Friday, November 23, 2007

The "Bus" effect

Just imagine a lazy Sunday afternoon, you are standing on the pavement (perhaps under a shade, just so that the laziness persists) and are watching buses go by. So far, so normal. I mean, what's wrong with just watching buses anyways. But now imagine getting phone calls from those who actually boarded those buses and are now telling you of the cornucopia unleashed as a consequence of that ride. Now you wish you too would have joined the bulls as they rode on their gravy "buses", the sound of their resounding bank balances echoing in their every breath. And then these stories become legends, and you start hearing of uncles who had bought L&T shares for a thousand INR, or of your friend's mom who (on a broker's recommendation of course) had stocked up NTPC at 160 INR, and so on...
And then, it strikes you... here you are, with all those stocks somewhat out of your reach, while those aunties and uncles are buying real-estate with all that windfall, and while you impatiently wait for corrections, you realize you have just been hit by the bus effect (perhaps being hit by the actual bus causes less trauma).
This is what happened to quite a few Indian investors near Diwali, where more fire-crackers were lighted not to celebrate of Ram's victory over Ravana (how many of today's kids know those stories anyways?), but certainly because of Sensex' victory over the 20000 barrier.
The 20000 phenomena resulted in what is the opposite of panic selling -- panic buying. The equivalent of it (in our bus analogy) being a situation where you just hop on to the first bus that comes your way, without even looking at the route number. Though thankfully (as is usually the case), it were the upper middle-class retail investors who were the hardest victims of this malaise (remember, our FII and hedge-fund friends have everything planned out, well, almost...).
That phase is still somewhat in progress, though the risks of not reading the route numbers are now becoming evident as these investors find themselves in the middle of the desert, while FIIs continue to sell (and probably will continue till December ends), the markets continue on a partial correction course (some pockets of over-valuation still rule the mid-caps).
For those still on the pavement, it might be worthwhile to do some homework. Afterall, some buses come with only a one-way ticket...

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