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The Stock Market Nonsense Called ‘Consensus’

The spread of business channels and other financial media has had grave consequences for investors over the past few years.

One of them is the need to justify each and every move of the market.

The other is the tendency to buy or sell stocks first and think about the rationale of buying/selling later.

The third, and the worst, consequence for investors of watching business channels and reading financial media has been the nonsensical focus on the movement of the Sensex or the Nifty.

Agreed that these benchmark indices roughly indicate the mood of the overall market, but there is no reason to believe that their movement must decide how and when you buy or sell you stocks.

In fact, not a day goes by when a stock market analyst, or fund manager, or a broker appears on one such business channel or website or newspaper and does not spit out ‘his number’ for the Sensex for the next one month or year.

Even as I see the home page of a leading stock market website today, it carries the Sensex’s target as estimated by a couple of foreign brokerages (and these are two different targets). Then there are two other experts predicting their next targets for the Nifty!

The best part is the confidence with which these people predict these targets. It seems as if their targets are sacred numbers that will be reached, though the reality is altogether different.

I believe this undue focus on the Sensex and the Nifty is one of the fallouts of a democratic set-up in our country, where people love to arrive at ‘consensus’ to do (or not do) things.

When the markets are doing well and everything seems to be rising with the wave, the consensus view is generally that the euphoria will not end soon. Like what we saw at the start of 2008 and then again in early 2011.

And when the situation is grim, as it was in late 2008 and as it is now, new (and gloomy) consensus targets for the Sensex are thrown out.

If you have also fallen prey to such a consensus way of looking at the stock markets in the past, you must ingrain in your mind what the legendary investment guru, Benjamin Graham once said…

“In the short term, the market is a ‘voting’ machine whereon countless individuals register choices that are product partly of reason and partly of emotion (consensus). However, in the long-term, the market is a ‘weighing’ machine on which the value of each issue (business) is recorded by an exact and impersonal mechanism (fundamentals).”

So, instead of getting driven by experts’ consensus views on the next move of the Sensex or the Nifty, you should do your own research as to which of your companies are doing well and which aren’t.

This consensus view of investing in the stock markets is nothing more than nonsense. Don’t fall in its trap.

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About the Author

Vishal Khandelwal is the founder of Safal Niveshak. He works with small investors to help them become smart and independent in their stock market investing decisions. He is a SEBI registered Research Analyst. Connect with Vishal on Twitter.

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