SOFIX = PORSCHE?

What does an index of 50 Bulgarian shares have in common with Porsche? Not much? A little?

Well, according to the data from the market, they are driven by the same forces and show the same effects. While the DAX has fallen 55% during the ‘07-‘09 bear market, Porsche (PAH3) has fallen an astonishing 85%! That rather resembles… the Bulgarian speculative bubble with record breaking IPOs and a 69 week decline of 87%! Though everyone was feeling as a financial genius at that time they were soon in for a harsh surprise...

At the same time in 2008 mother-company Volkswagen had a good time and its stock was making steady progress. I remember my brother calling me at that time asking for advice (or rather bragging), because he had shorted some shares of Volkswagen at a price of 200 without a stoploss order. His argument was that the market was overdone, everybody was talking about it and it was "a sure deal"! I was rather skeptical because the market move looked to me unfinished.

He turned out to be right, of course. But not before the market staged a 500% rally, ultimately reaching a price of 1000, and then collapsing back 95% to a price of 55!

As the crowd was going short on the stock its steady progress caused margin calls, which bought more shares! Articles about hedge fund managers literally in tears on the phone where circulating at that time.

Since we now know how things always go well when they go parabolic, we might just as well throw in the current Apple price, for good measure:

(surely, the one-way train is back!)

Moral of the story? Never underestimate the market and do not get caught up in your own mental framework!