B.Venkatesh

Consider this. You bought shares of Himachal Futuristic in 2000. The stock later declined from Rs 2,300 all the way down to Rs 8! You decided then not to enter into such kind of "speculative" trades. And then began the next phase of the market rally in 2003. Unable to resist the temptation, you bought a penny stock called Consortex Karl Doelitzch. This stock declined sharply despite the market moving up. The saving grace was that you did not lose as much as you did with Himachal Futuristic.

Classical finance experts will call you irrational because you did not learn from your past mistakes. Behavioural finance practitioners may have dozen reasons to justify your behaviour. We will, however, turn to philosophy. The concept was developed by Pythagoras and is also prominent in Hinduism and Buddhism. It is called the eternal recurrence all actions and events occur again and again. In Hinduism, it is called the wheel of life an endless cycle of birth, life and death depending on your karmas.

The book

The Strange Life of Ivan Osokin

nicely explores this concept. The central character, Osokin, is taken back in time to re-live the last 12 years. Interestingly, Osokin commits the same mistakes!

If you look at your trading patterns, your behaviour may, perhaps, be no different than that of Osokin's. The important factor then is to break from this wheel of recurrence. That can only be done through disciplined trading.

(The author is a Chennai-based financial consultant)

(This article was published in the Business Line print edition dated May 7, 2006)
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