Stupid Assumptions

Here are a lot of our common beliefs with reasons that they are wrong.


Wrong Assumption 1 : Price is about quality of the product.
Take this fundamental law, price is always about supply and demand and has nothing to do with the quality of a product. Price (Salary) of a man does not depends on his intelligence. Price of a product not on its quality.
In 1800-1900's, Elephants were used as a mode to travel. Then came the Car, it was a luxury, it had speed, it had the power, it carried a high price tag also. Today, in 2000's Elephant is expensive than a car. The elephant is slow, has less power, smells bad, does not have an air-conditioner in it, still it is more expensive than a car. This is just because there are more cars and less elephants. Rare coin, however ugly will have more value than a not-so-rare coin.
Always keep rare things with you, don't keep what is ample.

In 1900s, big landlords and farmers, were rich guys. Then came the period where industrialists were rich. Then rock-n-roll guys were in the hall-of-fame. Then again industrialists. Then the technology champs. Then the Oil Barron's. Then the Wall-Street guys. Then ...

Wrong Assumption 2 : Equities cannot rally without a rally in corporate bonds.
A wrong argument is, if the price of corporate bond is falling, it indicates debt-holders do not trust corporate, so equities cannot rally until the trust is back.
However, if there is high inflation, corporate bonds will continue to loose value, however equities will be rallying. The trust has nothing to do with it.

Wrong Assumption 3 : Price of an underlying asset has nothing to do with money supply.
Price is more about money supply rather than supply-demand of the asset itself. If governments increases money supply, the price of the asset has to rise.

Wrong Assumption 5 : I am safe to keep my money in a 8% FD/bond/ NSC certificates.
The inflation that our government reports is never close to reality. The inflation number reported is the inflation for labor class. The average inflation for the Indian middle class in last 5 years, was well above 15%. The average inflation for a Indian upper-middle class in last 5 years was above 20%. Price of everything doubled in last 5 years. Whether it was a pair of jeans, the rice-wheat you eat, shampoo, doctors fee, medicines, condoms, edible oil, a car, a bike. Take anything you wanted to buy from your money and look at the price change between 2003 and now. So effective if you invested in NSC certificates, you made a overall purchasing-power terms loss. This was because, money supply was increased, so everything increased in price, except for your bonds.

Wrong Assumption 4 : People always burn hands in equities, commodities but they are still in it.
Take any five year horizon, assets will outperform cash or bonds. Even if you take peak and trough points in a 10 year period, assets will outperform cash or bonds. Don't worry about the daily euphoria, about everyday price changes, about market crashes, in a longer time period it will always be better to be in well-diversified equities/commodities/realestate rather than cash or bonds.

People live with their wrong assumptions, until they realize they are severly wrong. I want you to think rationally, and change your wrong assumption before you go severly wrong.