The title of this post is inspired from Ch. 18 of Peter Lynch’s One Up on Wall Street, that reads – The Twelve Silliest (and Most Dangerous) Things People Say About Stock Prices.
For today, I have just added to and removed from Lynch’s list, and have illustrated the silliness using real-life examples of listed Indian stocks. None of what you see below portrays my view on any stock showcased in this post. These are purely examples, and that too from the benefit of hindsight. But they offer meaningful lessons.
Anyways, before you read ahead, please understand that I agree with what Morgan Housel wrote recently that people are not crazy in general. Just that they can…
…be misinformed. They can have incomplete information. They can be bad at math. They can be persuaded by rotten marketing. They can have no idea what they’re doing. They can misjudge the consequences of their actions.
I also agree with Charlie Munger who said that even smart people may have their ‘streaks of nuttiness’ that cause them to make occasional dumb remarks and decisions.
So, what follows below showcases just those moments of nuttiness and craziness that get a lot of people into problems in investing. I have experienced some of these moments myself, just that I have managed to survive to tell the tale. 🙂
Anyways, let’s get started right away with the sixteen silliest and most dangerous things people say about stock prices, but in no particular order of silliness.
Takeaway: Please do your homework, even if you’re cloning the best investors out there.
Takeaway: No time is different in the stock market. History does not repeat here, it rhymes. If you take undue risks, you will be penalized. There’s no getting away from this.
Takeaway: Trying to the catch the “next something” can be disastrous. Consider each business on its merit.
Takeaway: One, a stock that falls 95%, first falls 90%, and then 50%. Two, cheapness in stock price does not mean value in the underlying business. Whether a stock costs Rs 1,000 or Rs 10, you still lose everything if it goes to zero.
Takeaway: Avoid IPOs as a thumb rule. They are priced beyond perfection. And please avoid all mothers and fathers of IPOs.
Takeaway: Don’t look at a stock’s price while making a decision. Look at the underlying business.
Takeaway: Don’t torture yourself with the regret of what you’ve missed. Remember, each day is the first day of the rest of your life.
Takeaway: Companies are dynamic entitites. They change everyday, and so do their future prospects. You cannot afford to buy and forget any stock.
Takeaway: This is a lazy and weak argument to hold on to your mistakes and/or losing businesses. Accept reality, especially when it’s painful.
Takeaway: Thomas Phelps wrote in his book – To make money in stocks you must have “the vision to see them, the courage to buy them and the patience to hold them. Patience is the rarest of the three, but with sound businesses, it pays off in the long run.
Takeaway: One, a Rs 1,000 stock can be cheaper than a Rs 10 stock, as price-to-business reality is much more important that price alone. Two, there is no arbitrary limit to how high a stock can go, and if the story is good, earnings continue to improve, “can’t go higher” could be a dangerous belief to hold.
Takeaway: You can never tell when a stock hits a bottom, till it goes to zero.
Takeaway: To borrow from Warren Buffett, turnarounds rarely turn around.
Takeaway: One, never try to make money the way you lost it. And two, if you find yourself in a hole, stop digging.
Takeaway: Really? Fund managers are as human as we are. They suffer from the same biases as we do, plus more. And they are prone to make bigger mistakes than we do, because they think they cannot make mistakes.
Takeaway: One, never buy a business you don’t understand. Two, especially when such businesses are run by people who seem smart and can’t seem to do anything wrong.
Final Takeaway
This is, in no way, an all-inclusive list and there are a hundred more ways to lose money in the stock market. I may someday write a book on the same. 🙂
Also, if you can relate to some of the silliness as portrayed above, don’t beat yourself for it. Take the lesson. Move on.
Anyways, what are some other silly and dangerous things people say about stock prices that you can think of? Add in the Comments section of this post.
Ray Dalio comment at the Start of 2018….whoever sits on cash will feel really stupid ….
Buying NBFCs in 2017 – even if you have 50% of portfolio in financials its ok as they are only ones with maximum growth visibility…
Thank you very much for providing such a great insight. I used to believe that stock markets are rational in the long run, but I don’t find here. What moral should I take from here ?
Very good reminder for all time.
Thanks!
You definitely should write the book regarding your experiences in stock market… It will have great insights…
Demurger of xyz vertical will “unlock” value…..Sintex / Lasa Supergenics / Talwalkar and list will go on and on and on…
Same is for buybacks….once company announce Buyback…Retail investor wants to buy based on 50-70% acceptance ratio and after record date sale rest and make money but it never works.
Nicely written. I have heard a lot of commentaries around price levels and you have covered almost all of them. I really liked the pictures and illustrations on them. The takeaway from this: If there is a change or no change in price, just look at the business health, not the headline.
Sir , Any thoughts on CASH management in portfolio.
It depends. At 35, you don’t need to get so much cash. At 70, I have a lot of cash, not to time the market, I will need this cash when I’ll retire in two years. I can’t afford a crash and wait seven years for a rebound. Seth Klarman and Warren Buffet keep a lot of cash.
What I found interesting was, one of the stocks you mentioned in the list above is a business I own.
My first reaction was, “Oh God! Is this a sign that I should sell the business?”, My brain connected that to,” Vishal has mentioned it now in a post where he called attention to silly reasons how we can lose money in the market!! Is this a sign I might lose my capital?”
Then my rational side took over. I saw those reasons you mentioned. I bought the business for NONE of those reasons. Then, what you wanted to convey was understood.
Funny how the reptile side of the brain reacts faster before the rational side has to wake up. It reminds me that I need to take a deep breath and rethink before I react. Key lesson learned from my reactions to this article.
Next time I am looking to buy a business, before I click on the buy button, I would like to come back to this post and make sure I do not fall into any of the “silly reasons” category for buying a business ( and I will always remember that this is not an exhaustive list of silly reasons 🙂)
Thank you Vishal!
Best,
Ram
Buying a good asset at a good price v/s Trading Price are very different. Since both can be done via stocks, it is easy to get confused, even fool ourselves.
So basically dont invest in the stock market. Cause sure as hell no average investor can take such psychologically intense burden of so many potential mistakes and pitfalls.
nice views
Skeptical and realistic is the view that should never be abandoned, that is the way to find a good margin of safety. Thanks to Safal Niveshak.
No body, not even God can predict this market. Many a analyst either are biased or look the way wind is blowing. A small blip in Timbuktu can crash the market or a hearsay may catapult a counter, both without any reason or rhyme.Can a sound business become useless just because a director resigned, eg. Yes Bank. There are no longs at least.Do not ever leave the profit on the table whatever it is.
Tata Motors : Its a bluechip, India biz is picking up, it would bounce back.
That’s for sure
Really a NYC explanation and to be followed. But in stock market, mistakes are bound to happen. One has to learn from past mistakes. Buy business and not a stock at reasonable valuation for long term. There is no high and low limit of any stock. Even a large cap may be a micro cap and vice versa. Thanx Vishal for all of us enlightenment
Marketed as ”Lakh Crore Ki Kahani” some HFCs like Canfin, DHFL, Repco remains only 1/3d in few months.
VERY GOOD POINTS AND LESSONS. I WILL LIKE TO ADD SOME MORE.DO NOT TALK ABOUT STOCKS WITH YOUR FAMILY MEMBERS AND FRIEND AND DO NOT WEST YOUR AND THEIR TIME. DO NOT THINK THAT BY WATCHING STOCK PRICE EVERY MINUTE YOU WILL GAIN SOMETHING. NEVER NEVER SALE ON BAD NEWS AND BUY ON GOOD NEWS. YOU CAN NOT INVEST BY TAKING ADVISE FROM EXPERTS ON TV/NEWSPAPER. EVERYDAY YOU WILL GET MINIMUM 25 BUY AND SALE RECOMMENDATIONS.
Good article. One more silly reason or mistake people do is buying when bonuses or splits are announced.
Fortune,fraud,failure are found in stock market ,only time reveals them , but we play deliberately with greed and seldom we gain but often part with our money in the market , Tata Motors a company from a glorious industrial house started before independence has failed to return the interest since last seven years ,Tata Power is almost a similar case ,when Tatas fail to foresee it needs to be pondered over looking their TCS .
The stock market is called satta bazaar in Hindi which in English translation mean gamble. So in gambling you win and lose time and again. Also it is addictive.
An ant can also kill a elephant so an operator does. He manages to crash or rebound an stock to around 25 percent in a single trading day. One must be aware of their holding ratios in stocks.
I’ll be waiting eagerly for your book.
As it is said that “Life is too short to learn from your own mistake you have to learn from others”. As Charles T.Munger have pointed out that only the wise people generates the real wealth.
So sir please share your experiences with all of us I’m pretty sure that every wise person will read it.
Wow, it`s amusing – while all of us know these mistakes, yet we make them , repeatedly many times.
I made the MOST of these mistakes. I had every stock in this except for good boy MRF , Swaraj engine, Gati at some point in past 13 years. Almost lost my shirt then.
Booked heavy losses in Suzlon, JP, Relcom, Unitech, Manapasand, many Infra stories in 2009-2011, all possibles ones you can imagine.
And, I`m lucky to have survived and still in the game. 🙂
I`m glad that I learnt lessons and didn`t run away. Doing reasonable well in equities these days.
Thanks Vishal. Do write a book. Or compile your articles in a book, I`ll be among the first buyers for sure.
God bless you!
You should also write your silly mistakes as you r pointing others mistakes
Few stocks correct when the market is in the uptrend, many will follow the trend. we cannot generalise any stock.
Do not believe a company, trying to change the name without any reason.
Do not believe in companies who demerge and not try to hold price.
Many times delisting companies,
Buy back companies are genuine.
Shree cement eicher motor jindal vijaynagar are big turn around. So comment on turn around will be depend on case to case
Vishal, you are superb in Observing, Compiling and Presenting. Your thoughts are definitely a guiding force for us. May God give you strength and wisdom to continue with your mission. I find this to be the best piece in visual form. Thanks.
Vishal,
Nicely explained. However, none of stocks here are investment grade stocks. It was a no brainer avoid. (Except for Eicher/Mrf which are used for explaining regret.)
People are actually bored of these vakarangee, manapasand, kitex kind of stories written repeatedly. It would help if you could write about your mistakes. ( not necessarily about regret of selling quality stocks early). That will help your readers.
Well I am too new to the game just dipping my toes into stock market after good returns in mutual fund , and out of all the points I liked don’t buy what you don’t understand for eg, I didn’t understood rain industries and was taught a good lesson to remember , so I avoid high PE stock with low dividend yield no matter how much the stock price is rising , One will make mistakes in stock market as no one is perfect but we need to learn from our mistakes ( so I like adani gas business but not the price (current PE 71 ) with industry average around 10 , let it be a genuine price so that i do not over pay even if every one is overpaying
V.Good article…made me think twice on the equities i thought that i would hold it for lifetime. Need to check its worthiness from time to time.
Eye-opener for me.
Thanks for sharing.
Many of the crashed stocks listed in the article are got into some or other serious issues like Corporate Gov, Auditor quitting, decline in business, debt burden, competition and horrible management. One could see clear downtrend in revenues and profit.
However DHFL is an exception. In the worst moment of IL&FS episode, a silly issue led the crash in DHFL counter inspite of good fundamentals, growth in revenues and profit and no default.
Inspite of great amount of research, scrutinizing annual reports/investor ppts for several years , visiting and observing lending points, following every article and its brand evolution, DHFL episode as an investor taught me a great lesson. Don’t go overboard on any one stock.
We all are blessed with the gift of hindsight analysis.
These were quite hilarious. Keep up the great work.
A Popular saying by stock activists on TV during mania in 2017 –
“A lot of steam is still there and it has no other way than upside”.
Very good article…made me think twice on the equities I thought that I would hold it for the lifetime. Need to check its worthiness from time to time. Thank you.
Nice work. I’ve made almost all of the stupid mistakes. So now I’m ready to start a new era with despised Canadian businesses.
This article is a gem. Clears many doubts about investing.
I invested in JSLHisar at 188 levels by seeing its previous trend. Today it’s trading at 90.
DCF analysis says its price should be more than 1000 per share, but seeing the pledged percentage I am doubtful.
Please clear this too. 🙂