Bulls, Bears and other Beasts
If you are getting started with equity investments in India, I’d strongly suggest you to read this book - Bulls, Bears and Other Beasts: A Story of the Indian Stock Market, available on Amazon here. It chronicles the adventures of a fictional character, Lalchand Gupta through the Indian stock market, first the Bombay Stock Exchange(BSE) and later the National Stock Exchange(NSE).
What stands out in this book, is that the character, Lala in short, writes in first person about all the events and crises the stock market had to go through. In a few cases, Lala even meets Harshad Mehta 1, Ketan Parekh et al, the scammers of the market. Part of the reason why the previous generation was (and is) skeptical about the stock market is the rampant cheating and corruption in the market, which was present well into the 2000s. Promoters would be in cahoots with market manipulators for increasing their share prices. They would get to downright lying in the balance sheet, showing dubious profits out of nowhere (Satyam Computers).2 One very important thing I’ve learned is that a promoter or company getting too involved in the share price is definitely a recipe for ruin.
From what I’ve read in this book, when the stock market scene started in India, not many retail investors had any clue about value investing. Stock market was always seen as quick money with huge risk. Many people lost a lot of money, and brokers made profits off gullible investors. The share price was seen independently, not in relation with the performance of the company. There was rampant information asymmetry, you could go long on some stock but the promoter would have some inside information, sell his positions through a broker, who now has the same information, and suddenly the bear cartel is hammering the stock all the while retail investors are still making sense of why the price is plummeting. Unless someone is very close to Dalal Street, I don’t know how they would have made money. List all the market made billionares of yesteryear, you can find a pattern.3
I have a new respect for the SEBI after reading this book, making investments very very safe for retail investors. The only way to get wealthy for many people is from the stock market, not everyone can start a company. If not for the strict regulations by SEBI, albeit after a bunch of scams, we surely wouldn’t be able to confidently invest in the market.
Harshad Mehta pumped the price of ACC Cements to all time high of Rs. 9000/share. He defended the price by opining that the market cap of a company is the cost to replicate the company. So to start a company similar to existing company A, you’d need the market cap of A as capital. ↩
What is funny about the whole Satyam debacle is that they paid taxes on the non-existant profits! ↩
I think the world has turned very democratic now. There are very less things controlled by small groups of people. Instituitions like SEBI are being empowered with authority to enforce this democracy. The Internet has surely helped as well. As Naval says, the Internet enables eight billion monopolies. ↩