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Commentary

The Market Has No "Godfather"

This has been an incredible 10 days. I watched as things unfolded slowly but surely, in the downward direction. To be honest, it wasn’t unhappiness – I was net short the market – but it was quite fascinating to watch as people on TV and the newspapers pointed fingers to each other, the NSE, the government, the “foreign hand” and all sorts of things.

Firstly let me say this. This is the stock market. There are ups and downs. If you can be happy with the rapid upside, you should learn to live with the downside (and perhaps profit from it as well). There is no “hidden force” that controls the market. Everyone likes to think there is a set of people who are so clued in that they can move the market when they want. There are no such individuals or entities. The market moves because of collective sentiment, and some people can help drum up sentiment, but the large part of the movement is by other people – people like us.

The next time you hear someone tell you that “Big party is behind this stock they will take it up” – don’t buy, because the big party is you. And a lot of people like you who listen, and buy the stock and by a self fulfilling prophesy, the stock price goes up. Surprised? Ask all the people who bought such stocks as they were going up and felt really good, and then never really sold the stock. Obviously it went down, but they don’t blame anyone but themselves, saying that they “should” have sold at the top – unfortunately it was their own buying that took it to the top! The brokers quietly sold and told them later that they should have also sold, after all booking profit is good – and people are usually convinced. Not just that, they will take the NEXT tip also, and put more money and expect to get out earlier.

I got asked this yesterday – “Stock X was at 400 when I bought it on a tip, it went to 2200, and now it’s at 1600. It is being controlled by The Big XYZ. Should I average?”. The company has very little fundamentals, but the tip was good on the price – but why average now, it seems like a perfect setup for the ‘bakra’ to get in!

And while some investors have more money and some less, the big boys in the party cannot dictate prices of large cap stocks. The prices are controlled by a much larger entity, the market itself. Sometimes, like religion, we tend to find solace in the belief that “someone” can control our destiny in the markets. The marketplace has no divine entity, and is as agnostic as they get.

What am I really saying? This is the time to avoid tips, and learn a little more about the market. The days are gone when any stock would go up 30-40% in a year, from now on we must learn to earn. You will hear a lot of news, a lot of stories and a lot of pessimism – ignore everything. There is always money to be made in the markets. Whether it is to short when going down, or to find the few stocks that do well in a bear market, there are ample opportunities available, and you must educate yourself.

  • Anonymous says:

    >”don’t buy, because the big party is you”

    well stated.

    There are no tips, when everything is going up people think it’s a tip.

    get real.

  • Anonymous says:

    >Good post.

    Actually, I don’t have any sympathy for people who lose money in stocks and then blame extraneous forces. Investors should realise investing in stocks come with inherent risks (hence the seemingly disproportionate returns). I am also slightly puzzled by all the minister-type people appearing in media and trying to console/”reassure” investors whenever markets take a plunge. what’s need the need. Markets go up and they DO go down. what’s there to get so worked up?