The Hindu Business Line : `Stick to what you understand'

WHEN so many feel-good sound bytes are emanating from various quarters, it is difficult to take an overly contrarian position. Mr D.P. Poddar, a stockbroker who has been in the market for 30 years, just stops short of adopting an extreme stance.

Nevertheless, he strongly warns against "reckless buying", which, he says, many investors have lately done. "The effect can be devastating", he adds.

Are you telling people to stay away from this market?

No, I am advising them not to spend money on trash. Let me explain. A lot of investors have taken positions in small-time, little-known stocks. Not all bring value to the table. Transactions in these counters, at least in a large number of them, are thoroughly speculative.

Rising prices beat logic in so many cases. I do not wish to name anyone, but it is obvious that some people are gaining from abnormal movements by doing nothing to deserve it. And those who are coming in blindly are likely to suffer. Sooner than later, it will happen. In fact, this has occurred every time when artificial sentiments are created.

The other, and saner, view pertains to longer-term involvement. Investments in dominant, well-run companies can be recommended if such decisions are not for the short-run. I am referring to the ITCs or the Tata Steels of the world. Buy now if you can afford them - and simply stay invested to reap the benefits from serious commitment.

So, many investors are just being foolish...

Well, they continue to chase even Z category companies with great zeal! Look at how some of these scrips have soared. A move from Rs 5 to, say, Rs 15 can just happen in a matter of days. Nothing specific here - I am merely citing an example. The point is, investors are not delving deep enough; they are not asking the right question. In other words, greed is spawning more greed.

Don't you stockbrokers have a role here?

As a broker, I am not in the business of creating confusion. And there is a great deal of confusion in the minds of many investors. The reports and analytical material released by some broking outfits often compound the problem.

Suddenly, investors are confronted with attractively-packaged ideas, sometimes branded as "stories". Also, there are a number of quaint theories adding to the buzz. Take, for instance, `multi-cap'. Some mutual funds have recently taken this to the doorstep of the average investor. It is all very jargonised these days.

Does this tempt us even more?

Yes. The market simply lures the habitual risk-taker. If the latter is an HNI, he will probably not think twice before he buys, say, 50,000 shares of stock worth Rs 8. After all, it is only Rs 4 lakh for him. He can stomach a loss without shedding tears. Not so for a small retail participant. He can end up getting hurt badly.

Is there no redemption for a small player?

Stick to what you understand, know your limits, do not be enticed by falsehoods. Those should be your mantra. You cannot buy all the stocks in a bull run. You can only buy some. These may be reward you if you are patient. The market knows the rules well. The great investment gurus teach them. The textbooks document them.

Yet, after all is known, taught and documented, we are still making mistakes. That disturbs me.

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