Wednesday, June 7News That Matters

Lessons from the Gita for market practitioners: Different paths to the same goal

As you grow older, your reading pattern changes. I find myself engaging in more of spiritual reading and, of course, many of those texts are based on concepts from the Bhagavad Gita. Reading some parts, I was struck by the relevance that some of the observations in that great text can have for financial markets.

This is a bad habit I have, of taking every good thing of life and transporting those into the market context, because I try and draw a lot of parallels between how you live and lead your life and how you act and perform in the markets.

In Chapter 12 of the Gita, Arjuna asks Krishna as to which form of worship will be more preferred – whether through the form of the Lord or through meditation on the formless nature of the Lord. While the Lord answers Arjuna in different ways to make him understand, reading those slokas and their explanation, I tried to draw a parallel with how we practise market analysis.

In the market, we analyse the prospects for a stock through two different routes – fundamental and technical. It struck me that this is not too different from the worship pattern prescribed in the Gita.

Saguna upasana or the worship of the Form, requires one to identify with the persona of the Lord. Every limb of the Lord is described with loving detail and worshipped through various poojas. This can be compared with fundamental analysis, which focuses on the different forms of the stock – management, products, sales, profits, margins etc. There is a detailing of every aspect, and each is looked at in detail.

In contrast to this, technical analysis concentrates only on price. Now, it is to be appreciated that price does not really have a form. It is the sum total expression of the emotions generated by the players in the market, and thus it moves randomly. It can be compared with the unmanifest form of the Lord, which is mentioned as nirguna upasana. In this form of worship, everything is indicated, as there is nothing really to perceive and the practitioner has to infer the existence of the Lord through these indicators. The chart, used in technical analysis (TA), is not really the company, but at the same time, it represents everything about the company!

There are the Bhakti Yoga followers, who sing the Lord’s bhajans and kirtans, in their pursuit to reach him, while there are others who use reading and discussions (Gnana Yoga) as a pathway to reach the Lord.

Each is a different personality, and one cannot really ‘understand’ what the other is doing, although both have the same goal. So to each group, the practices of the other seem alien, they seem to be not following the ‘normal ‘path. Thus, the nirguna upasak believes one needs to take sanyas, or abdicate your normal life.

Most people in the market look at fundamental analysis and technical analysis in the same manner. The former is thought to be the ‘normal’ path, while the latter is seen as the path of some ‘lost souls’!

But nobody is to be blamed for this. It is natural for people to believe what is visible and to question something that is based on inference. Hence, just like ‘form’ worship, believing in fundamental analysis is quite easy and technical analysis seems arcane.

Even Lord Krishna, in Verse 5, Ch 12, says that the pathway of meditating on the un-manifest is difficult and is not for the embedded body. Meaning, it requires a parting of ways with the natural way of thinking to take up the more difficult route of inference-based thinking to succeed. Likewise, technical analysis, although seemingly simpler (those who are meditating are apparently doing ’nothing’, right?) is actually a lot more complex than it appears.

Hence, those who are steeped in the rational aspect of the market and need a rational answer for every ‘Why’ will find it difficult to either practise or even accept technical analysis as something worthwhile.

This is because the answer the ‘why’ in TA, it is always a maybe, and that too keeps on changing as you shift the time frames of the chart. But those who are of a more intuitive and intellectual mindset will take it rather easily.

This is not to mean that all those who are using TA are intellectuals! Far from it. Just like there are many kapat swamis (arrogant saints), there are also many, many fly-by-night people posing as technical analysts. They will always be so.

Good technical analysis involves drawing the right inferences from different time-frame charts and using different styles of charting, none of which is anyway related to the concrete ‘form’ the company (and, hence, nirguna), to arrive at the composite conclusion (the Lord).

There are many who set out to read the Gita, believing that it is something to be done. But after going through a few chapters, they realise it is not their cup of tea. The practice of technical analysis is much more difficult than fundamental analysis, because there is no form to hang on to. The chart is always indicative, while the attributes of FA are seen as more concrete (saguna) and, therefore, it has more followers.

If someone drifts into technical analysis, thinking that it is the easier route, he is in for a big surprise. Staying the path there is so much more difficult.

But for those who do meditate with equal commitment on either the saguna (FA) or nirguna (TA) aspects, good rewards are a given!

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