Dear Small & Irrelevant Investor,
You must be surprised to receive this letter from me – the ever-so-busy Stock Market Analyst working for your friendly, neighbourhood broker.
But you see I have been enjoying some free time these days because the markets are weak and people are not buying stocks, and thus not reading much of my recommendations.
So here I am, sparing some of my precious time writing to you. I am heart-broken reading all the maliciousness that is being spread these days about me, and my graceful profession.
I’ve even heard that there is this guy called Vishal Khandelwal who’s running this funny, charitable, new website called Safal Niveshak (sounds similar to “Suffer Niveshak”! Ha-Ha-Ha!) and is trying to throw a lot of s**t on my work…but I’ll handle that later in this letter.
You see, it’s not that I am not used to malice – but then you must have seen dogs bark at the sight of a strong, ravishing elephant. Let me clear here that I am that strong, ravishing elephant!
It’s just that I want to tell you “my side” of the story and why you must stop trusting those who are spreading words about how unethical and distrustful my profession has become.
Let me tell the critics that I am not the one to be blamed for whatever I’ve done over the past few years. There have been several factors that have contributed in shaping me, and I’ll talk about them below.
Once upon a time…
I still remember when I started my career as a stock market analyst, I knew that I didn’t make this world, and so it didn’t satisfy my equations.
I then understood that my work may have enormous effects on society, many of them beyond my comprehension.
I understood that my analysis and views could make the difference between a comfortable retirement and a miserable one.
I understood all this. And I promised myself to be an honest, hard-working guy I had always dreamt of becoming.
But then, you see…the weather has been terrible over the past few years, which led me to completely lose focus on where my career was headed.
I have faced severe floods of job offers that priced me at money I never imagined (or deserved).
Then there have been several periods of drought when I could not find any good stocks, but had to recommend duds (see I’m being honest with you!) or otherwise my owner – the broker – would’ve had to shut shop…and fire me from my job.
In all, I’ve dedicated my entire life to the well-being of my owner, and live my entire waking hours serving his interest, because that also serves mine.
You might’ve sometimes seen me on the television, offering my advice on stocks I don’t understand (but you don’t know that, right?).
But, let me tell you the truth now, or it’s going to kill me.
Those views I offer on business TV – whether on a stock that is going to double, or on the entire market that I see crashing, or on inflation that is rising faster than my salary in these bad days (sob…sob!) – are actually those I’ve been asked by my owner to speak.
Of course, the views are fully backed by my analysis, but let me also confess that my analyses is backed by my owner’s analyses. After all, it’s not anymore about his broking business but also about his investment banking business.
So there might be a lot of times you might hear me asking you to buy a stock because my owner is looking to strike an investment banking deal with that company. And in any case, I recommend more ‘buys’ then ‘sells’ simply because there are so many companies that my owner wants to tap to earn the bulky investment banking fees.
Anyways, don’t blame me for all the dud stocks you have bought based on my advice over the years. You see, I have been afflicted by a lot of grave mental disorders over the past few years, which have snatched even the last bit of rational thinking from me.
So now, I don’t have any control on what I write and recommend. And thus it’s entirely your responsibility to take control of your emotions before buying into my written and spoken words.
I’m sure you might be interested in knowing what mental disorders I’m suffering from.
So, here is a small list that includes some of them. I can’t list down all of them in the public domain (or what will you think of me!).
Believe me, my hands are sweating, my body is shaking, and my nerves are cracking as I write to you about my serious mental disorders, some of which you may have never heard of. So your discretion is advised.
Plus, I beg you not to show this list to your children or they will start to wonder if God can really be so crazy!
7 mental disorders I, the analyst, suffer from
Let me start and finish fast, for my owner is pestering me to work on a brand new company…because investors are not buying my old ideas anymore, and thus I’m at the risk of losing my job!
1. I suffer from ‘black swan’ disorder
Or why did you think I called the 2008 bust a “black swan”? Of course, it was the simplest way for me to abdicate my responsibility of warning you when things were getting overheated, and valuations had reached unrealistic levels.
In hindsight, I knew things were going to fall off the cliff, but I suffered from the black swan disorder that helped me cover up all my faults.
I don’t remember but I read this somewhere about the black swan disorder…
Think of it like the mentality of turkeys in the run-up to Thanksgiving. Every day a kindly human turns up to give them water, feed them, and tuck them into bed. Then one day this same kindly human commits turkey genocide! From the turkey’s point of view this is clearly a black swan. From the farmer’s point of view it is anything but.
In the stock market, know that you are the turkey and I am the farmer.
2. I suffer from over-optimism
My MBA degree in finance, plus my CA and CFA qualifications have led me to believe in the song – “Always look on the bright side of life” – and that’s exactly how I’ve been looking at the stock market for long.
This is not because I am not good at looking for the bad news (see my over-optimism!), but because I believe if you see the world the way it really is…then you are the clinically depressed. And I don’t want to suffer from that depression!
So whether it is my earnings forecasts, stock recommendations and price targets, you can see my over-optimism everywhere.
I am especially over-optimistic about the companies that do investment banking deals with my company. Believe me or not, my price targets for such companies are, on average, 80% too high versus only 20% too high for companies that are not involved in raising money through us.
Now, don’t ever think that I lie in my recommendations, even if I sound so overly upbeat that my forecasts of earnings and stock-price targets are hardly more accurate than falsehoods.
Of course, this over-optimism and the inability to see the darker side of stock market has captivated me for long, but that’s the way I’m wired to look at things.
So while I know that this is a grave disorder that will put me (and you, who follow my advice) into dangerous situations time and again, know that here is something over which I have no control.
3. I suffer from illusion of control
Okay, while I believe I don’t have control over my mental disorders, I think I still suffer from an illusion of control over everything else – like EPS and price targets of stocks I track.
I think, or let me say, I believe that I have influence over the outcome of these and other uncontrollable events. I think that even if something does go wrong, I will be able to sort it out.
Now while people call this a mental disorder, this is one thing I’m proud of. And that’s one reason (that I have the control over the uncontrollable) I think I’m the master of the universe.
4. I suffer from distorted incentive disorder
You may know it or not, but who cares! I am paid for the amount of commissions I help my owner (broker plus investment banker) earn, and not based on how my stock recommendations perform.
That is why you can see me almost every week on TV recommending new stocks, and rarely recommending a ‘sell’ on a stock.
The equation for making ‘buy’ recommendations 90% of the time is simple – once I ask you to buy a stock, I also ensure my owner his next commission that will come when I ask you to sell that stock. But if I ask you to ‘sell’ stocks, we lose out on our future commissions.
By the way, thanks to my repeated buy recommendations, and subsequently the great business my owner has been doing for years, here is a rough chart of how my salary has risen over the years, as compared to the rise in Sensex.
I’m sure you’re feeling jealous on seeing this chart, but then that is the price I’ve earned by working in a smart profession where I need to pump a stock recommendation just once, and then dump it on to thousands of foolish investors…and in the process making my owner and myself rich!
You can’t even blame me for this regular pump-and-dump activity, for it’s you – the investor – who has chosen to believe me. I never forced you!
Anyways, there’s another side of this distorted incentive disorder. The commissions my owner earns from big, institutional investors are much-much more than the peanuts you pay for trading with us.
Thus, a stock that I might recommend as a ‘buy’ to my institutional client, I might recommend as ‘sell’ to you (or vice versa).
Now stop cursing me for this distortion because I am not alone in the game. I’m sure you must have heard of this instance where a leading competitor of ours sent out two reports on Punj Llyod (a company I once loved), with two different views, and on the same day!
See, I also have a proof or you might think that I’m just kidding to cover up on my disorders!
As I’ve learnt, the first report above (with a ‘buy’) was only for their “private client group” and the second one (with a ‘sell’) was a free report for the masses (you included).
Again, this was not an isolated case. I read about a technical analyst Mathew Easow who was caught by SEBI in 2006 for issuing ‘buy’ recommendations on stocks he was selling from his personal trading accounts!
So these distortions are normal to me, simply because the incentives in our industry are abnormal.
But why should I complain when I just love the sound of so much salary credited to my bank account at the end of every month.
I’ve not yet talked about my annual bonuses, but then let me not add to your jealousy!
5. I suffer from EMT
Of course, I know how to pick stocks that can become multi-baggers in a few years (if not me, who can?).
This is despite the fact that I suffer from EMT, or Efficient Market Hypothesis disorder…and thus believe it’s impossible for anyone (especially you, the small investor) to outperform the stock market.
I am a firm believer in the CAPM (Capital asset pricing model) theory of valuing stocks, despite anyone saying that this has many failings. I also believe in the “Beta” of stock, and thus believe that a stock’s price can be useful in calculating how risky a company is.
You may think this is ridiculous, but so is your belief that you can use that failure of a strategy called “value investing” to beat the markets!
6. I suffer from LOA
That’s “lack of accountability”!
As I’ve written above, my salary is dependent upon how much money I help my owner earn via trading commissions, and not on the performance of my recommendations.
So I don’t feel any accountability towards my clients, especially when the client is a small, insignificant guy…like you. (I’m sorry for belittling you again and again, but please don’t blame me for that. Blame my mental disorders!)
In simpler words, I work in an industry where “heads I win, and tails you (the investor) lose.”
7. I suffer from myopia (not of the eyes)
While I have a great pair of eyes that can easily spot great stocks, I am a staunch believer in the philosophy of “eat, drink, and be merry, for tomorrow we may die.”
Of course, this ignores the fact that on any given day we are roughly 26,000 times more likely to be alive than dead. But you see, in a world where short-term profits are valued so highly, it is exceptionally hard for me to focus on the long-term picture.
Again, this is something that’s not under my control!
That’s all from me
These are just some of the mental disorders that I suffer from, and that has caused you to disbelieve me at times.
By the way, I recently heard of this guy named Vishal Khandelwal, who himself was an analyst some time back – though not with a broker and thus probably suffering from fewer of such disorders – but is now trying to wash his sins by trying to educate people like you to become your own research analysts. Huh!
I also came to know that he is trying to tarnish my image, which he will never be able to do.
While you must avoid him at all costs, if you still meet him, tell him I HAVE NO REGRETS about whatever I have done with investors over the past many years…simply because things have never been under my control anyways.
Also tell him that he is a fool to have left such an amazingly well-paying job to live the life of a “masterji” (teacher) not knowing where he is heading in life!
As for me, well I’m heading to my Head of Research’s cabin to discuss my next hot stock idea, and also my upcoming bonus!
You stay where you are, for whatever this Vishal guy is telling you, I’m sure you’ll isolate him and come back to me when the time turns bullish, and you need some bull***t.
Before I close, here is a small video I love because it depicts my story of how I became the master of this universe called ‘stock market’. Click here if you can’t see the video below.
If you are confused about who is who in this video, let me clarify…
This is ME, the master of the universe…
This is my ‘BUY’ recommendation’…
This is YOU in a bull market (see the aura I’ve created around you using my ‘buy’ recommendation, and see how powerful you feel)…
Anyways, I hope now you can empathize with me, and appreciate how, despite having all the right intentions towards you (the investor), I have not been portrayed in the right light!
I would love to read your reply to this letter in the Comments section below.
Remember, this is your one and only chance to tell me something about how you feel…because I generally don’t have much time to waste listening to a small investor like you.
At your service,
Your friendly Stock Market Analyst