Saturday, April 06, 2013

Khabari network

There is an internal network that runs the market, everything is fixed and rigged. There is plan and only known to a select few. They make the markets move as per their wishes. Its Operators who make and run the markets. This is what everyone who loses money in the market believes before he surrenders. Then there are a few who look for this Khabari network and believe if they get to the inside of this network, they can make immense wealth in no time. 

Very recently, an investing fried shared is experience. He received a sms from another contact who seemingly was ‘in the inside’ of a very secretive and powerful network. His sms read, “MMTC: EGOM to fix price at Rs. 230 per share. Meeting at 2.00 PM sure shot. Stock heading towards lower circuit.. Short MMTC.”  In simple English, the news was supposedly giving away something very confidential, that the government was planning to sell part of its shares stake at 230 lower than what was it was trading at that hour,Rs 283. My friend went for the phone and placed ‘a sell’ order for a few thousand shares at Rs 283 hoping that it would slide down and he can buy at lower prices. What had happened is that almost every investor had got this information and shorted the stock ( in market parlance, it means to sell MMTC without having the stock and hoping to buy at lower levels, same day). In a few hours another Khabar made its wave that sent shivers down all the short traders. The MMTC’s banker had rejected the offer on lower valuation concerns and in moments the stock started spiraling upwards leaving all our khabari investors in a spot, as it meant they had to buy them at higher prices to square their position. My friend bought all the shares back at Rs 310, loosing effectively about 10% in a few hours and few lakhs of money. Most investors who listened to the Khabar had lost upto 15% that day.

And now the secret. All known information (and sometimes unknown) is reflected in the stock prices. There is no one capable of rigging the market. Even the entire might of UK could not be put behind to save the British pound from the crash, an event when George Soros made his billion by shorting the British pound. Where then can individuals or a group of them hold reign of influence beyond fractions of a second. However as a fund manager puts it, it is the smart money that moves the markets. Think of smart money as the largest groups of investors like fii, pension funds and other institutions that invest billions of dollars. In the short run their emotions and outlook make the markets while in the long run their beliefs would align to the fundamentals of the stock. One of the challenges faced by retail investor is that there are large number of variables that make understanding the fundamental  of a company very difficult. Remember when every learned fund manager expected Educomp to be the next infosys and a multibagger stock. Most of them got it wrong on the issue. Satyam was yet another case where till the very end no one could predict it was led by a fraud management. I guess corporate themselves are not sure of the quality of their own management, how can then an analyst and worst off all, retail investors like us, ever get a grasp of fundamentals. There are infinite variables while evaluating a company and one can never get it right. 

I remember the dialogues in the movie 21, an MIT Blackjack Crack team. As the professor says, there are those with gifted minds, if they had been able to get beyond some of their personal mistakes that were made and yet as history shows us, some students never learn. This is the state of most of us. And not everyone can do it.
You lose only out of paranoia, fear, emotions. You don't give in to your emotions. You think logically. As the Nonlinear Equations professor in the movie said”Always account for variable change".

The investing success is based on secrets that are very simple, hence does not capture people’s imagination – invest regularly, over long periods of time, preferably in the whole market index – and let power of compounding take charge.