When the Sensex crossed 9,000, Finance Minister P. Chidambaram repeated his frequent assertion about the market movement being ‘‘orderly’’ and based on economic fundamentals. It must be orderly indeed, when a discredited stock broker, barred from the capital market for 14 years, manages to pay up a phenomenal Rs 169 crore from profits earned during this bull-run.
The good thing about the finance minister’s affirmations is that it is his job to walk the talk and ensure that the economy remains in fine fettle. The bad thing is that it is not really in his hands at all and the Left parties can yank his chain anytime they choose to.
That doesn’t stop the media from pumping up the excitement with stories about beginners and novices who have apparently mastered the trading game. As usual, the focus is on housewives and students who have found the golden goose in the form of a day-trading terminal. The housewife who wields a keyboard to makes tens of thousand rupees every month; the jobless girl next door who now dispenses day-trading tips; or the student-brigade that makes more money than BPO employees, thanks to a smart SMS tipping service are the newsmakers today.
This is the time when books with titles like ‘‘The ultimate stock trading guide’’ are offering special-priced Indian editions to dispense wisdom on how to making ‘‘consistent’’ money every month through day trading on the stock market. All these and more are part of the finance minister’s ‘‘orderly’’ market that everybody wants to profit from.
A television channel, probably tired of doling out free investment advice through its ‘‘experts’’ has now launched a paid service that ‘‘powers’’ trades with daily stock tips. If this has the potential to clash with the objectivity of its news coverage, who cares about such mundane niceties? Rules about declaring investment portfolios and worrying about the ethics of conscious or subliminal subjectivity are unfortunately in the domain of the fuddy-duddy old media that frowned on Media-nets that mesh business (read profits) with hard news.
Meanwhile, the capital market regulator is hard-pressed to decide whether to chase established scamsters raking in big money or media-tipsters. In these euphoric times, nobody talks about beginners’ luck that is liable to run out. And you certainly won’t hear stories about the well-known management consultant who laughs embarrassedly about losing a lot of money, because his broker advised him to sell his investments and go short on the market, well before the Sensex touched 9,000.
Or, about the IT consultant, who is hanging on to a dubious scrip because he is advised that a stream of negative news about a once-hot stock will neither affect the price nor prevent it from falling. In the short run, the broker may be right. It is an old management trick — prop up shares when the company is hit by negative news; but one will never know if he makes a loss because these are not the stories you are likely to find in the media.
As everybody is usually right in a bull market (and we don’t include those adventurous enough to short the market during corrections), it is easy to forget that new market devotees rarely do any homework. People frequently write to me with a list of shares asking if they should hold them or sell. Some ask if I will manage their portfolios. Most of them are unimpressed when I write back saying journalists are not qualified investment advisors and not supposed to dispense portfolio suggestions or tips.
Such investors usually turn to Internet message boards or business television channels to find their ‘‘investment gurus’’ or leaders. Take a look at any message board, and you will see some bulls, the rare bear and a whole flock of sheep that seem happy to follow complete strangers who are often logged-in under pseudonyms. Others hang on to technical analysts, astrological predictions, number sequences or computerised systems that tell them when to buy or sell a stock without the hard work of research and analysis.
Then there is the Guru syndrome, which Mark Tier calls the second deadly investment sin (‘‘Seven Deadly Investment Sin’’ at www.bullsandbears.com). He describes it as: if I can’t predict the market, there’s someone somewhere who can and all I need to do is find him. And invariably the sheep find their ‘‘gurus’’ on television. But in a bull market, people rarely listen to the simple logic of a John Train (The Midas Touch) which says, ‘‘the man who discovers how to turn lead into gold isn’t going to give you the secret for $100 a year’’.
Funnily enough, the same investors who are happy to act on a ‘‘buy’’ tip usually forget that nobody tells them when to sell. For instance, does anyone know whether the ‘‘Investment Guru’’ who consistently touted an IT education company over months of television appearances still holds this stock although it went nowhere? Did his followers sell? Nobody knows, because investors rarely talk about bad investment decisions, unless there is a huge market crash and they can blame their losses on somebody else.
There is no shortage of investment wisdom on the Internet, available at the click of a button. But the best investment brains in the world that made millions of dollars on the stock market are not dispensing hot tips or making stock calls.
Instead, they are telling people that there are no short-cuts to making money. First, you have to do the hard work of researching stocks and know where to find correct information before buying it; then comes the hard part of knowing how to keep your greed in check and book profits without wanting to catch the very top.
The irony is: nobody has the mindset for any of such investment wisdom in a bull market and nobody has the money or the mood for it in a bear market. The housewives and students of 2005 will suffer the same fate they suffered in 2000, whether the market is orderly or not.