How to play with fire in a volatile market

SOME of us might be fortunate enough to get to see the annual Hindu fire-walking festival this month. I remember watching a Theemithi ritual a few years ago and thinking to myself that it was downright unsafe. But a Hindu devotee explained to me that it is only dangerous if you do not know what you are doing.

The thermodynamics behind fire walking is well known. However, the science does not detract in any way from the spectacular feat, as fire walkers stride confidently over a four-metre pit of glowing embers in their bare feet. But the knowledgeable devotee was absolutely right. Fire walking is only dangerous if we do not know what we are doing.

Some people have likened the buying of shares in a volatile stock market with walking barefoot on a bed of hot ashes. But as legendary investor Jeremy Grantham once remarked: “Volatility is a symptom that people have no idea of the underlying value.”