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Santa Claus Rally - Pessimists are on a vacation

When a 'Santa Claus Rally' occurs financial experts tries to analyse the reason behind it. It is important to analyse what happened and why, but it is equally important to ensure the analysis passes the test of soundness. Financial expert Amit Trividi advices investors to remain careful about such short cut analysis and do a proper study.

January 02, 2013 / 03:08 PM IST

Santa Claus Rally:  A surge in the price of stocks that often occurs in the week between Christmas and New Year's Day. There are numerous explanations for the Santa Claus Rally phenomenon, including tax considerations, happiness around Wall Street, people investing their Christmas bonuses and the fact that the pessimists are usually on vacation this week.


This is how www.investopedia.com defines a term popular in the Wall Street, "Santa Claus Rally".


This caught my attention, especially the last seven words.


"Pessimists are on a vacation." How do you explain this? Does it mean optimists do not take a vacation?


You watch television shows, you read newspaper reports, you read newsletters – all these places are full of reports that explain what happened and why. It is important to analyse what happened and why, but it is equally important to ensure the analysis passes the test of soundness.


Benjamin Franklin said, "We are rational. We can rationalise everything." He meant we can rationalise anything that has already happened. Such an approach may lead to faulty decisions.


As the American Financial Theorist William Bernstein would like to put it, "It's human nature to find patterns where there are none..."


Be careful about such short cut analysis. If you want to and like to analyse, please go in depth. Else, leave it to the experts.


I would quote Benjamin Franklin, "In short, the way to wealth, if you desire it, is as plain as the way to market. It depends chiefly on two words, industry and frugality; that is, waste neither time nor money, but make the best use of both."


As the wisdom in the Sanskrit subhashit goes: "Udyamen hi sidhayanti karyani na manorathaihi. Na hi suptasya simhasya pravishanti mukhe mrigaha." (Action and not the will alone, makes the wishes come true
The deer would not walk into the mouth of a lion asleep)

Wish you all a Happy Christmas!

first published: Dec 25, 2012 03:21 pm

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