Keeping up with the Joneses

The last couple of years has been fabulous for a large variety of shares. While good shares (large cap) have appreciated a bit, it really has been the season of small caps with many of them showcasing (at their peaks), returns in excess of 1000%, this when the larger market had really gone anywhere.

Most investors are rational and know that they really cannot generate the kind of returns you can by investing in stocks where you really are clueless both about the company and the business it runs. But too many get swayed by the emotions and profits that such moves are accompanied with.

When everyone out there is showing how great their picks have been, its tough to stay calm and be a observer of things believing that normalcy is around the corner and this is just a short term phenomenon. On Twitter and WhatsApp, where I find a large amount of time, its Lake Wobegon affect all over. Everyone is happy to share how the stocks he has picked doubled / tripled (after which its only showcased as having returned some random number with a X suffixing it).

Some of these winners are genuine companies with a great business model that was left un-noticed for a long time but is now coming into the lens of the Institutional Investor. But then again, there are stocks which have gone 10 / 20X for no dime or reason and unless one has the ability to understand the difference, its easier to get into unworthy companies and the worthy turnaround ones, its easier to fall for the unworthy since they really make a lot of noise.

Much of the noise in retrospect is made by guys who picked it up early and are enjoying the returns. While its nice to have such ego boosts once in a while, since most of the time, one is clueless about how much (say as % of networth) he has really risked, it becomes a tale where your imagination is the key.

Digging a bit deeper, most of the time I find guys who claim big to be sellers of subscription based products. Its impressive as to how good they are in their ability to find great investments / trades for their clients and all that for a small fee.

Being a trader, one of the few record keeping trader I follow is @liveNiftyTrades who trades Nifty using a systematic trend following system. Recently, he changed the system and started from a scale of Zero after a year or more of under-performance in his old system.

Right off the bat, it seemed as if this system was designed for Glory as he racked up impressive gains in a very small amount of time. While I generally do not get affected by the profits generated by others, the kind of gains he logged in made me work on whether I was missing something (as my system was nowhere close to generating even 25% of the profits he had made).

But thanks to my mentor and saner thoughts, I was able to continue trading what suited me rather than try and devise a system that was not suitable both in terms of risk and time commitment it requires (shorter the time frame you trade, more the requirement to be in front of the system). Today as he closes his trading account (hopefully temporarily), I understand how fickle that thinking was. But when I look again at those who claimed the multi baggers, even with markets being down big time, I see no one accepting that they went wrong in a few stocks. Its as if, stocks that they were recommending (and many of which are now on the reverse path) are no more in the portfolio.

Instead, now I find a new set of guys who claim to have foreseen this fall and predicting a apocalyptic ending to it. Its their time in the Sun now and if you get swayed by their predictions, do remember that just like the setting of the sun, even this bear market will end – the only question that remains is how many remain to see the dawn of the next day.

Every bear market throws out weaker investors / traders who weren’t prepared for what the market dished out. But if you are able to survive one such market, the lessons learned will come handy for the rest of your life.

As a adage says “This too shall pass”.