Today, I am going to talk about some important Investing lessons which I learnt from watching Scam of 1992: Harshad Mehta. One of the most entertaining series I have watched till date. I couldn’t resist taking its dialogues, verbatim followed by some of my own interpretations.
Considering the depth of wisdom in the dialogues, I have divided this into a 2-part series; today being the first part.
1. “Emotion Mein Insaan Hamesha Galti Karta Hai” – People tend to make mistakes when they become emotional.
Inability to control the emotions of Greed & Fear leads to committing mistakes – in Life, as well as in Investing. Benjamin Graham, the father of value investing and Warren Buffett’s Guru, advised to make friends with stock price fluctuations. Graham used a brilliant metaphor to capture this idea. He asked that we imagine someone called Mr. Market to be acting as your partner in a business. Sometimes, Mr. Market is in an elated mood and is ready to buy your stake in the business for a very high price. This is where you should ideally sell and not let Greed set in.
On other occasions, Mr. Market could be very pessimistic and is ready to sell his stake for a very cheap price. This is when you should start buying – stage of maximum fear, as witnessed during March 2020.
Mr. Market comes to your doorstep every-day with a price quote and he doesn’t mind being ignored. What you need to learn is that he is there to serve you, not to guide you.
2. “Apni Market Mein Genuine Investor Koi Nahi Hota, Sab Bhaav ke Khiladi Hote Hain” – In our kind of market, i.e. Trading, there is no genuine investor. Everyone plays on the Market Price.
Market is more rational than emotional. That’s precisely the reason market participants say “Bhaav Bhagwaan Che” – Market Price is God, but this is not always true!! Sometimes, the market turns more emotional than rational and throws out irrational prices, both on the downside as well as on the upside. This is when a prepared mind with an understanding of his emotions along with market’s is able to make money.
3. Sab ho jayega!! – Everything will fall in place properly
Self-denial is like fooling yourself and you are the easiest person to fool. The innate confidence that things will become better is what keeps us going. After all, its hope that keeps things ticking!! However, one should differentiate between daydreaming and being realistic.
There are times wherein we don’t sell our losers, knowing fully well that either the stock selection is incorrect, or the company fundamentals have weakened since the time the stock was purchased. Psychological biases, like, Social Proof, Loss Aversion Bias, Confirmation Bias do not enable us to take decisions rationally.
4. Dar Ummid Par Hamesha Bhari Padta Hai – Fear always prevails over hope!!
Fear always results in higher intensity of market corrections as compared to the rise in the markets. Now, it is only when there is fear in the markets that you should start getting greedier and vice versa. However, in order that you are able to execute it, your investment framework, philosophy and ability to understand answers to some basic questions should be crystal clear.
Some of the questions which has bode me well from a framework perspective, especially when the stock prices have tanked:
- What were the problems?
- What was the most important problem?
- What is the inter-connectedness of problems?
- Why did management engage in such a behaviour?
Will elaborate on this in my subsequent podcasts
5 “Baarish Mein Kitna Bhi Chaata Lekar Chalo, Chikni Sadak Par Aadmi Gir Hi Jaata Hai” – No matter you carry umbrella during rains, you still tend to fall on a smooth road.
You will end up making mistakes on your investments, no matter, how much caution you exercise. Hence, it is important to have a robust investment process, so that your probability of making mistakes get lowered.
Hope you enjoyed listening to this!!
For more interesting topics, you may check out my website, www.jaagrav.com. If you want to reach out to me, you may email me at vikas@jaagrav.com
Thanks!