Don’t buy Junk!

What comes to your mind first when I mention the word junk? I bet most of you would say junk food. Some of you who have been on this blog before would say junk stocks. Well, both of you are right, and yet partially. This caption, don’t buy junk, is my new adage which I will try and incorporate in my life going forward and let’s see why.

On a day when there is absolute carnage in the world of cryptocurrency, most down between 20-40% of their price( not value, for sure) and the voices clamoring for “buy on dips” grow louder, partially sarcastically though, it’s a good time to see the difference between price and value.

Price is what you pay, value is what you get. I heard it from Ramdev Agarwal, not Buffet. Anyways, this sums it all nicely. If you believe that Bitcoin is worth a $100,000/- or more, it should be party time for you tonight. Go buy as much as you can(read, value). However, if you want to buy because the price has fallen from $65k to $30k and since Elon Musk has tweeted and it will rebound and shoot up again, you are only looking and chasing price. Which, basically means you are a punter. आप सट्टेबाजी कर रहे हैं।

This is true for cryptocurrency, stocks, or food. When price of anything goes up significantly in a short span of time, it attracts interests. The naysayers turn into cheery approvers, the neighbours join the party, your son’s best friend who is in class 12th claim to have made money and everyone is excited to be a part of this once in a lifetime opportunity. The vices are shushed, virtues extolled. This thing is for real. It can be said of the Adani group stocks which went up 50x, Bitcoin, real estate in India in 2002-07 or anything you can think of. Till the point the tide is rising, everyone is enjoying a good surf. When the tide turns, a lot of people are caught to have been swimming naked. Price fall 90%, people lose money, party gets over, people lap on to the next one.

If you can safely conclude that what you are buying, and we hope that it’s an investment and not just a bet chasing price, and are convinced that the underlying stuff is worth a bit , if not a lot more than what you are paying for it, buy on every dip you can. That’s what all investors must do. If you think this thing is worth a $100, and due to market volatility you get it for $50, buy it more, simple.

However, don’t buy junk, even if it’s for free! Have you ever experienced a bad gastric commotion after a binge junk meal and cursed yourself of falling into the trap? I guess all of us have. We all agree that eating junk food will lead to health issues, if not immediate than towards the other side of 50s and it’s not going to end well. However, eating a bit junk and exercising a lot can minimise the impact it can create. Similarly, if you buy a lot of junk in your portfolio, in a rising market( in a bear market people are too afraid to even buy the absolute gold quality), you may not get hurt at all.

On the other hand, it can create a lot of money for you in a very short term. You will feel like the guy who cheated and didn’t get caught, and ofcourse who also passed. Most guys who punt begin with miniscule sums of money. They say, I know RPower is shit, or Yes Bank is doomed, or Jet will never fly but I am willing to bet 10-20k on this and if I lose everything, I won’t mind and my life will still be the same. Some of them go a step further, they buy a bouquet of junk/penny stocks, and bet that even if one of them goes up significantly, it will cover all my losses and make me some more.

Fair enough, not much harm done. You do this and it’s a bull market, so the junk fly high. You make money the first time and your initial hesitation gives way to inner peace. You tell your wife, hey it works. It’s not such a bad deal. Maybe this author wasn’t right. So you say, let me try another time. If you are still lucky, you make some,lose some but still are financially sound. The shiny junk now smells like pure gold. You hear people on telegram selling multibaggers for just a subscription fees. They bombard you with past profit and loss screenshots and you realise, this is the evidence I was looking for. Since so many people are doing this, it’s safe. Why to waste my time buying Nifty stocks which will only go up 10-15% in a year when I can double my money in three months or less. This thought, this very moment is the beginning of the end. The moment you fall to the trap of “Making money quick is easy without much risk and a desirable behaviour” you can rest assure you’re on your way down.

Ofcourse the bull market can go on for a long period of time and you can be plain lucky to come out relatively unscathed in the ensuing crash, that doesn’t mean you’ll be lucky the next crash as well. One fine day, this junk ends in misery and tales of He sold his house, he went bankrupt, he’s down 50lakhs are heard around us.

If you can take one point from this blog then take this- don’t buy junk, howsoever big is the temptation, the peer pressure or how lucky you think you are. One fine day, when the tide turns, and markets fall, you don’t want to be left holding yellow stuff which is not gold. It is worth nothing, even if it’s of highest quality. It remains what it is, shit!