(This appears in yesterday/ today varied editions of the Deccan Chronicle. Essentially a view about bull market and how the push happens to get us in to the market. And the world of ‘top picks’ based on festivals .. A ritual that the ‘sell’ side excels at .. Luring you to part with your money)
Diwali Sale is yet to come to the markets
Another Diwali. Another list of ‘best buys’ from all the brokers in town. You have new money. Last year Diwali picks? Confine them to the dustbin. Keep buying more. After all, the brokerage industry has to feed on your trades.
Diwali, English New Year, Financial New year and all seem like major events which change the direction and/or quantum of earnings of companies, going by the stock market recommendations. My inbox and WhatsApp groups have a total of around thirty recommendations urging me to put money in their “top ten” or “top five”. One interesting thing is that these brokers do not seem to have anything in common. So now I have a list of around one hundred stocks that are compelling ‘diwali’ buys. Some brokers have put price targets, some have not. Alas, none of them have also published their last ‘diwali’ recommendations to see how good their festive forecasts are. SEBI should do something about this.
Armed with a hundred ideas, I have just one thing stopping me. I do not have too much money and the brokers have not given me what to sell from my portfolio, so that I could buy in to their new festive ideas. I think it is very unfair on these brokers.
I prefer the Amazon and Flipkart mails that hit my inbox, with Diwali discounts on stuff that I do not need, but with large discounts. No one gives me Diwali discounts on Sugar or Cashew Nuts or Edible Oil or even the humble daily vegetables. It is available only on ‘smart phones’, wireless speakers and their like. Stock brokers must learn from these sellers. Tempt me to buy shares by offering me a discount.
Now, these brokers will have Diwali recommendation, then the English new year will come round, then Pongal, etc. How much money should I allocate to each of these festivals to buying stocks? The brokers should think of all these things. What if I blow up my entire cash on the Diwali ideas and have no money to buy their ‘new year’ ideas?
I do not know why an advisor or broker cannot tell us about ‘good’ or ‘high quality’ companies that one should consider owning, instead of telling me to buy and sell. Just give me a pool of good companies (surely not too many that are worth investing for keeps) and tell me if it is a good ‘price’ to buy. Why does not any broker or advisor give us that service? Why have a view on every stock, most of which are of dubious quality, with no mention of promoters, business etc?
As an investor, I have to be on my own, if I have to build a portfolio for the long term. I have to either put the money in to a ‘diversified’ equity fund or in to an ETF (which will mirror the market). SEBI has so many requirements to become an adviser/broker etc but I wish there was a way that they are also measured and their quality is up in the public domain. Today, the brokers are not accountable to anyone. Everyone in the game is a part of this circus to make sure that the investor is kept in the dark and keeps giving business. Even the ‘business’ media does not track the ‘sell’ side broker recommendations. For mutual funds, there is evaluation from brokers, from independent agencies and so much micro regulation from SEBI etc.
If you are a ‘qualified’ investor in equities, it would be a good idea to make a ‘short list’ of good companies (high quality of earnings, likelihood of surviving ‘long’, good promoter reputation, predictability in their business etc) and build your portfolio out of that. You may like to build your long term portfolio from that ‘short’ list. You could build your strategies to time your buys. This can be discussed in a separate article.
Outside of this ‘investment’ list, the rest would fall in to the ‘trading’ bucket, if you are so inclined. You buy them with a view to sell them in a short term. Many of them will be stocks from the commodities sector. Essentially, it is taking advantage of the behavior of other investors. When commodities cycles turn weak, these companies’ earnings suffer and there is sell off. We buy them on the assumption that the cycle will turn up. And when it does so, people once again start to buy them and push prices high. We could discuss this also in another piece.
I know that this makes investment in to stocks a very boring thing. The excitement created by the ‘sell’ side is not something that helps you in your investment returns.