This is one of the phrases that we are all familiar with. It refers to a feeling that we have that something that is not with us is somehow always better than the one we have. That may be factual or fiction but all of us carry this feeling about various things in life. It is also found in dollops in the market. The stock that we own is always dog and it is only the one we don’t have that keeps running! Worse, we had a choice between the two at the time of buying and we chose one but it was the other which ran! Why is this such a universal experience? Can something be done about it?
I was thinking about this over the weekend and concluded that there could be a few explanations for its occurrence. Lets say we get three stocks as ‘tips’ from our friendly, neighborhood tipster. Now, we cant buy all three because we don’t have that much money, perhaps. More often though, it is because we cant bear the thought of owning a measly hundred shares of a winner- we want to own a chunk of it. So the first level decision (even if we are not thinking it overtly) is by the price level. Most people tend to buy the 50-wala share than the 500-wala. Next, we bring our personal ‘knowledge’ into it, never mind the fact that this knowledge is actually next to nil. Being an aware investor, one asks the usual questions about the stock or its story and the helpful tipster provides some sketchy details. Based on that sketchy information (like “there is a Defense/Railway angle in this stock for which it will become multibagger“) we start looking at the stock in a more preferred way compared to Tip no 2 (“Big people are after it”) or Tip no 3 (“Very good working for current year”). Of the three, No1 looks to be the most ‘informed’ or ‘intelligent’ buy. After all, you reason, ‘Big People’ are also the reason why Defense/Railway stocks are in demand, right? And, because the govt is (going to) pour orders like Brahmaputra in spate into these two areas, they will also have very good working too! So, among the three, Tip no 1 has the best chance to become the much sought after multibagger. And if it is within ‘buyable range’ meaning in the 20-50 range, then there is almost no hesitation. As the price goes higher (50-200), there is some hesitation and if it is beyond (200-1000) then it needs several more people to tell me the same name before you will convince myself of its potential. If above 1000, it is very unlikely that you will end up buying it! Note the level of “research” done before purchase.
Now, which of the three really move depends on (a) whether the market is ready to move higher, (b) whether the sector to which the stock belongs is in any kind of demand and (c ) whether the stock is able to attract any following. We are always swayed by the third element (stock attracting following) because that is what is most visible. But for every one that attracts there are ten others that don’t. No one quite sees that. A multitude of factors have to come together for a stock to catch some fancy and for that fancy to sustain. First, some news has to emerge. Then there has to be a a disproportionate move to that news element so that people’s attention is attracted. Then prices have to pullback some to give people a chance to enter at what they feel is a right price. After that it has to move quickly, validating your belief that it is a “good “stock. (But really speaking, you are seeking validation for ‘I am a smart guy’). This has to be followed by some continued news flow, management featuring on TV, experts recommending it in various places, WhatsApp forwards extolling its virtues and so on. This is what bring the fence sitters into the game. That is when there is a rush in the price move.
However, when all these happen, and somehow you couldn’t bring yourself to buy it (or more like you bought the other tip) you suddenly begin to don your moralistic hat. ‘Too much too soon’, you say, about the movement. Or, disdainfully, ‘Operators are rigging it, will crash anytime’. Sometimes you become an analyst (either FA or TA or both). ‘Valuations don’t permit buying here- will look at it lower’ or ‘currently its quite overbought and an impulse segment seems complete’ or some such. You are neither qualified nor competent to make those kinds of remarks but you do anyway because you have to justify to yourself why you didn’t buy it and also to others in what sounds like an intelligent decision. Finally, ‘it’s now run too much, risk is too high, will definitely pullback soon and I should really have bought this one!’
The prudent thing may be to shift to the second one that is moving, letting go of your first one that is languishing. After all, both the tips came from the same person and had an equal chance to perform! But now it is no longer the tipster but it becomes all about you! Your ego and persona have now taken over and is the driver now, even though you have very little clue about what is going on. And therein lies the rub.
As Pogo said to Yogi Berra, “I have met the enemy and he is within me”. The ironical part of the markets is that everyone you meet means well- he wants to pass on ‘helpful’ information. We should learn to dissect information and our own feelings towards them. That will be the first step towards being able to act on useful information, being able to tell apart junk from value, develop the detached view that is so necessary etc. etc.
So the next time you feel that stocks other than the one you hold are the only ones that moves, take a look at yourself. The fault probably lies in there somewhere.