Bull Markets can make you High!

So I had this conversation with a friend of mine who has gone from being extremely bearish a year ago to almost as bullish as one can be, that led me to this article. I take my cues from people around me and decide as to where are we in the market- is it a rising tide which is going higher, or have we made the top and may be on the way down. My answer to that is- we are yet in the beginning of a big bull market, which can continue for a long time to come. However, all bull markets are marked by sharp, painful and brutal corrections which throw you off quicker than you can react to.
So what does a rising market do to a man? When prices go up for a stock you bought, it leads to a big seduction that can alleviate all problems you have in your life. You feel like a winner, someone who knows what he’s doing and has arrived in the big league. Stocks go up, you make money, life’s good. However, there’s a bit of an issue here.
That the price of the very stock which you have bought has gone up does not necessarily means that you have bought something right, or your process was right in it’s selection. In a rising market, everything goes up and junk goes the highest. Look around, in the current metal rally, Hind copper, a garbage level loss making company is the biggest gainer. Also, Adani group is rising as if they will make the next Amazon selling renewable energy. I may be wrong but there’s enough froth around which just doesn’t seem right.
The investor memory is blissfully short. The end of last bull run led to bankruptcy of its biggest stars- RCom,Rpower, Bhushan group,Essar Steel,Unitech etc. Go a bit further and veterans will tell you about M S Shoes being the hotcakes of 90s.
In a bull market,people buy shining junk at the price of gold, thinking that they have the next Titan at hand. However, when the market turns, real gold sells at the price of lead while the junk, well it anyways was meant to be. Hence, the paper profits vaporise quickly and you are forever out of the market, crying foul and calling it a Den of Thieves. Worse still, newer group of people then begin to punt with the real junk and you hear stories about the bankrupt stocks going up twice a day- if you don’t believe me, look out for people still buying Yes Bank stocks believing that it’s bound to go up again.
In the bear market, people who enter then begin to buy stocks which have fell the most and have limited potential, trying to make a quick buck. People trying to buy spicejet and lemon tree for a quick twenty percent are punters and not investors. I almost always look in awe to a PVR still trading at 1000rs when the company is shut for the past one year and no respite in sight.
As the bull market progresses, people become fearless and surely, a lot greedy. They are not content buying a HUL for steady ten percent growth or an hdfc giving steady returns, they go down the quality lane and right into the gutter- buying Dhampur sugar, mahrashtra bank, and worse, loss making PSUs, obscure chemical companies and the hottest IPOs. There are two type of people displaying such behaviour- one, who truly believes that they are buying hidden gems, the new multibaggers. They are our true retail guys, buying only to lose but are ignorant about it. They are cute. The other ones are like my friend I mentioned- those who know that they are buying shit but believe themselves to be able to sell just before the judgement day, while enjoying the upside which comes their way. They are idiots.
The real task in a rising market is to not get swayed by the green on the screen, and instead of giving in to the seduction, you should at least mute CNBC Awaz, if not totally switch it off. Do not listen to the experts selling you garbage calling it the new HDFC Bank. Also, don’t get swayed by someone else making a lot of money in a short time. There is no bigger enemy to your mental peace than to see your best friend getting rich, quick.
Instead, in such times, prepare yourself for the next downturn. When shit hits the roof, you must be confident that the shing object in your hands is real gold, not horsedung. Go up the quality lane and research more of what can last through a bad year and come back strong.
Most experts say that bull markets are to enjoy while they research harder during the bear market. This is bizzare. You should be absolutely certain of what stocks you hold when the prices are going up and work harder to ensure you don’t compromise on quality when the music is still playing. In fact, it’s always good to sell out when you get some portion of your money back. And when the market turns, you should be the kid in the Disney World- buying things you always wanted but the prices were high.
So, don’t be so High that you have to pay with your life savings someday.