Bulls, Bears and Vultures

Past performance is not a guarantee of future performance… Legal Warning!

The stock market is ‘Bulls and Bears’! Nothing is final here. It is the fight between the Bulls and the Bears. We invest and try our luck here. Sometimes the Bulls lead and sometimes the Bears lead. Stock prices go up and down like a game of Snake-and-Ladder.

By the way, why are they called ‘Bulls’ and ‘Bears’?

Have you ever seen bulls and bears fight? No? It doesn’t matter. I haven’t seen them fight either! But it is said that the Bulls push their heads from the bottom up and the Bears attack from the top down when they fight. Those are their fighting styles! In exactly the same way, some traders push prices up in the market while others push prices down. They are called ‘Bulls’ and ‘Bears’ respectively after the animals they resemble. Also, when the market is in the grip of bulls, it is called a bull market and when the market is in the grip of bears, it is called a bear market.

The daily fight between these Bulls and Bears is reflected in the stock prices. The price moves up and down. There are no guaranteed returns here like on a bank deposit. You can profit, you can lose. Investing in the stock market means high risk and uncertain returns.

Be that as it may, where did these ‘Vultures’ come from? What is your relationship with the stock market? Before you know it, listen to this story…

Come October, it’s festival time. You receive a text message from one of your ‘Friend Financial Services’. He says, ‘Infosys will go up today. Buy, buy, buy. “Big deal! It’s festival time. Who doesn’t know that the market will go up?” You shrugged off the message! The next day he gets another message ‘Yesterday Infosys went up on our recommendation. Today Bajaj Auto will go up. Buy Bajaj Auto’ Now get a little interested. Even then you don’t buy Bajaj Auto. How does one believe financial advice from a complete stranger? “Will they pay me if the market goes down?” You reason and shut up. The next day, he gets one more text message from his friend. ‘Bajaj Auto went up yesterday based on our recommendation. Shop Hindustan Unilever today. 100% success guaranteed! You get interested now and start tracking ‘Your friend’ and their text messages.

In this way, in a few more days you will begin to love ‘Your friend’ more than your life. He is right every time! He was not wrong once. Oh…! This is indeed a gift from God! Very good, he now he pays 10,000 rupees according to his ad and becomes a member of his ‘Unlimited Advice Plan’. On top of that, you also force some of your friends and family to join this plan. He also goes a step further and offers to talk the wives out of him too.

Once you become a member, pretty soon ‘Your Friend’ seems to start to lose its magic. Somehow all the money you invested in the market seems to melt away in this air. You lose a few lakhs of rupees. You don’t understand anything that’s going on. You take sick leave, go home and go to bed. If he had bragged about his stock investing ability to his wife, now he would be trembling inside his double blanket at the mere thought of the ‘equal and opposite reaction’ from his side. By the time the friends of his who also invested based on his ‘Guarantee’ in the text service start looking for him, he will be busy visiting doctors and labs with some kind of pain in the chest region.

Now what really happened in this story?

This is what happened:

A super thief, ‘Your Friend’, hatches a get-rich-quick scheme. First, he collects the mobile numbers of about 10,000 stock addicts just like you. It’s not that hard to do that. He then messages about 5,000 of them that Infosys will upload and messages the other 5,000 that Infosys will download that day. The point is that Infosys will go up or down on that day. One of the two will occur, the exact address of which not even President Narayana Murthy knows. You will then select the group of 5000 who received the same message about what really happened later and discard the group of the other 5000. From this selected group you would send 2500 of them that Bajaj Auto will go up and tell the other 2500 people that you will go down that day. The next day he will send 1250 of the group who got the prediction right that Hindustan Unilever will go up and send the other 1250 people a text message…

Yes. You have the point! I don’t need to say more…

This is just one example that appears in the book ‘Fooled by Randomness’ written by Nissim Nicholas Taleb. Taleb, a Wall Street hedge fund manager, knew the ins and outs of the stock market. Taleb, who has written 3 books so far, has a philosophy that there is no set pattern to anything in life. Everything happens accidentally randomly. Even if he saw a few thousand white swans before, there is no rule that the next one you see has to be white. It could very well be black. Europeans, who were used to seeing only white swans their entire lives, were surprised to see black swans in Australia when they first went there in the 17th century. Thus was born the ‘Black Swan Theory’. What has been happening so far, he says, is no guarantee that the same pattern will continue in the future.

On the one hand, we have a world in which there is no pattern at all, and on the other hand, we have the Man who desperately wants to fit everything into a pattern. And we have thieves like ‘Your friend’ in between!

Most of the time, the Indian Share Market is nothing less than a casino.

That’s why I said, “Bulls, Bears and Vultures”

Beware!

PS: This article is the first in a series of investing educational articles for beginners in the market. Its purpose is to warn investors about cheating and is not intended to criticize genuine stock market transactions.