Behavior of crowds including experts

Hi,

Could not resist doing this post just to educate fellow investors on the fascinating thing called markets.

1. The self proclaimed and highly converted experts saw a nifty headed to 3500. Oil prices, GDP fall, liquidity concerns, lethargic govt., fiscal deficit, global problems, recession etc were words attached to explain every reason for the markets to fall. Strangely the biggest proponents of the fall were stock brokers, forgetting that in doing so, they were killing the very system from which they originated and tied their bonuses and jobs too. In the next 12 months, came a rally of 25 percent, far beyond the intellect of the experts. While not much changed, except for some govt moves, much of which like fdi have not even yielded a single investment, the same lot turned into cheerleaders and all of a sudden the editorial departments and research analyst were alive converting their old sell reports into buys.

2. India bulls was downgraded by a foreign research house, the stock tanked to 190. While this resulted in a counter claim against the search house, the stock which was on expert sell lists, ended the year with a spectacular return.

3. Icici, which was on several downgrade lists with axis bank, saw a spectacular rise. The same issues of axis being downgraded post its enam deal were forgotten faster than a flop movie.

4. The darling stocks in the power sector, which were touted to be the rising stars, with each and evert influential person venturing into power with fancy terms such as merchant power profits were the worst performers.

5. The most promising and strongly recommended stocks in telecom, Bharti, RComm ended up being the worst performers and a lesser recommended stock idea marched its way.

6. The forgotten business in Hindustan unilever emerged from darkness taking the experts by storm. It outperformed the sector to finish with one of the best returns for the year. Suddenly at 520to 550, the stock found its way into several recommendations. Almost seemingly as if it was waiting to play a prank, the stock retracted to 450.

7. Some of the most recommended stocks were in fact the biggest boo hoo stories. The reasons attributed to these recos varied from so called cash on balance sheets being disproportionate to mkt value to their sheer endorsement by the biggies. Little surprise then, the mkt again had a different story to play. From a Kiri dyes recommended by shanker sharma at 600 bucks as the next Tata motors to an aptech, delta corp, Ncc, a2z all of Rakesh jhunjhunwala picks, the stocks humbled the greats.

8. Polaris, geodesic, hexaware, suzlon, gmr, arshiya, cebbco, skumars- one story after the other tumbled. While some of these were seen as beneficiaries of currency and outsourcing, in gmr, even the likes of value pickers saw an emerging airport construction niche.

9. The iconic cromptons, bhel, bel along with some of their capital goods cousins made their way to new lows although continued to be justified by many as value and even growth stocks.

10. Dlf moved from a sell to a buy after it moved from a Robert vadra alleged tie to debt issues. Sadly the recos changed after the stock rallied from 160 to 220. Interestingly the same research agency that reported a sell on Indiabull finance was also involved with dlf.

11. December 2012 saw funds selling infosys. Expert consensus on the continued downtrend and disappointment in results grew strength. As soon as most exited, reduced or even shorted the stock, the same had its best rally in years, only to get upgraded again. Wipro said me too. Not in context of the company and its efforts but in the eyes of analysts who having mass downgraded the stock at 330 saw it rally to 415.

12. Too expensive was the term used for ttk prestige, Asian paints, Marico, itc, to name a few. Only to see them outperform again.

13. Bosch announced a truncated week on cost cutting. The reaction on the stock on terms of an obvious fall was short lived.

14. On mobile, tulip continued to confuse. Too cheap on fall gave way to book losses on massive fall.

15. Digitization was the most debated story. Unbelieved, doubted and even dismissed. The stocks under this universe had the best run.

16. Sun tv plagued by experts for so called governance issues involving the marans just hit a new lifetime high. While value stocks including the favorite stock of two legendary investors, central bank, hit ever lows. I don’t blame the two investors, another case of expert consensus.

17. Some of the best performers were the underdogs- the Mayur uniquoters, the Atul autos, the gruh finances, relaxo, lesser known banks like city union, the most battered Karnataka bk as against the so hot dcb and dhanlaxmi, the lesser tracked amar raja against the jewel exide industries. In software, the banished mind tree that saw the exodus of top management shamed the experts to log super returns along with tech m and satyam which had been condemned for either their past or European exposure.

It’s important to read the difference between value in the nature of a signal and the noise. Happy investing.

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3 thoughts on “Behavior of crowds including experts

  1. Thank u. very well and thoughtfully worded.
    warm regards
    Vikash

  2. Richa says:

    Nice read… 🙂

  3. Vivek Gautam says:

    Thanks a ton for the sage analysis

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