The Hindu Business Line : For every success story there are at least 10 failures

DALAL Street is a fascinating world created by Mammon, says N.J. Yasaswy in line one, chapter 1 of "Intelligent Stock Market Investing", from Vision (www. visionbooksindia. com). "An ordinary bull on an ordinary Indian street may look fairly morose; but not the bull on Dalal Street," he'd say about the animal that has of late been on an unstoppable run. Remember that, to the bull, a half-empty glass is always `half-filled'.

A caution that comes early on from the author reads thus: "We only hear about brilliant success stories. But in reality for every one success story there are at least ten failures. The difference is that no one talks about these failures." Quite true, you'd agree, for this is a high-stakes game which, when played well `can yield whopping profits'; else, "one can easily touch rock-bottom."

Yasaswy states that you have a choice whether to enter Dalal Street or not. "But once you are in, the temptations could sweep even the strong-willed off their feet." It can be a one-way street - to what can both be the Garden of Eden and an inferno! Because there are two sides to the market - the bright one with blue chips that make good profits, and the dark, dominated by companies that make massive losses.

The author narrates the story of an amateur who approached an expert for advice on what he should do to make a million dollars on Wall Street. The expert advised, "Come with two million!" For, there's no guarantee of profits, points out Yasaswy. "There are no sure-fire formulae for success in the stock market... Many financial wizards end up as `financial hazards'." Be prepared to be more preoccupied with the market than with your full-time job. Do you know that some people give up their jobs to get into the money game? Do you know that while some succeed many fall by the wayside?

More important than the macroeconomic variables, there are the emotional factors that dominate the stock markets, says the author. One is greed and the other is fear. How does greed work? It overpowers investors during the boom phase. "When the market gets heated, they get overheated." Greed won't allow them to book their profit and go home, and so you can find them buying when they should be selling.

Fear plays out during the bust phase. Investors freeze in panic when the market gets cold. Fear robs them of their calm, and they keep selling when they should just hold still; they rush headlong to book their losses and get out of the market, explains Yasaswy. "Thus, greed and fear push amateur investors into wrong directions. They tend to do the opposite of what professional investors do without emotional bias." Owning shares is like being in business with a demented partner, notes the book, citing The Economist. Most of the time, it makes sense to ignore the partner! The chapter on `random walk' concedes that it is always easy to explain what happened yesterday. Apart from the institutions such as the FIIs and the MFs that play a major role in the markets, the small investors too are a great force collectively. This, despite the majority of the 20 million and odd individuals not investing rationally, but acting more as a herd; they contribute to the `backlash', because their influx and exodus "adds fuel to the fire during a boom and acts as a damper when the market goes bust".

Like the proverbial voter, the individual investors too have short memories, "fortunately for the market and merchant bankers". So, the author rues that again and again the small investors "seem to totally forget what occurred a few months or a few years earlier and plunge headlong into the stock market".

Yasaswy mentions `the rain god' as `the single most important divine factor' that influences the market. "If the monsoon arrives on time and in abundance, the Indian economy booms, companies do well and the stock market perks up. A drought weakens the market and brings it crashing down." When discussing how the market anticipates future events without waiting for events to take place, he'd again return to the rain theme: "The south-west monsoon usually hits the Kerala coast towards the end of May every year. The market does not wait until the first of June to adjust. As soon as the first satellite pictures are made available around May 15, the market adjustment begins. By the time the monsoon actually hits the Kerala coast, prices of all stocks have already been suitably adjusted by the thousands of market operators all over the country."

What happens when the event takes place? "The market reaction is typically in the reverse direction," writes Yasaswy. "Investment professionals, therefore, say, `Buy on rumour and sell on news.'" Shall I rumour, "Good read"?

BookValue@TheHindu.co.in

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