Last month, I competed 10 years as a Stock Broker and while I am not sure about what lessons I have learnt other than the fact that I have somehow survived the tremulous times, it has given me a opportunity to observe and understand the mind set of people who walk in a broker’s office either as a Investor or as a Trader. This blog is more or less about categorizing them based on my observations
One of the key observations is that most investors are bullish (both of the right kind of bullish and the wrong kind of bullish, but that is for later) while most traders seem to be happy going short vs going long. Its these charlies who are generally caught like sitting ducks when markets move as it is doing now.
While Investors as a group are treated under a single umbrella, we can actually see that there are different classes of them. Some of them are categorized here-under
The All knowing Investor: This guys knows everything there is to know under the Sun. You talk about any company and he has a opinion about it. While the old chaps belonging to this category spend much of their time in the broker office / exchange exchanging views or rather forcing their views on others, the younger generation spends more time on FB / Twitter and Money Control Message Board where they ensure that they provide a opinion on a host of topics and stocks.
Most of these guys have a big portfolio to boot. When I say Big, I mean not in terms of money (as % of their networth invested) but in terms of number of stocks they have a position in. After all, what is the point in knowing so much without having a bit of skin in the game. So, while he studiously avoids the high priced stocks (with the mearage allocations, they can quickly clog the portfolio), they have positions (mostly in single and at most double digits) in a host of stocks. This ensures that regardless of what sector is moving, they have something to showcase.
The Nervous Investor: You can spot this guy from afar. After all, every time the market dips a couple of percentage points, he is the one who keeps asking, how much further shall it fall. Come bull market or bear market, this guy is constantly on his toes & gets rids of his stock the moment he thinks markets shall fall for whatsoever reason.
This is also the guy who explains to anyone who cares to hear about how he had bought Eicher when it was in double digits and MRF when it was in three digits. If only he had held on to them, he would have been a rich man by now.
The swinging Investor: These guys are known for their ability to talk about how India will do great during the next 50 years and how one should follow the buffett philosophy of holding for ever. But since they have this small trait of also being interested in trading, they feel that if markets going down, there is no point in holding onto good stocks. After all, the experience of 2008 showed that even good stocks can fall. So, why not take advantage of the same and reduce one’s average price.
The favorite stocks of these guys are the red hot stocks that are on every traders table. So, you find them talking about how the revival of Suzlon is just round the corner and whether GMR will be able to place its shares to that big investor. After all, there is no glory in holding onto boring stocks that move nowhere na.
The Conspiracy Theorist: These are generally perma bull investors who have invested in all the wrong shares to start with. But then again, that was not their fault to begin with. Its either that the promoters turned out to be sloppy or its just that the operators are still accumulating what they want and once done, the share will shoot up like a rocket.
They are able to find conspiracy everywhere. So, every rise is due to factors A, B or C and every fall is due to factors X, Y or Z. They have more or less boxed out everything there is to box.
The time pass Investor: You would be surprised as to how many a investor belongs to this category. For a lot of them, passing time at home is tough and this means that they come to the broker office after having breakfast and stay till lunch time when they quickly exit so that they reach home to have lunch and then a good nap.
But since brokers will not allow you to sit there, have Chai and do nothing, they have a active account with the major activity being placing orders for small quantity of shares to buy or sell prices so far away that they rarely execute. Most of their time is spent talking to other investors / traders / dealers (in other words, whomever is free to talk). Spending time in a brokers office is easy, what with accesss to news papers and television.
The Invisible Investor: And then, there are guys who are never seen in the brokers office but always talked about in the hush hush tone. The dealer who punches the order believes that this investor is a very well connected guy (Bombay Info?). After all, unlike other investors, this guy rarely bothers to call up but if he does, its a order to buy something big. Fast forward to the future and this stock has more than doubled (when the hell did that happen) and still the guy rarely is interested in selling other than on his own terms.
Brokers generally hate such clients for the single reason that not only do they make plenty of money in the market (more than what the broker usually does in his own investments), but also is a guy who does not pay much. A order once or twice a month cannot provide for the Coffee / Tea that is served daily, leave out other expenses.
And so, that ends the different classes of investors. Most guys easily fit into one box or the other. And then there is the big trading category, the guys who actually are key to running a brokerage office. Without then, it makes more sense to shut the office and give it on rent.
The thing about traders is that most of them are perma-bears. There would be a few perma bulls, but they are often the stray cattle. One reason for traders generally being bearish may owe to the fact that markets spend way less time on the way down than they take on the way up. So, if market moves X% in 3 months, it could take as less than a fortnight to level the whole rise. Making money when everyone else is loosing can be addictive. After all, it does not take one to be a genuis to make money in a bull market, but make money in a bear market and you are in a different league altogether.
While most of them lack any strategy to talk of, most have a basic understanding of charts (never mind the fact that they shall go against it most of the time). Breakouts / Opening Range Breakouts are among the few many a trader prefers. But its what they talk that is more interesting. Most are looking at the Big Picture and know for a fact that this macro event has a large impact and hence even though the markets are looking bullish right now, its time to Sell and not to Buy.
Its amazing the kind of contradictions they hold and the ability to talk their way through pure bull shit. If you were to meet the talented trader (not one who makes money), you shall be astounded by his information process and ability to place them right where it belongs (generally in the bearish camp). The fall in Crude prices for most is not a boon to the markets but a sign that the world markets are collapsing and we may see a collapse of a nature similar to 2008.
The rise in Gold is seen as a confirmation of how the big daddies of the world are preparing themselves for the imminent collapse. And boy, do they love conspiracy theories. Most know far better about the happenings in other countries (especially the troubled ones) that even the citizens of those countries themselves.
But the life of a trader is very short. More often than not, he exits the brokerage house after taking a total loss on his capital. But that in itself does not stop him. Beg, Borrow or Steal, he somehow manages to find capital (for most, its from Salary / Other Income) and start a new account at a new brokerage house (the reason for his previous loss lay in the inability of the dealer to punch in his orders remains his new thesis).
All in all, most brokers see clients as cows to milk since they know for sure that 5 years down the lane, its tough to find even 1% of the original lot. So, why bother with education goes the thinking. Advent of the online brokerage houses such as Zerodha has ensured that many a trader does not even have to move out of his house and yet get the best rates possible. But if one has no job or business, it’s insulting to be seen sitting at home and trading and hence even today, you find that most brokerage houses have a constant number of investors / traders sitting behind the dealers.
This post turned out to be way lengthy than I intended it to be. Hope you liked it 🙂