have they? The more boom/bust cycles look different the more they look the same. So what lessons have we learnt? - That hope has driven - and will always drive - people to monetary dope. - That lending schools eventually end up bending rules. - That a borrowing binge frequently ends in a harrowing cringe. - That in a boom...greed goes up, fear down. - That after the bust, greed dies and fear gains renown. - That in a boom...an allusion to delusion is dismissed as an illusion. - That after a bust...the delusion of an illusion leads to reclusion. - That people buy when they should sell, ignoring the alarm bell. - That people sell when they should buy, ignoring the market's sigh. - That when we hear things get cheaper as they rise and dearer as they fall, its time for Cindrella to leave the ball.

One cannot prove an investment idea or theme 'right'. A better way is to take an idea and try to falsify it as much as possible. The 'best' investment idea/theme then is the one that best withstands the test of falsification. Lets see how the "Long-Volatility-Around-Elections" trade played out.... Volatility exploded and how! Through the election months of April and May-2009, market participants grew increasingly nervous on the election outcome, resulting in a volatility spike. Volatility nearly doubled in the space of around two months. Long-volatility trades (straddles/strangles) worked out beautifully. Indeed some Long Straddles/Strangles nearly trebled in two months. While it is nearly impossible to time entry and exits to perfection, this theme would have resulted in an indecent return anyway! Another addition to my Investment History notebook! Time to stick my neck out. Where do we go from here? I can't see any significant volatility-expa

My posts seem to have a direct relationship with liquidity and credit availability in the markets... both have dried up! In this post I draw insights from the beautiful, non-linear world of Options. The title is a grammatical mess but it captures the central idea behind this post. I make a case for increasing volatility over the next two months in the Indian markets and possible ways for investors to play this. I'm am azed at the near-term thinking manifesting even in the options world. The markets are so riveted on the near month expiry that th ey forget there's a next month...and a month after that. India will go to elections starting mid-April and the spectacle will be for everyone to see over a 1 month period. As always, this time will most likely see tugs-of-word wars and plenty of ego-massages as one party tried to outdo the other in gaining the coveted majority number. Pre -election opinions point to a fractured mandate and there's a very high probabili