Hi
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. I hope you had a chance to listen to the 1st part of this series, today, I present the 2nd part:
Dialogue 1: “Success Kya Hai? Failure Ke Baad Ka Naya Chapter” – What is success? The next chapter after Failure
Some of the greatest investors or entrepreneurs had failed miserably initially to become successful eventually. This happens all the time!! However, the key lesson here is that you need to stay and survive in the game for long term.
Its only when Radha Kishan Damani, one of the “R”s of the bear cartel led by Manu Manek (The Black Cobra) moved out of the stock market on incurring huge losses and then concentrated building the retail behemoth, D-Mart that he created stupendous wealth for himself and his shareholders ultimately.
The other “R”, Rakesh Jhunjhunwala, who was also part of the bear cartel and who lost heavily during Harshad’s bull run is now considered India’s Warren Buffett and is worth upwards of ~USD 2 billion.
As Howard Marks of Oaktree Capital has very succinctly said: “It’s more important to ensure survival under negative outcomes than it is to guarantee maximum returns under favourable ones.”
Dialogue 2: Harshad Mehta: Mein logo ke bhasore Pe Khelna Chahta Hoon! I want to play ON the trust of the people.
Bhushan Bhatt, Harshad’s right hand man: Mein bhi vah kah raha hoon – Logo ke Bhasore Se Mat Khel!! That is what I am telling! Don’t play WITH the trust of the people
Playing ON and Playing WITH the trust of the people are diametrically opposite. Many a times, advisors provide wrong investment advice based on the trust which investors place on them. This short-sighted behaviour and the lure to get incentives at the expense of gullible investors is what has resulted in many stringent rules being placed upon them. After all, trust once lost is very difficult to regain.
Dialogue 3: Yeh Market ka Masala Chaar Chizo Se Banta Hai: Pehla Tip, Khabar, Insider Trading, Research. Usmein Thoda Risk Mila Do. Ab Risk Jitna Jyada, Market ka Masala Utna Hi Tikha. Is Milawat mein ab Thodi Bhavna Mila Do, Emotion!! Ismein Thoda Long Daal Do, Ban Gaya Market Ka Masala!! –Market’s sentiments get built around Tip, Research and Risk. Higher the risk, higher the rewards. Add some emotion to this seasoning, it becomes “market masala”
Stock price is a function of Rationality and Irrationality. Most times, the stock’s price seems to be in congruence with the rational elements, i.e. fundamentals of the company. However, irrationality in terms of Bhavna, i.e., emotion and volatility create risk perception. At times, risk perception takes over the fundamentals!! Hence, being emotionally strong in the stock market is one of the important elements to succeed. Psychology plays a more important role than fundamentals.
Dialogue 4: Itne Chote Amount Ko (INR 500 crores), Apne Apne Dimag Mein Mount Everest Bana Ke Rakha Hua Hai!! Mere Liye Sab Amount Chota Hai!!
You have created a perception of Mount Everest with such a small amount of INR 500 crores. For me, every amount is miniscule.
Investors often tend to weigh the opinion of an authority figure more heavily, thereby leading to Authority Bias. Humans usually have deep-seated duty to authority and tend to comply when communicated by an authority figure.
So, the moment top broking firms release a buy-side report on a stock or some big investor is slated to buy some stake in a company; most investors jump into the bandwagon because of the authority bias which gets created.
We can perhaps avoid or reduce this bias by doing our own research or consult a financial advisor whom you trust, irrespective of the amount to be invested,
After all, if children are supposed to do their home-work, aren’t we?
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!