22 April 2016

Oh, mister, mister! Why won't you offer a tip, mister?


"But the average man doesn’t wish to be told that it is a bull or a bear market. What he desires is to be told specifically which particular stock to buy or sell. He wants to get something for nothing. He does not wish to work. He doesn’t even wish to have to think."
- Jesse Livermore

A street-side beggar will never know the toil and hardship that the person, who has just thrown a rupee into his bowl, had to go through to earn that rupee. A person begging for stock-tips will never know the amount of back-breaking work that the person, who's recommending a stock to him, had to undertake to research and value that company.

The majority of participants in stock market belong to this 'beggar' category. People like me, a tiny minority, are the Atlases, the 'labour' category, who have to put in 14-16 hours of work daily, including on weekends. The populace, unfortunately, observes the behaviour of these numerous beggars and ends up forming an incorrect opinion about all market participants. It doesn't help that people like me go about calling ourselves 'gentlemen of leisure' - after all, when work is your passion, it's unconscionable to call it work, what?

Tip-seekers are often worse than the beggars you encounter in Mumbai's local trains. The local train waaley bhikari at least sing to you before asking for money! The impudent tip-seeker, on meeting a serious participant like me, first launches a broadside. 
"The stock market is nothing but an infernal casino!"
"Ah, yes, rather, quite." I attempt to put up a stoic front.
"And you, sir, are a despicable gambler!"
"At your service, man," I say, tipping an imaginary hat.
Then, realising the import of what he has just said and not wanting to antagonise me beyond the point of no return, he checks himself, regains his composure, simpers and innocently slips the question, "kya lagta hai abhi market? what do you think of the market right now?"
Looorrrrddd, nooooo, not that question again. Is zillion times not enough? How many times will I have to endure that question? Ah, devil take the person who asks it, devil take the person!
Silence. His whole aspect now pregnant with expectation. "Here, take this Baba Bengali's phone number. Call him to know the future. If I could peep into the future, I would have become the richest man on the planet," I answer with a straight face and walk away.

None of these pestilences will ever have my advice on, say, a writing pen worth Rs. 100/- But whisper a stock idea into their ears and their eyes light up, cheeks flush, an expression of profound gratitude steals over their face. Without pausing to think, without batting an eyelid, they will peremptorily instruct their broker to take up a position worth Rs. 1 million. Often even more.

"Oh, mister, mister! Why won't you offer a tip, mister?" For many years now it has been my policy not to offer tips to anybody, not even to my father-in-law. Money can never be made consistently in the stock markets on information and conviction borrowed from others. 
A popular ploy of these imbeciles, to extract a tip, is to try to guilt-trip me. "One must always share knowledge freely with others," they will say. 
Ah, I have always done that, man. Always done that. 
Nobody who has ever come to me seeking knowledge on how to trade or invest in stocks gone back an unhappy man. (To say 'nobody' would be paltering with the truth. Uncouth people and bigots are the exceptions. I will shoo them away every single time.) On several occasions, I have gone out of my way to mentor people on the finer aspects of investing and trading. 
Where these beggars are making their blooper is in mistaking tips for knowledge. Now, isn't that like asking for a ready-made dish in the name of recipe? Grossly immoral, I say!
"Okay, so you want knowledge? Here you go, man." I begin an exposition of the aspects and nuances of investing - how to evaluate a business model, how to value a firm, and all that. The idiot has trouble listening. He stares at me with the expression of a baboon who has been denied his meal. Undaunted, I persist with my speech - more a soliloquy now than a monologue! The nincompoop's patience is soon drained to the dregs. He thrusts his palm out like a traffic policeman and, cutting me off mid-sentence, says, "If you don't want to give a tip, then don't give. Please, don't waste my time blathering."

How I wish these beggars realised that if stock-tips had any value, nobody in his right mind would give them away for free. 
(There's a certain variety of the tipster who dispenses free advice on national television. Be careful, dear old feller! These self-proclaimed experts are mere marketing agents of their employers, masquerading as altruists. If they were even half as competent as they sound on television, they would be making money in the markets as full-time investors or traders, not labouring for a salary.)

Jesse Livermore, the great American trader, had a few interesting words to say about tip-seekers:
"It has always seemed to me the height of damn foolishness to trade on tips. I sometimes think that tip-takers are like drunkards. There are some who can't resist the craving and always look forward to those jags which they consider indispensable to their happiness. It is so easy to open your ears and let the tip in. To be told precisely what to do to be happy in such a manner that you can easily obey is the next nicest thing to being happy which is a mighty long first step toward the fulfilment of your heart's desire. It is not so much greed made blind by eagerness as it is hope bandaged by the unwillingness to do any thinking.
"Answer me, man!" I ask the supplicant who has disturbed me in that moment of serenity when I am enjoying a smoke. "What will you do after you've bought a stock on a tip? Will you regularly call up the benevolent tip-giver and grovel to know whether to buy more, sell or simply hold the damn position?" 
I blow a few smoke rings and watch them dissolve in air. 
"Do you have the wherewithal to evaluate an incessant stream of data - company-specific announcements, sectoral dynamics, regulatory developments, domestic and global macroeconomy, geopolitics, market volatility - yes or no?" 
He purses his lips. 
"If you do not know what you have bought and why you have bought it, how the dickens will you know what to do with the position? What if the tip is merely a contrivance for the tipster and his friends to unload their holdings onto gullible people like you?" 
I wait for his reaction. None. His face, as blank as a white shroud.
"Do you have the nerve to make decisions in the face of daily uncertainty? Do you have the frigging balls, the mental fortitude to stand a 50% drop in the market price of your stock?" 
His mouth's agape. 
"No, sir, you don't, I can tell. Good investing and trading is 80% about understanding human psychology and only 20% about economics."
"Uh-huh," he mumbles.
"It is no wonder that people like you eventually lose money in the stock markets. You come thinking it's easy to make money here, isn't it? - all you have to do is open an account with a broker, click a few buttons, and voila! money will come flooding in like the tide." 
He smiles a foolish smile, like the person whose cover has been blown.
"Are you serious? Is this some frigging Disney film? You think if there was any easy money lying about, the seasoned market participants would allow you to simply walk up to the table and have your fill? No, sir, you are but a naive pig, living in cloud-cuckoo land, who has been tricked and led inside the slaughterhouse for the seasoned men to butcher and make a living. Every weekend I see them dancing and carousing over the mortal remains of pea-brained people like you."

"Oye apne Sharmaji ko dekho," is a common lament of these benighted souls. They refer to an acquaintance of theirs and complain of how the fellow got lucky with a stock-tip and raked in big time. This is a common behavioural bias - we cherry-pick a few, non-representative data points, which are vivid and / or readily available to us, to help us draw conclusions, about the underlying probabilities, consistent with our world-view. In statistics we call this error 'selection bias'. Let me assure you, Mr Ignoramus, your acquaintance is merely enjoying a short-term loan from the market. He will eventually be paying it back, with an enormous interest cost to boot!

The behaviour of these mendicants, I must confess, does serve as an important contrarian indicator on occasions, particularly when the market has moved significantly in any one direction. I have benefited enormously from their foolishness. Here's how. 
In late 2007, I had to attend a wedding in central Mumbai. No sooner did I cross the threshold of the wedding ground than a goop, standing 50 metres away, waved out to me like a semaphore, ran to meet me before I disappeared into the crowd and asked, "Say, the markets are rocketing. Be kind enough and suggest to me names of two-three companies whose prices will double in two months." I uttered the choicest of expletives from around the world - in my mind, of course. Then, muttering to him, "R-group stocks," a fail-safe advice in those times, I made a dash for the reception podium. Over the course of next few weeks, I sold off most of my stock holdings. We all know what happened after that. Some dumb luck that, eh?
Few years later, in late 2011, when the world markets were fussing over the likelihood of sovereign default in the Euro area, I happened to be attending another wedding. I bumped into the same gentleman. This time, though, he chose to ignore me and passed by me without stopping to say even a perfunctory 'hello!'. Bells began to toll in my mind again. We must be close to a bottom, I thought. Alas, I had no free cash to benefit from this insight. But I got the temerity to hold on to my positions resolutely. Future events proved me right again. 
I take this opportunity to publicly thank this gentleman.
(Note: Two data points do not make a trend. And an approach that appeared to work in hindsight may well yield unpleasant outcomes in the future. I have narrated the two anecdotes only to convey that the foolishness of people around us should ring an alarm bell in our minds, and impel us to evaluate things afresh, from first-principles up.)

------

"If you want to make money in stocks, do your own thinking."
"Honey, that's the hardest part."


7 comments:

vivek said...

Excellent post!! something we all have to go through

Maneesh Goal said...

Thanks, Vivek! I am glad you liked it and could relate to it.

stockguru said...

Fantastic. You stole me thoughts by mm.

Maneesh Goal said...

Thanks a lot, stockguru :))

Vikalp said...

Superb!! Totally agree to our point and sometimes they feel we are doing thankless job and they are making us important.

Maneesh Goal said...

Thanks a lot, Vikalp :-)

App Development Mumbai said...

Hey keep posting such good and meaningful articles.

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