Long ago…in a village infested with monkeys…a trader came and announced he’d buy monkeys for Rs 1000. The news caught on. And more and more villagers were catching monkeys to make a quick buck.
After a few days, the trader hiked the buy price to Rs 2,000. The villagers fought over the remaining monkeys. And when the trader hiked the buy price to Rs 5,000, the villagers began risking their lives going deep into the dense forest to catch more monkeys.
Before long, no more monkeys were to be found in the village or the forest. That’s when the trader announced he’d buy monkeys for Rs 10,000 on his return to the village in a week.
The villagers felt sad and helpless that they couldn’t take advantage of the opportunity.
But the trader’s accountant, supposedly acting on his own, told the villagers that he would secretly sell some of the trader’s caged monkeys back to them for Rs 7,000 each.
Realizing they could still earn a net profit of Rs 3,000, the villagers queued up to buy the monkeys from the trader’s accountant.
While the rich villagers bought many monkeys, even the poor ones borrowed money to make the most of the opportunity. Who could leave a neat Rs 3000 trade on the table after all!
As the news spread, people from villages far and wide turned up to buy the remaining monkeys. Then they all waited patiently for the trader to return and buy the monkeys for Rs 10,000 each.
But the trader never returned.
The villagers were left with monkeys and a loss of Rs 7,000 on each one.
The story above has been repeated to death in financial markets, but the lesson always seems fresh and relevant. As the Earth sets upon yet another 365-day voyage across the Sun, few of us would turn out to be smart investors and many of us would be left holding our monkeys at the end of this calendar! This theory is called the “Greater fool’s theory” in Economics.
All of us (market participants) are trying to make intelligent calculations to figure out the level at which we wiggle out of this journey. Whether we get out at Rs. 1000 or Rs 2000 or Rs. 5000 – is what all of us need to decide on. It’s too tempting to stay out and see people make insane money trading in monkeys, even though we all know deep within that Monkeys don’t have that kind of financial value. And blessed are those rare few, who are happy and content, sitting patiently, just not participating in this circus. And even better, are the investors who don’t believe in this monkey trade, and are happy holding their conviction trades which might not be showing this crazy momentum but certainly carry some intrinsic value.
As we crystal gaze Calendar year 2022 – we are clearly left with three options. And each one of us will have to unequivocally choose the path which is our individual calling. Without any prejudice, we list down all three varieties.
- Its my Monkey, its my Circus – This is the brand of brave-hearted, nimble-footed, trend-catchers. The ones who believe in easy money, the ones who think they can trade in any stock (even if those are the monkey stocks) and catch the momentum right. For these traders, fundamentals don’t matter, quality is least of concern, cash-flows are bookish concepts and profitability is just not a criteria. These are in the circus to catch the next bet, make money out of monkeys and they certainly think they are smart enough not to be fooled by smart accountants (read that as promoters, VCs, institutional traders). These punters are easily identifiable amongst the diaspora – they are the ones talking on social media printing their daily returns, they are talking in family & friend gatherings about the next IPO or the hot tip which is hitting circuits, they are the ones putting applications for listing gains without even knowing the business, they are the ones writing options and collecting premiums without even realising that one institutional trader someday will sweep them off the feet, they are the ones chasing last 6month-1year return of funds and investing in the so-called ‘high performers’, they are the new-age Sindbad’s wanting to sail every boat with the rising tide.
- Not my Monkey, but in the Circus – This is the balanced lot. They want to be in the Equity circus but obviously want to make more fundamental choices. They are ok to ignore the noise and price sensationalism around monkeys. They are ok to let-go the ‘get rich quick’ stock or simply pass the next big IPO with word ‘tech’ in its nomenclature. They are happy with their asset allocation and gradually rebalancing it with every market cycle. They will stick to Equity, Debt, Gold – everything, and not just play the trend. They are the boring lot in parties. They don’t have hot tips and neither do they invest in every new IPO without understanding the basics. And yes, they are stickler for valuations and long-term goals ! They are the ones not stopping their SIPs or shuffling monthly allocations basis market movements, they are happy holding on to their schemes even if its not the chart-buster for 2021, they are the patient ones in this Circus – content being traditional old-timers and ignoring the new-age Monkeys.
- Not my Monkey, not my Circus – This is the most intriguing lot. They are the ones who called exit at multiple points during last 2 years citing covid, fundamentals, lockdown, economy, budget, politics, oil prices, commodities etc etc. They are the ones ignoring forests for the trees, they are happy holding cash and bank deposits, they are happy earning negative real returns ignoring inflation, they are the ones who ignore the new-paradigm where central banks print unlimited money and investing in financial assets is the only way to protect the value of their money. Ironically, this is also the bunch which gets so swamped with the economic news at times of correction, that they happily retreat back, waiting for more corrections ! And as it goes, that mythological correction never comes.
We have clearly laid out the three typical personas which define the markets. There is no right or wrong about either of them. And we don’t stand for or against any of these. All of them will be proven right at some point in different market cycles. The idea is to remain true to one’s philosophy.
- If you are in the first category, be realistic and read up on your Monkeys well. Cut your losses, put bells & whistles and be emotion-less. Just remember, not to be the last one holding Monkeys at the time of market exodus.
- If you are the second category, keep calm and stay invested. Keep your asset allocation going and just trust the process. Its ok to leave some deliveries and not swing the bat at every ball. Staying in the circus in more important because that’s the only way of creating long-term wealth
- If you are the third category, just stay away from FOMO. Its ok to not participate, but it will be blasphemous to not enter back into the ring when the opportune time arrives. So define your entry points well and be unwavering about those. Sabka time aayega !
I know, we have clearly disappointed our readers who were looking for a market view with some numerical projections for 2022. We shall tackle that some other day.
As we usher in the dawn of the 22nd year of this century, we wish all our Investors a happy and rewarding time in this Circus of Markets! And we hope and pray that none of us are left standing with worthless monkeys when we knock on 2023.
We implore all our investors to view the new world with new lenses but be firm on your own investing philosophies.
To sum up, we end this note with a befitting song from the legendary movie, Mera Naam Joker:
“Kehta hai joker saara zamana, Aadhi haqeeqat aadha fasana
Chashma utaaro phir dekho yaaron, Duniya nayi hai chehra purana”