Past performance is not a guarantee of future returns… Statutory Warning!
Share market is ‘Bulls and Bears’! Nothing is definite here. It is the fight between the Bulls and the Bears. We invest and test our luck here. Sometimes the Bulls overtake and sometimes the Bears overtake. Share prices go up and down like a game of Snake-and-Ladder.
By the way, why are they called ‘Bulls’ and ‘Bears’?
Have you ever seen Bulls and Bears fight? No? It doesn’t matter. I haven’t seen them fight either! But it’s said that the Bulls thrust their heads bottom upwards and the Bears attack top downwards when they fight. Those are their fighting styles! Exactly in the same fashion, some operators push the prices upwards in the market while some push it downwards. They are named the ‘Bulls’ and the ‘Bears’ respectively after the animals they resemble. Also, when the market is in the clutches of the Bulls, It’s called a Bullish Market and when the market is in the grips of the Bears it’s called a Bearish Market.
Daily fight between these Bulls and Bears reflects in the share prices. Prices moves up and down. There is no guaranteed returns here as in a bank deposit. You may profit, you may lose. Investment in share market signifies high risk and uncertain returns.
Be that as it may, where did these ‘Vultures’ come from? What is their relationship with the share market? Before you know that, please listen to this story…
Come October, It’s festival time. You receive a text message from one ‘Your Friend Financial Services’. It says, ‘Infosys will go up today. Buy, Buy, Buy.’ “Big deal! It’s festival time. Who doesn’t know that the market will go up?” You shrugged the message off! The next day you get another message ‘Yesterday Infosys went up as per our recommendation. Today Bajaj Auto will go up. Buy Bajaj Auto’ Now you get slightly interested. You do not buy Bajaj Auto even then. How does one believe financial advice from a total stranger? “Will they pay me up if the market goes down??” You reason and keep quiet. The next day you get one more text message from your friend. ‘Bajaj Auto went up yesterday as per our recommendation. Buy Hindustan Unilever today.100% success guaranteed!!’ You get interested now and start tracking ‘Your friend’ and his text messages.
This way, in a few more days’ time you start loving ‘Your friend’ more than your life. He is right every single time! He did not go wrong even once. Aha..! This truly is a gift from God! Alright, now you pay Rs 10,000 as per his advertisement and become a member of his ‘Unlimited Advice Plan’. In addition to that, you also force a few of your friends and relatives to join this plan. You also go one step further and offer to convince their wives as well.
Once you become a member, very soon ‘Your friend’ seems to start losing his magic. Somehow, all the money you poured into the market seems to vanish in this air. You lose a few lakhs of rupees. You don’t understand a thing about what’s going on. You apply sick leave, go home and hit the sack. Had you bragged about your share-investing prowess in front of your wife then you will be now shivering inside your double-blanket at the mere thought of the ‘Equal And Opposite Reaction’ from her side. By the time your friends who also invested based on your ‘Guarantee’ on the text service start looking out for you, you will be busy visiting doctors and labs with some kind of pain in the chest region.
Now, what actually happened in this story???
This is what happened:
A super crook, ‘Your friend’, hatches a plan to get rich quickly. First of all, he collects mobile numbers of about 10,000 share-addicts like you. It isn’t that difficult to do that. Then he messages about 5000 of them that Infosys will go up and messages the other 5000 that Infosys will go down on that day. The point is that Infosys will either go up or go down that day. One of the two will happen, the exact direction of which even Chairman Narayana Murthy doesn’t know. Then he will select the group of 5000 who got the same message as to what actually happened later on and discards the group of the other 5000. From this selected group he would then send 2500 of them that Bajaj Auto will go up and tell the other 2500 people that it would go down on that day. The next day he will send 1250 of the group that got the right prediction that Hindustan Unilever will go up and to the other 1250 people he will text…
Yes. You got the point! I don’t need to say more…
This is just one example that appears in the book ‘Fooled by Randomness’ written by Nissim Nicholas Taleb. Taleb, a Hedge Fund Manager from Wall Street, knew the ins and outs of the stock market. Taleb, who has written 3 books so far, is of the philosophy that there is no pre-determined pattern for anything in Life. Everything happens accidentally at random. Even if you saw a few thousand white swans earlier there is no rule that the next one you see has to be white. It could very well be black. Europeans, who were used to seeing only white swans all through their lives, were stunned to see black swans in Australia when they went there for the first time in the 17th century. Thus, the ‘Black Swan Theory’ was born. It states that what has been happening so far is no guarantee that the same pattern will continue in the future.
On one hand, we have a world where there is no pattern to anything and on the other hand, we have Man who desperately wants to fit everything into a pattern. And we have crooks like ‘Your friend’ in between!
Most often, The Indian Share Market is nothing short of a casino.
That is why I said, “Bulls, Bears and Vultures”
P.S: This article is the first in a series of educational articles on investment meant for beginners in the market. It is intended to warn investors of pitfalls and not meant to criticize genuine transactions in the stock market.