Will never forget the chart of this Company A and its price even after more than 20 years.
It was in Feb 2000. I was in my native place. We were at our broker's office. In those days, despite having online systems, people predominantly used to go to broker’s offices or trade on call.
Someone ordered shares worth a few crores on the phone at around Rs. 350 per share that day when I was at the broker's office with my father. Those were the days when the prices of any software company were soaring not everyday but every minute basis. It was total madness.
Initially, I thought it must be a day trade but it was not. Also, you look at such trade with amazement, you make your false judgement that the investor must be someone with a great understanding of the business as he has so much money to invest.
The broker was in awe, so was the person at the terminal. He bought shares worth a few lacs for himself. He advised some of his clients to follow. He asked us to do so. I don’t know what happened to us, we said no. We won't.
However, during this quick 10 mins, you end up developing a self-enforced belief that the guy who ordered must not only be having a great understanding of the business but he must also be an amazing investor. It happens when everyone is doing the same thing. The public force is brutal in making perceptions.
The stock went up further during the next few days and made a top at around 400. We thought we made a mistake, the broker and the guy at the terminal said so too.
We did not have much understanding of valuations, governance. Actually, we never heard those things back in 2000. But one thing we learnt from the past was not to follow what everyone was doing, however tempting it might be.
The leverage was available in plenty. No pressure to do a settlement as the stock was moving up. But there came a sudden jerk. Within a month the stock was half. There was no money. The broker got bankrupt too. Risk management was unheard of when you gain everyday.
This is just one example of one investor/speculator and one company. There is a long list of companies which have seen spectacular runs during the mayhem of the bull market of 2000. I am sure that there would be a long list of investors who would have lost substantial amounts of money.
There are many lessons. As soon as you see that easy money is in making
- Be on alert, more cautious
- Better to be slow
- Avoid any 'respect' quota
- Avoid media/WhatsApp
- Go alone, take a break, take a deep breath, do meditation, calm down
- Don't be in a hurry
- Book profits and let someone else also earn.
Not only the investor/speculator got bankrupt but he took the broker along with him. These are the people who newbies see with respect just because of the size of the orders and their move. We need to understand that in the stock market anyone can go bankrupt if he/she is not disciplined, orderly.
Niteen is one of the founders of Aurum Capital, a SEBI-registered Investment Adviser and Research Analyst company. This article does not constitute personal recommendations and advice. Niteen can be reached at his email id firstname.lastname@example.org or Twitter handle @niteen_india