1958 United States - 2006 India ??

In 1958, Warren Buffet wrote -

A friend who runs a medium-sized investment trust recently wrote: “The mercurial temperament characteristic of the American people, produced a major transformation in 1958 and ‘exuberant’ would be the proper word for the stock market, at least”.
I think this summarizes the change in psychology dominating the stock market in 1958 at both the amateur and professional levels. During the past year; almost any reason has been seized upon to justify “Investing” in the market. There are undoubtedly more mercurially-tempered people in the stock market now than for a good many years and the duration of their stay will be limited to how long they think profits can be made quickly and effortlessly. While it is impossible to determine how long they will continue to add numbers to their ranks and thereby stimulate rising prices, I believe it is valid to say that the longer their visit, the greater the reaction from it.

Are we in a similar pahse in India ?

Property Allotment - Lottery ??

Considering the mad craze for governmental allocation of plots and flats at controlled prices (with bank financing of even application amount making it a IPO-in-boom-times like gold rush), it seems more like a lottery. Analyzing any such opportunity is like calculating the expected payoff:

The variables are:
- number of likely applications for the given area (say a = 0.2 m)
- number of plots in the area (say b = 100)
- your application (say c = 1)
- expected payoff in case of allotment (difference between allotment & market price say d = Rs. 2 m)
- cost of money (say e = Rs. 2000 (@10% pa of Rs. 40,000 earnest money blocked for 6 months))

The Expected Payoff is :

= (b * c * d / a) - ((a - c)* e / a) = Rs. (1000)

The data points taken are similar to past real examples. In any frenzy, most cases have negative expected payoff and are similar to lottery (but with lower payoff, higher cost of money, and lower number of applications). So, do your calculation before investing !!!

Now just calculate the interest that the government earned by holding the above collected amount for 6 months interest free (assume government bond rate, 10% of property value as earnest money) - You will be totally zapped!