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April 2, 2008

There are so many things common with Internet and Investment world!
Perhaps because, the underlying variable hasn’t changed:Human psychology.

Before you start nodding your head in agreement, let me put across this question. Has human behaviour surprised you?Ever? Surely it does me everyday!

Yesterday (and its not April Fool joke), some Internet prankster posted an ad on Craigslist, the web classifieds, informing Robert Salisbury is giving away his everything in his house. Robert returns from his work, only to find people taking away stuff from his home. (you can read the full story here)

This news has got me stumped. To say the least!

And then there is always liquidity crisis which gets me stumped.
aah, the Human Psychology!

Last week, was the closing week of the financial year 2007-08, in India. All well and good. But last week, had been a hectic week for the fund managers across the spectrum. Why?

After all they had to bring up their NAV calculations and asset performance datas out by the beginning of the new year. Sweet! And we all expected some ‘window dressing’ to take place.

And it did! 1280 points circa, Sensex zoomed before it ran out of fuel. Of course it had to, because there was ‘window dressing’ going on. How innocuos the verbiage is. How innocent looking. ‘Window dressing’.

Except the truth that, the stocks which zoomed had many blue chips, a lot of them mid caps and majority of them small caps. You don’t invest in small caps in times of uncertainty. You simply don’t invest in them. But they did, and brought the BSE Small Cap index up by a whopping percentage.

Thats a lot of window dressing going on over there.

Sensex, is a charming beast and investors are greedy prospectors,no doubt. When they see, Sensex all decked up and dressed up in hues of green, they get all worked up,excited.Retail investors love to be a part of a rally even if its losing breath.

And when the season of window dressing is over? Retail investors, go back again to their old ways, looking for ‘fresh cues from global market’.

Result: rallies like 1280 points last week. And falls like 31st March

Strange aren’t they? (humans stun me!) And when they didn’t find so called ‘global cues’, Sensex crashed, and crashed as if it happens all the time. Even the media has got bored of crashes. On 31st March, market crashed somewhere to around 15k levels, a body blow of 745 points. But you know what, ET spoke?

“Financial year ends with a flop”

[Flop? It was not flop boy, it was a big fall. But there had been plenty many out there.]

In times when media runs on soundbites, and mass opinion changes in moments, sanity had never been so scarce. It is like that ad on Craigslist, where nobody questioned why is the man giving everything away.

Is it because he has run into bad times? But why giving for free then?

Is he moving? He can always hold a garage sell,right?

Is he renovating? Is he that rich?

Well, people believe what they see and refuse to believe otherwise. And when ‘bottom fishing’ time comes,asset managers beef up their porfolios, but retail investors are left with a hole in their pockets, after the window dressing ends.

Lesson 1 : Understand when to do nothing.

1280 points in 3 days in an environment like ours is simply a wishful thinking. Especially when we are looking ever so longingly towards Dow Jones and Nasdaq, when we have a real positive story going on in here.

No questions asked, no strings attached.

India will be changing in the coming days. India needs to build. Lots of schools, infrastructure, educational institutes, roads, toll booths and all those things which will help India tomorrow. A smart investor will ballpark his funds, in these areas. The areas where his money will grow. Thats a wise investor for you. Those who are ‘otherwise’ (pun intended) well… will look for ‘fresh global cues’.

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