Some body asked me it is a good opportunity to invest in Spicejet airlines.....
I answered him I don't invest in aviation sector.....
He insisted that the future of aviation sector looks very good.....
I said I have no clue and have no analysis to support it.....
But the analysis I have is.....
Damania airlines.....loss making
Modiluft.....loss making
Deccan airways...... absolutely bullshit......
Nepc airlines.....zero
East west......zero
Kingfisher airlines.... bankruptcy
Jet Airways.....no buyers.....
The number of airlines got busted is never ending..... and the probability ratio towards airlines going bust will always be very high......
What is the life of private airline industry in India from 1992...
Say 25 years approximately......
How many airlines started within these 25 years......how many got busted......
the probability ratio of airlines getting busted I think is the highest in the world in India within a short span of time......
[9:38 AM, 4/21/2019] Jiten Patel: Base rate fallacy......
DEFINITION of Base Rate Fallacy
Base rate fallacy, or base rate neglect, is a cognitive error whereby too little weight is placed on the base (original) rate of possibility (e.g., the probability of A given B). In behavioral finance, base rate fallacy is the tendency for people to erroneously judge the likelihood of a situation by not taking into account all relevant data. Instead, investors might focus more heavily on new information without acknowledging how this impacts original assumptions.
BREAKING DOWN Base Rate Fallacy
Two categories of information exist when determining probability in many situations. The first is general probability; the second is event-specific information, such as how many basis points the market has shifted, what percentage a company is off in its corporate earnings, or how many times a company has changed management. Investors often tend to give more weight to this event-specific information over the context of the situation, at times ignoring base rates entirely.
While often event-specific information is important in the short-term, particularly for traders or short-sellers, it can loom larger than it needs to for investors attempting to predict the long-term trajectory of a stock. For example, an investor may be trying to determine the probability that a company will outperform its peer group and emerge as an industry leader. While the base of information – the company's solid financial position, consistent growth rates, management with proven track records, and an industry with strong demand – all points to its ability to outperform, a weak earnings quarter could set investors back, making them think that this is changing the company’s course, while in fact it could simply be a small blip in its overall rise.
The base rate fallacy, also called base rate neglect or base rate bias, is a formal fallacy. If presented with related base rate information (i.e. generic, general information) and specific information (information pertaining only to a certain case), the mind tends to ignore the former and focus on the latter.
Base rate neglect is a specific form of the more general extension neglect.
[9:38 AM, 4/21/2019] Jiten Patel: The above example of aviation sector is a perfect example of Base Rate Fallacy......
[9:59 AM, 4/21/2019] Jiten Patel: What we think AND which is good for our well being we do just the opposite of it.....
Alcohol. ...
Drugs.....
Smoking.....
All the above rewarding stimuli are bad for our health and we even know about it but still we keep on repeating it conciously.....
Same way......
The latest entrant to the above in reference to financial stock market is Penny stocks..... stocks with chor management..... stocks with large unimaginable debts.....
So the above list becomes......
Alcohol. ...
Drugs.....
Smoking.....
Penny stocks..... (stocks with chor management..... stocks with large unimaginable debts.....)
Now the most interesting things to note is that even when we know that investing in penny and dubious stocks is very injurious to our financial health but still out of Greed we invest in such stocks and ruin the future of our family...... because the loss we incur deprives them the luxury which we can afford to give them with the same money lost by investing in such Penny and dubious stocks.......
But even after my sharing these knowledge you all are going to fall for such stocks sooner or later when the Euphoric phase arrives...... Believe me you and all for that matter will not be able to resist the temptations of making big money in euphoric times because of Greed when seeing your neighbours making lakhs and crores......
I answered him I don't invest in aviation sector.....
He insisted that the future of aviation sector looks very good.....
I said I have no clue and have no analysis to support it.....
But the analysis I have is.....
Damania airlines.....loss making
Modiluft.....loss making
Deccan airways...... absolutely bullshit......
Nepc airlines.....zero
East west......zero
Kingfisher airlines.... bankruptcy
Jet Airways.....no buyers.....
The number of airlines got busted is never ending..... and the probability ratio towards airlines going bust will always be very high......
What is the life of private airline industry in India from 1992...
Say 25 years approximately......
How many airlines started within these 25 years......how many got busted......
the probability ratio of airlines getting busted I think is the highest in the world in India within a short span of time......
[9:38 AM, 4/21/2019] Jiten Patel: Base rate fallacy......
DEFINITION of Base Rate Fallacy
Base rate fallacy, or base rate neglect, is a cognitive error whereby too little weight is placed on the base (original) rate of possibility (e.g., the probability of A given B). In behavioral finance, base rate fallacy is the tendency for people to erroneously judge the likelihood of a situation by not taking into account all relevant data. Instead, investors might focus more heavily on new information without acknowledging how this impacts original assumptions.
BREAKING DOWN Base Rate Fallacy
Two categories of information exist when determining probability in many situations. The first is general probability; the second is event-specific information, such as how many basis points the market has shifted, what percentage a company is off in its corporate earnings, or how many times a company has changed management. Investors often tend to give more weight to this event-specific information over the context of the situation, at times ignoring base rates entirely.
While often event-specific information is important in the short-term, particularly for traders or short-sellers, it can loom larger than it needs to for investors attempting to predict the long-term trajectory of a stock. For example, an investor may be trying to determine the probability that a company will outperform its peer group and emerge as an industry leader. While the base of information – the company's solid financial position, consistent growth rates, management with proven track records, and an industry with strong demand – all points to its ability to outperform, a weak earnings quarter could set investors back, making them think that this is changing the company’s course, while in fact it could simply be a small blip in its overall rise.
The base rate fallacy, also called base rate neglect or base rate bias, is a formal fallacy. If presented with related base rate information (i.e. generic, general information) and specific information (information pertaining only to a certain case), the mind tends to ignore the former and focus on the latter.
Base rate neglect is a specific form of the more general extension neglect.
[9:38 AM, 4/21/2019] Jiten Patel: The above example of aviation sector is a perfect example of Base Rate Fallacy......
[9:59 AM, 4/21/2019] Jiten Patel: What we think AND which is good for our well being we do just the opposite of it.....
Alcohol. ...
Drugs.....
Smoking.....
All the above rewarding stimuli are bad for our health and we even know about it but still we keep on repeating it conciously.....
Same way......
The latest entrant to the above in reference to financial stock market is Penny stocks..... stocks with chor management..... stocks with large unimaginable debts.....
So the above list becomes......
Alcohol. ...
Drugs.....
Smoking.....
Penny stocks..... (stocks with chor management..... stocks with large unimaginable debts.....)
Now the most interesting things to note is that even when we know that investing in penny and dubious stocks is very injurious to our financial health but still out of Greed we invest in such stocks and ruin the future of our family...... because the loss we incur deprives them the luxury which we can afford to give them with the same money lost by investing in such Penny and dubious stocks.......
But even after my sharing these knowledge you all are going to fall for such stocks sooner or later when the Euphoric phase arrives...... Believe me you and all for that matter will not be able to resist the temptations of making big money in euphoric times because of Greed when seeing your neighbours making lakhs and crores......
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