Featured

Recession: Mother of Panic Attack & Smart Playing !

Published by Octron on January 1, 2009

Once I used to read Hindi novels, specially Ved Prakash Sharma‘s they used to be thrilling murder mysteries yet with social backdrop. One of the novels was titled – ‘Jurm Ki Maa’ (Mother of Crime).

Who is the mother of crime?
Its Hunger !

Huger for food, money, sex, drugs, etc causes the crime. A drug dealer sells drugs to satisfy his hunger for money, while buyer buys for to quench his hunger for tranquility. So Hunger is mother of all crimes. Similarly, in current market scenario it’s the regression which is causing constant steeping of the NEPSE. First the international (US & EU) market recession, second the derivative inflation from India which is causing the market to go bearish day by day.

Now here is the twist, We all know in a game if someone loses, someone has to win.
There can’t be situation that both players (or teams) lose or win in a same game. So this bearish market will be fruitful to smart player and will be draught for fearful person who gets panic attacked. These are two kinds of people which Recession gives birth to.

What is the difference?

Actually, there is very thin line of difference between panic attack victim and smart player.
Normally, people buy shares when it’s low and sells when it’s high. But both panic attack victim and smart player does exactly OPPOSITE.

Yes BOTH not just panic attack victim.

Let’s take one simple example from current market scenario.

SCB (Standard Chartered Bank), a.k.a blue chip scrip of Nepal. Once, hovering around 8K, even touched 9K is today (24 Nov 08) priced at Rs. 4550. Lets look the trend;

4,850 on 23 Nov 08
4,900 on 20 Nov 08
5,000 on 19 Nov 08

Now let’s see HOW each individual would react in such situation;

Panic Attack Victim

Panic Attack victim will be threatened to lose all his hard earned money, as soon as the market opens on 19 Nov 08 to see the price 5000. Suppose, he had bought 100 scrips of SCB for 6000, when the market was rosy. He calculates, he will be losing 100K if he sells now!

So, he waits!

On 20th, he checks price quote (4900) now he realizes, had he sold yesterday, he could have saved at least 10K. Now what he thinks, I have already lost 100K, what 10K will make difference instead of doing any kind of research why the price is falling ?
Simply checking daily quotes on the next day on the paper.

23rd, brings yet another bad news for him (4850) 5K more loss, but he is still holding upon the wrecked ship just saying; “It’s blue chip scrip, well established bank, I can’t go wrong with it. Someday it will rise” and prays before going to bed – “Jai Pashupati Nath Rakshya Garnu” (Ohhh God Please Save Me !)

On 24th as soon as market opened he was there, and the day becomes worst for him. SCB scrip’s just tumbled as the time passed by. Every 10-15 mins the price was just declining as it even hit 4500. Now the panic attack struck him.

One very important rule of stock market and gambling is don’ play by luck, but rules. Don’ let your feelings interact with your judgment. He seems to have lost already 150K, so he finally decides to sell them off well before losing more.

Loss: 50K within 4 trading days.
Total Loss: 150 K.

Now, here is how a smart player could have coped with the situation.

Smart Player

Firstly, when a person buys scrips for 6000/scrip, any smart person will not wait until it hits 5000. But let’s assume it was not in his control (Book Closure).

On 19th when market opened, he would start tracking and will sell off his 10 scrips for 5000.

His Investment: 6,00,000
Return: 50,000

Now he will start investigating why is the price declining ?
Is it just book closure or something else?

Stars reading news online (NepseGuide.com Forum) or paper (Arthik Abhiyan), gets hint that many banks had invested in foreign banks bonds which are on the stake, SCB is one of them.

On 20th as soon as market opens, he will load off 40 more scrips. As market begins with previous day price, he could have sold at 5000 or the closing price 4900. Let’s Average it.

His Investment: 6,00,000
Return: 2,48,000
i. Return: 50,000 (10 scrips @ 5000)
ii. Return: 198000 (40 scrips @ 4950)

23rd couldn’t have brought him any better news. IMF article regarding India’s inflation being propagated to Nepal. Housing market getting bearish, etc and regular NEGATIVE NEPSE and Bank index was more than enough for loading off 40 more scrips @4850

His Investment: 6,00,000
Return: 4,42,000

i. Return: 50,000 (10 scrips @ 5000)
ii. Return: 1,98,000 (40 scrips @ 4950)
iii. Return: 1,94,000 (40 scrips @ 4850)

24th was the ultimate day for him, as he was carrying minimal loss (10 scrips). As soon as market started shedding off the points. He dumped his final remaining 10 shares @ 4700 ( ~ Avg. of 4550 & 4850).

His Investment: 6,00,000
Return: 4,89,000

i. Return: 50,000 (10 scrips @ 5000)
ii. Return: 1,98,000 (40 scrips @ 4950)
iii. Return: 1,94,000 (40 scrips @ 4850)
iv. Return: 47,000 (10 scrips @ 4700)

Now final Loss;

Loss: 11K within 4 trading days.
Total Loss: 110 K.

Smart player minimized his loss to just 11K while panic attacked person lost 50K within 4 days. i.e. he had 80% gain over panic attacked person.

Readers Rating: