Don't Follow Animals..!!!

DON’T FOLLOW ANIMALS..!!!

Recently I got to know, a market which is moving with no significant changes is called…. “a chicken market” as against a bull or a bear market. Fine, I acknowledge I found it interesting. There can be hundreds of such terminologies introduced, thousands of analogies worked out, lakhs of flowcharts prepared to teach you capital markets. But, none of these can give you the experience of how it feels to be in the market; owning a trading account and depositing your hard-earned money into that; suddenly realising you are in the markets and beginning to read newspapers, business columns, watching and trying to analyse what Udayan Mukherjee or Ashwin Gujral or Dhirendra Kumar or all those ‘MBA-finance-graduated-fluent-in-english-hence-selected’ beautiful girls talk on CNBC TV18 or ET NOW or NDTV Profit; buying a share based on a dealer’s (who mostly is less qualified-aged-experienced than you) recommendations and seeing the price of only that share what you bought coming down except every other graph in the market; listening to all those who share only the miracles of profits they have made and will never reveal all those ten times higher number of loss-incurred transactions; listening to all the crappy, full-of-jargons, blame-always-markets and helpless reasons the dealer presents for why the price never hit his recommended sell-limit price or his self-bragging of his predictions coming true with the stop-loss triggering; and realising that midst of all these, your broker (sorry.. the broker’s ‘system’) has deducted his share of profit (I mean.. brokerage) and kept you wondering, how ‘your’ money worked for him!! Well…keep wondering..!!!

The so-called share market is nothing but the above, if you are a beginner. It would be the same even if you are Rakesh Jhunjhunwala. Yes…I mean it. Unfortunately, we in Indian share market are filled with such participants, who have half-baked knowledge, came into this because wife did not want them to gamble in card games or horse race or cricket betting. So they came here and doing what they were doing in their previous incarnation. They have replaced horses with bulls and bears and now chickens. And all these men jointly riding on the ‘sheep’ (hope you understand this analogy). These animals are called “speculators” and you, the retail investor are called a “sheep”..!!

Apologies, if I am sounding negative. A good capital market is definitely a necessary ingredient for any economy’s growth. Take any developed nation today, they are developed because their capital markets are developed, matured and purposefully designed as well as operated. Capital market is the heart of an economy, which pumps in the required funds for its corporate growth, which in turn will fuel the economy by eliminating trade deficits. India is one of the largest economies of the world and is currently handicapped due to the inefficiency of its capital markets. There are two causes for this according to me: one, concentrated capital flows and two, un(der)utilised investible surplus. While, the purpose of this article is not to dwell into all those, I bring it up to create a context, where all these discussions should lead you, me and all of us.

My first connotation for investors is “Don’t Follow Animals”. Animals names are used by speculators, who are short-term oriented, who do not know or does not want to know what lies beneath a company’s fundamentals. They use quotes like “markets are currently bullish and it may be right time to book profits”; “bears are ruling the markets and may be a good time to get in”; “markets are flat and it may be wise to follow wait-and-watch policy”. These statements are easy to understand and to relate, but basing this how can you decide to invest in a company, which you will literally own once you have bought a share; how can you decide that you will sell a share and thereby sell your company to another on the basis of a ‘may-be (which has a 50% hidden adverbial, meaning ‘may-not-be’)’ statement of someone with vested interest in your transaction. Never look at what is the mood of the market and invest, instead look at one company and take decision on it. Markets as represented generally by a number of indices, true, give an overall picture of the macro-business-scene, but that in no way represent what a specific company that you already own or intend to own has got? That can only be known through the financial statements, listening to company spokesperson, regulatory announcements and above all your own common sense and intuitions. By the way, intuitions do work in capital markets, only when they are yours used by you and for your decisions. (As put out by Paulo Coehlo – “if you want something very badly, the entire universe will try to get you to it”).  You need to believe, believe in its entirety, that investing in stock markets is not an art or science or to be precise rocket-science, rather it is the function of your time (spent in knowing about the company), common sense (that interprets the future trends of various industries), general awareness quotient (that explains your knowledge of macro-economic factors) and deafness (that overlooks all the noise made by all other animals in the market). If you are one who reasonably has all the above ingredients, jump into this forest, you will find your way. Throughout these, hold this as a precaution - beware of animals, never follow them and thus, ‘Be a Man... (Read ‘Be a Human…)…!’

Author is a Faculty in Finance and a PFP Consultant

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