They rounded up three goats from their neighborhood and drew numbers 1, 2, and 4 on the sides. That night they released the goat in the school building.
The next morning, when the authorities entered school, they were able to smell something strange. They soon saw goat droppings near the stairs and entrance and noticed that some goats had entered the building.
The search began immediately and three goats were found immediately.
But the authorities were worried, where was goat number 3?
They spent the rest of the day looking for a number of three goats.
There was gradual panic and frustration. The school has declared that it will be absent from class for the students for the rest of the day.
Teachers, helpers, guards, canteen staff, and boys were all busy looking for goat number 3, but of course they were never found.
Just because it didn’t exist.
At first this may seem like a simple and interesting story, but there are some interesting lessons for us.
Like the school people, when it comes to investing, we seem to have our own version of “Goat Number 3”. This is a long-standing attempt to forecast the market in the short term.
Given the recent volatility, we all want to know if this is the beginning of a major fix. If yes, we can peacefully sell our holdings and approach the bottom of the market.
This question clearly makes perfect sense, as the answer can bring great benefits to us without enduring a painful decline.
The best way to find the answer is to find and learn from the best investors who have done this consistently.
But there seems to be a small problem here.
List the five investors who “consistently” identified the bear market, left by the fall and returned to the bottom.
You can take all the time you want. If you find it difficult to find even one name, don’t worry.
You already have your answer.
Legendary investors seem to have come to the same conclusion.
“The idea that the bell rings to let investors know when to enter or leave the market is simply unreliable. Anyone who has been in this business for nearly 50 years and has achieved it successfully and consistently. I dont know.”
— Jack Bogle
“Investors have lost far more money than they had lost in the correction itself, as they prepared for the correction and tried to anticipate the correction.”
— Peter Lynch
“The next few years can lead to major market declines and even panics affecting virtually all stocks. No one knows when these traumas will occur.”
Inevitably, over the years, we have realized that the mistakes made in trying to avoid a market downturn actually do more damage than withstand the actual market downturn. If 2020 taught us everything, it means that no one knows what the market will do in the short term.
Under our control
The inevitable search for “goat number 3” continues, but unfortunately we forget to take full advantage of the three existing goats under our control.
1. Optimism: A belief in entrepreneurial and human ingenuity
2. Long-standing horizon: patience to cast magic on compound interest
3. Ability to suffer: Ability to withstand temporary decline
Despite the overwhelming evidence of market forecasts, most of us are elusive and missing, rather than succeeding by focusing entirely on the three existing boring goats under our control. I want to try to find a non-existent “goat number 3” and fail. Are you still looking for “goat number 3”?
Arun Kumar R. is Head of Research for FundsIndia.
Elusive search for goat number 3
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