It can be extremely educative when the Sensex chart is plotted such that past bull and bears runs can be compared to more recent such movements. This can be easily accomplished by plotting the Sensex closing value as a logarithm. This reveals a fascinating staircase pattern that is discussed in this post.

A log chart is also known as an equal interval chart and gives a better visual representation of rises and fall.

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"Risk comes from not knowing what you're doing" is one of the many famous Warren Buffett quotes. Risk also comes from an inability to apply context to a (WB) quote! For example, Mr. Buffett has repeatedly stated that volatility and risk are very different from each other.  Statements like these have been used to mis-sell and mis-buy equity and equity-based products.

Risk is not recognising context

Risk is the permanent loss of capital and volatility a temporary loss. However, this is true only if I am not going to redeem anytime soon. That is my goals are years/decades away. If I hold 70% in equity and my goal is due in the next few years, then risk = volatility.

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The idea of a risk premium is one of the most important investing concepts essential for those who invest in volatile assets and those who shun them as too 'risky'.

The definition of a risk premium is fairly simple. If a risk-free instrument offers say 7% return, what is the return I should expect for the risk I wish to take? Or in other words, what is the return I expect? If this is 10%, then risk premium is simply 10% - 7% = 3%. In other words, the risk premium is the expected compensation for the risk taken.

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"Stay invested" is the mantra adopted by AMCs,mutual fund distributors and financial planners. Amused to find that NSE India also says the same in an advertisement titled, "Worried about market volatility? Here's how to deal with it."

The advt has four messages, three of which can easily be misinterpreted by readers to say the very least.

1 Understand Volatility: Volatility is intrinsic to markets. Volatility corrects market excesses, on the upside and downside.

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The correlation between the Nifty PE and long-term bond yield (10-year GOI bond) is discussed in this post. I had earlier considered the relevance of the Nifty PE for the long-term investor and misconceptions about the Nifty PE.

A few days ago, I had asked, what is a high index PE?. There were two interesting comments by Deep and Kamal Garg who both said that high or low PE should be decided by considering interest rate (which is a reflection of inflation). Therefore, in this post, I revisit my rolling return analysis of the Nifty by factoring in the 10-year government bond yield which is the benchmark for PPF interest rate. 

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