InvestorQ : Are there some instances of mental capital at work in markets
ramya Bhaskaran made post

Are there some instances of mental capital at work in markets

priya Shah answered.
3 years ago

Let us look at the tech boom of the late nineties. Back in 1999, technology stocks were the flavour of the day. At peak valuations, stocks were quoting at 125-150 times earnings. It needed a lot of mental capital to stay out of these stocks because they were still appreciating. But those who were caught on the wrong foot paid a huge price. In 2005, when the Sensex broke above 7000 for the first time, sceptics called it the end of the bull rally, but markets gave a different signal. Eventually, markets went up three-fold from there. In these circumstances you need adequate mental capital to sit back and listen to the market, gather the signals and then take a well thought out decision.

That is about the technology sector as a whole at a macro level. There are also myriad instances of specific stocks where your mental capital gets tested. Your mental capital is tested when you find Kingfisher attractively priced but market is saying something different. Mental capital gets tested when Eicher Motors rises 100-fold in 6 years between 2009 and 2015. Even as there are concerns on valuation, the stock continues to defy gravity. Mental capital also gets tested when you are still in love with Vakrangee but the stock is on lower circuit daily. Your mental capital also gets tested when Tata Motors continues to fall despite being at a 7-year low. Mental capital typically sits on top of intellectual capital. It is your insight, refined by your ability to listen to markets. For a trader and even for an investor, the mental capital makes a huge difference.