The 700 point Sensex fall since Monday. Cause for concern?

Noise.

It's what disturbs us when we want a good night's sleep. It's what causes certain employees to buy noise-free headsets so that they can work in silence.

It's also a term used to describe things that don't matter, in a figurative way. "Noise" is also a mental aspect that can ruin productivity by implanting negative thoughts into someone's mind.

Think of an professional cricketer- if he's thinking about his personal problems while he's about to begin a match, he will not be able to focus. His worried about things that he should not be worried about. In other words, he has "noise" that is bothering his ability to perform at the highest level.

Noise and the current markets

So what does noise have to do with what's happening right now with the markets?

Everything!

See, the markets are run on emotions; after all, we as human beings are the ones that are buying and selling stocks each and every microsecond of a trading day. The market is created by us. That's why it's a market place.

But the same way an individual can panic for no apparent reason other than the fact that others around him are panicking, the market behaves very much the same way. And if you look at what has happened on capital markets since Monday, you will realize that it is nothing more than noise.

For a 700 point drop to have validity, there must be a sound, fundamental reason behind it. 

In this case, there is no immediate sign that points towards why the markets fell. Analysts will naturally come up with reasons after the market falls. Some are claiming that the situation in Greece is what caused the 700 points drop. Of course, when you think deeply about it, that doesn't hold much weight. We have had situations where poor economic numbers were released and yet markets reacted positively.

The key takeaway from these types of situations is this: try to always block out the noise from the truth! It's never easy, but if the markets fall by 700 points over two trading sessions and you cannot pinpoint a logical, certain reason for the fall...

Then a wonderful opportunity to buy has come knocking on your door 😉

Cheers,
RKSV