January 26, 2006

Recommendations...We always want quick money

A small, secret tip from the broker who has just found a gem and he wants you to invest today and that too immediately. This is as if the secret is being let out in the market and he wants you to capture the opprtunity now. We are always in a rush when it comes to investing in stock market. This is something which Warren Buffet too mentions time and again whenever he is asked for the reason behind his success. When I look at my mother when she goes and buys groceries in the market, I am surprised by her bargaining power. She fights tooth and nail to get the best price and not get cheated. What more, the shop-keeper knows that my mother keeps a close track on the price movements of her products. Only thing is that she does not stock too much to taken advantage of price movements:)

When it comes to decision making in the stock market, this talent is missing. She totally depends on the broker/father. She does not even bother to see if the company exists or not. It puzzles me too. I am no different, but probably I fare slightly better than my mother. It is nice to see her decision making process. In the first stage, she is not interested in investing in the stock market as she has no knowledge in it. A wonderful stage, where we see most of the housewives. It is better being this way than investing blindly. It takes a lot of convincing to make her first investment. A little bit of opportunity(or greed, depends on the timing), and some confidence showing the limited downside can lead to the next stage of her first investment. In this stage, she makes the investment after consulting a lot of people. You will have to give a lot of reasons, some she may understand and some she may not. She likes to hear the good things, and when the person who is advicing throws a lot of jargons, economic fundamentals (and most importantly uses words like "look at people spending money, your recent purchases etc) she becomes confident to make the investment. In this stage, she is extremely active and looks at her decision making very closely and will keep calling the broker to get the comfort of her investment. The broker is not that concerned as his work is completed.

The next stage is where we all make the mistake. If the first investment was a successful one, which the broker is ready to point out, we start thinking of the next move. We are ready to make the next investment, which the broker has been secretly telling you. This time the stake gets bigger as you have the profits of the previous investment to fall back on. It is interesting to note that, most 'un-educated investors' assume that they can beat the market, by just getting out of the market before the others do. Rarely has one seen this happen. If this investment and few subsequent ones turns out to be good, one sees the control shifted from my mother to the broker completely and this is where the RECOMMENDATIONS starts kicking in. The recommendations which was just a guiding tool, becomes the most important decision making criteria to buy or sell and the broker, the WARREN BUFFET. The biggest feature of this recommendation is that it highlights the BUY more than the SELL. This again can be attributed to our decision making process. Once a decision is done, we do not want to be proved wrong or we believe there is unlimited growth to that stock. We just want to look at newer opportunuties to capture before anyone can. It suddenly becomes a RAT RACE. We are so involved that the previous macro economic factors of the country and the industry, profitablity, ROI, ROE, P/E's, promoter holding all is thrown out of the window. All that is important now is that call from the broker and hopefully CNBC, NDTV Profit, Dalal Street covering an attractive article of your stock. The funny aspect of this is the emotional aspect. Every new high of your investment makes us even greedier and every fall is just an abberation as the lesser mortals have yet to understand your reasoning. Your broker's reassurances will make things comfortable. How helpless we all become...

My mother who was leading a simple life suddenly is in the midst of a big confusion. Having invested her savings, she sees a life with too much activity, which she never wanted in the first place and that frequent recommendations made her life so miserable that she will never lead the life she always wanted. She probably will only know when the market starts to fall....


Note: I used my mother only to make things simpler. My mother has never invested in the market and she leads a simple life that I sometimes desire. She is totally against this market, as she believes it is speculative. She is right at times....

3 comments:

athena at work said...

This is the case with most of the people who think there is something hidden for them in the stock market..And definitely agree with the bargaining power part..that too coming from u..

Anonymous said...

All set and done, I need a simple life. Inspired by ur mom, I shall leave the speculative stock games for brilliant brains like u to njoy the fun.

Anonymous said...

vegetables over stocks... anyday for me