We’ve all been fooled by some prank on April Fools’ day or for that matter on any random given day. And as tempting, as it can get to fool readers, the folks at smallcase decided to change the game and help investors debunk pranks by the market this year.
Atanuu Agarrwal, Co-Founder and CEO of Upside AI along with Srikanth Meenakshi, Co-Founder, PrimeInvestor and Arvind Kothari, Founder and CEO of Niveshaay have taken it upon themselves to talk about 14 times the market fooled investors.
Atanuu Agarrwal, Co-Founder, UpsideAI
- “Modern humanity is sick with FOMO – Fear of Missing Out – and though we have more choice than ever before, we have lost the ability to really pay attention to whatever we choose.” – Yuval Noah Harari. Markets often fool us when we fall prey to FOMO.
- One of the most famous examples is of course when Isaac Newton, lost a fortune on a “hot” stock (South Sea) bubble.
- But this happens very often in modern times as well. Look at Sensex’s behaviour between 2006-and 2008. In 2006, the Sensex went up 47%. I am sure a lot of folks were expecting the market to correct but next year, in 2007, the Sensex went up another 47%. Now there was a ton of irrational exuberance around and bullish investors probably felt invincible. However, in 2008, the Sensex went DOWN 51%! and the tables turned.
- Most times when investors are “fooled” by the markets it results from the inability to accept that they are wrong. On average we don’t seem to be able to learn from history, as the age-old saying goes – “fool me once, shame on you; fool me twice, shame on me”.
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Titans smallcase by Upside AI
Arvind Kothari, Founder, Niveshaay
- What Initial Public Offering, its FOMO of double your money in 25 days!
Naïve investors get trapped by the fear of missing out. This extreme FOMO of IPO hype is now taking away all the CASHBACK they received leaving no money in their wallet to buy POLICY from the BAZAAR.
Bought the dip and became the dip.
Both such stocks and advice are nothing but end up becoming SIN (TEX).
Just when you thought that now the markets are going to be up, the market fooled you!
- Fooled by Randomness
People consider luck as a skill. In the eyes of a market fool, losses always happen due to bad luck, while profits always come due to skills.
- “Taare Zameen Par” nahi hote!
You come across some companies available at cheap valuations and get lured to buy them. Not every time those stocks are hidden gems but a value trap. They are undervalued for a reason and investors miss onto those reasons and get fooled.
- It’s all about Timing
We always wait for the right time to invest and whenever we do that, we end up losing.
Green Energy smallcase by Niveshaay
Srikanth Meenakshi, Co-Founder, PrimeInvestor
There are multiple instances of people getting fooled in the markets, but of course it is debatable whether the market fooled the investors or if the investors fooled themselves. Most times, it is the latter, but there are times when the market behaved in a deceptive way to lead investors astray.
- The 2020 head-fake - the most recent and memorable instance of market fooling investors was the Covid head-fake of March 2020. Markets dove with concerns about the global recession with the onset of the Covid pandemic, and investors, logically, ran for cover. But the subsequent liquidity infusions across the world and stimulus packages created a sustained bull run across the board making those who exited the market in fear look like fools.
- There were several times when investors got deluded by 'narratives' without focusing on the fundamentals. Obviously, these happen during irrational bull runs when people are looking for excuses to deploy money and instruments to invest in. Around the turn of the century, it was all about eyeballs and traffic that led to the tech bubble. About a decade later, the capex bubble of 2007/08 was about land banks and order books. Even in private equity markets, a few years later, it was about GMV. Every single one of these times, asset prices were inevitably subject to the gravitational pull of revenues, earnings, ROE and other fundamental metrics. These narratives fooled investors into believing that this time the market would rely on other metrics.
- Investing in companies that are on their way to oblivion - for some reason, when it is clear that a company has entered into bankruptcy proceedings and is in the process of getting liquidated, investors still find an excuse to keep trading in the stock waiting for some miracle to happen. The most recent example of this was the case with DHFL where the shares were ultimately extinguished leaving these speculators holding the bag. Other examples include Jet Airways and Jaypee Infratech.
- Finally, there is always the 'rug-pull' that happens when markets start celebrating new public offerings and raise valuations to the stratosphere. This classic case of 'lift and spike' happens often, and most recently in 2021 when the bubble burst spectacularly with the advent of Paytm's much-hyped issue.
PrimeInvestor Financial Disruptors smallcase by PrimeInvestor
Well, here’s to hoping that these 14 cases of Mr. Market’s pranks don’t get hold of us investors gain.
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