Markets are irrational, and that's normal

“#Markets are #Irrational; they are driven more by Sentiments than by Facts.”
People often get offended when I say this.
Many feel that hours of research, balance sheet analysis, and valuation models should make stock prices rational and their strategies work!

But markets don’t always behave rationally, especially in the short term.
The recent #Parle Industries episode is a classic example.
A stock hitting the upper circuit on Day 1 because investors got confused can still be explained away.
But the stock continued to hit the upper circuit even on Day 2, after the confusion became public, shows how irrationally markets can behave!

And this behaviour is not limited to stocks alone.
Look at the recent panic around the #Rupee as well.
Suddenly, social media is full of predictions of Rupee collapse, as if the #IndianEconomy is on the verge of breaking down overnight.
Yes, geopolitical tensions, rising oil prices, and global uncertainty do create pressure on the currency. But the speed of fear spreading currently feels far stronger than the actual deterioration in #fundamentals.

Markets have always reacted emotionally to uncertainty!
Sometimes narratives become bigger than facts themselves.
This is exactly why making money consistently in individual stocks is extremely difficult.
#SEBI’s own studies repeatedly show that a large percentage of active traders underperform or lose money over time.

That doesn’t mean #Research is useless.
It simply means: Knowing a good business and making money from a stock are often two very different things.

For people who do not want to constantly track news, quarterly results, management commentary, geopolitical tensions, and market mood swings, #IndexMutualFunds offer a far simpler alternative.
Definitely far less exciting, but it works well for the majority!

What’s your view -
Are markets reacting more to narratives and #SocialMedia sentiment than actual fundamentals?

#MoneyMinusNoise #Money #Investments

Pic Credits - Google - They have wrongly tagged the Parle Biscuits Logo to Parle Industries! Now I know why the investors are still confused!!!