After visiting India in Jan, I understood why ordinary people buy at the top. Most people do not really understand anything about stocks or consider investing in stocks (people of my parent's age), except when being pursued by a 'trustworthy' broker. The broker has to be able to say: (i) you will not lose money, (ii) you will get much better return than banks. Near the tops, those propositions become most convincing. The brokers can show, how much money one could have made year over year by buying last year at this time, and those numbers look better, as you go close to the top. I was listening to the sales pitch being done to my mom and just could not believe it. The broker was promising something like 60% return a year in a mutual fund, and he had at least three years history to show how it happened !!!
Some idiot (aka friendly broker) sold bunch of stock mutual funds to my mom, just before the May '06 high and Dec '06 high. I had no idea what they were, because from US over phone, you can only figure out little. All she told me is those are investments that the broker said will not lose money. I found out that half of them were real estate stock funds and the other half general stock funds
Thankfully, we managed to unload them right at Feb top.
In my opinion, Indian stock market is in a gigantic bubble (I detailed in a post in Jan). When I talked to my mom in 1998-99 and told her to allocate a small part of their savings in stocks, she was extremely conservative. This time in 2007, she told me why one should 'play' in stocks with at least some amount of money. Yes, 'play' was the word she used. When it comes to money, play is the last thing that comes to my mind. play money=lost money.
