Tuesday, August 19, 2008

Advices for Stock Market

[Click here to read my first post on Stock Market. The disclaimer of that post still holds good except for that fact that I have got better, meaning, seen a lot more losses. You may also click here and here and here to see my previous posts about share markets.]

During my earlier life in software industry, I was annoyed and confused to see that, in the TV in the cafeteria\breakout area, almost always news channels will be kept. I even remember a manager who uses to change the music channel to news channel even if everyone is watching the TV interestingly. That time, I didn't know why one would always watch the news channels. Later I got to know that a lot of people are looking for the market advice and the price list that is shown in the news channel.

If you listen to the advices they give in those channels, it will be humorous. Suppose if a stock price of a company increased by Rs. 10 the previous day, then in all the channels, guys sitting with power suit and power tie will tell, "The share of this company X is increasing. There is a strong support for this company. The price of its stock will go +50 rupees in one week and it will become +100 or +150 in another 3 months".

If the next day, the same stock price has decreased, they would advice, "Sell the stock immediately. A lot of negative things are reported. Bla Bla Bla.". Sometimes, in two different channels, two guys (again, in power suit... they think they are the most intelligent guys in the world. Bull Shit.) will give exactly the opposite advice. One guy would say, "Immediately buy this stock and it would go +50 rupees" and the other would say, "Close all your position. Do strong short selling" for the same company.

Why do we need to listen to those guys? Even a child could give such advices. If a stock increases, advice others to buy it and if it decreases, advice people to sell it. Nonsense. Why didn't those so-called market analyst guys tell people that the market would fall heavily before it fell on January 16 to 22 2008? They will say, this was not foreseen by anyone. If those guys can only tell things which everyone knows, why should we even listen to them?

It is also very true that, if someone has bought a share, they can boldly appear in TV and say that this share would increase like hell. After everyone buys the share, he can easily sell that for profit and go to other company share to play with. They need not do this for all the shares they play with. They can tell genuinely (there is nothing genuine here. Everything is an bullshit, but here, it means, what they genuinely think will happen) for 8 cases and they can use people as a scapegoat for 2 cases.

So, the best advice what I can give is, don't listen to advices and invest blindly to the companies which you don't know about. If you want to invest in a company, pray to god and do that :) as no factor could help you do the right thing, absolutely no factors like, charts, history, news, records, etc. will guide you do the right thing always.

Stay tuned for more blogs about share market, commodity market, and other live examples of how market could screw you completely. Please share your views and comments about share market and about this post.


vijay said...

haha.. my thoughts - share market is like life da. nothing is predictable but everything is deterministic! saying "invest blindly" is like saying "do anything in life". Read more on chaos theory to understand my thoughts!!

Ragu said...

I comment very rarely, but I think my score has been pretty good on your share market blogs. Investing blindly is an interesting strategy that you suggested in your blog. But remember it is neither novel, nor something that is useful always. Vijay has pointed you to an interesting way of looking at stock market - as a chaotic phenomena. While there can be some argument about whether it is a chaotic ( hence complex but still a deterministic process) or a random process is yet to be resolved. But I think you are completely off the mark about your remarks on the role of information. The people who trade are not naive as starters or novices, but are people who carefully watch the market. They look at these televisions not to abide by their advice. But the role of information is crucial in stock trade. These televisions are a way of information dissemination by which the trading agents gainfully utilise in forming expectations. It is this very expection and differences in perception amongst agents that triggers mutually benifical exchange. And you seem to be using a tone that somehow conveys a message that stock markets are bad place to invest. If you realise, the average returns are much higher than anything else, such as fixed deposits and other bank deposits, for long term and cautious traders. You seem to be focussing on short selling and speculating agents - which are not the only and exhaustive group in the market. Let us not forget that, if not for these stock markets you and I won't be employed. Because stock markets ease the capital constraints faced by genuine entrepreneurs more efficiently than other means by mobilizing savings. There is nothing wrong in speculating and outwitting each other based on efficient use of information. Like Vijay said, it is similar to what we do in life, almost everyday, speculating about something or the other.

amudhan said...

Thanks for your valuable comment da. Everyone knows that you are an expert in share market... I agree by what you are saying... share market is unpredictable... so the guys who say that the market will go or down are like astrologers... it may happen or it may not happen... we should not do anything because of what they are saying, is what I wanted to convey. I will surely read choas theory and come back again and comment once more (a nice way to make it appear that many comments had come)

I have many thoughts to write about share market and our thinking is same. Share market is profitable if used wisely (I don't want to write everything I have in mind, for, it will reduce the number of posts I can make). But to contradict and to keep the conversation going, explain me this: Russia attacked Georgia some days back. It had stopped millions of crude oil barrels. On that day, when everything was negative, the crude oil price decreased when it should have increased like all hell fell down. Why? Information play a very little role. Again, I have many things to talk about commodity market also. So, I will put all my thought in another 2 or 3 posts. But please answer me. This is not trying to refute you. I thank you for posting a comment. But as I said, I want to keep the conversation going (getting more comments :))

Random varibale said...

I dont agree with your statement that information does not matter much - if anything, it is all about information in the stock markets. To come to your question on Georgia - the prices are a function of demand and the supply conditions and the associated expectations that the market players have. Despite the fact that you think all the conditions were 'negative', the market felt otherwise. That is, the action by Russia is not perceived as a credible signal, atleast credible enough to alter prices. And, what matters is not any subjective opinion on whether things are favourable or not, but the majority opinion of the players in the market.

amudhan said...

Actually we both have the same opinion. It is the players who decide what the market should be. I can give you 1000s of examples (a little too much exaggerated number) where a positive news come for a company but the stock value getting down. The reason is, as you said, the players want to play. Though the market should go up, they will short-sell and reduce the value and reduce the morality of retail buyers and when everyone quit, they buy a lot of the share at reduced price and keep the price in much higher position. Same is the case for Russia attack. People might have the share price would go up and bought a lot. The players with evil grin came into market and reduced it. After everyone books loss, they would again increase the price, mentioning the same reason. After all, in the blog, what I wanted to say is, advices are bull shit... not information... Of course, information leads to advices... but I really hated those guys who say, "the share will increase like hell" and the other day "the share will decrease like hell".

Prabakar said...

I don't know much about the concept of shares and their benefit to socio-economical system. As far as I understand, companies sell their shares to gather investment in their business and agents and people who invest, steal each others money in the name of investing in the company's business. When a guy earns money in share-market, I think it directly translates to the loss of other investors' money. So, it's not just that the company gets investment for their business, but people gamble on the company's stocks and rob each other often than helping the company grow it's business. I will be glad to hear about anything that I'm mistaken here. :-)

amudhan said...

I don't know much about Share markets (please read the disclaimer). But as far as I know, you are a 50% right. Stocks are introduced for companies to expand their business. But you thought about anyone gaining will result in someone's loss is not right always. At one point of time, a company's share may worth X rupees and many had bought the shares. After the company's growth in business, the value of the company may increase and the share may worth X + Y (where Y being a positive number :)). Those who had bought on X may want to sell at X + Y and book their rightful profit (for supporting the company's growth) and letting other people to enter into the company's shares. Here it is not gambling. But this type of share business is a long dead and no one even knows where it was buried. Now, 99% of them time, it goes like gambling but some times, it is a real share business. People who invest in long term for example, may be considered as doing proper business. If something like gambling is happening, it is not only because of one party's cruel intention, but also the other party's covet. People who wants to gamble knows that it is gambling and work in gambling-mode (and almost always incur loss). People who wants to invest, invest in that way and do proper business (and strangely they also incur loss :)).