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Tuesday, March 27, 2012

What kind of an investor are you?

Almost every evening, before dozing off to sleep, I get my daily ‘fix’ of TV watching. During the weekends, it is usually the live telecast of a soccer or a tennis match. Occasionally, a golf tournament. But during weekdays, it is invariably a wild life programme. The eternal game of life and death that plays out on the vast grasslands of Africa is fascinating to watch.

Human society has a hierarchical system, based on a combination of political power and money. The animal kingdom has its own hierarchical system, based on size and physical power. The lion is often referred to as the ‘king’ – but the king doesn’t mess around with an elephant or a rhinoceros.

Humans have been endowed with mature brains that can think creatively to plan and implement strategies that can enhance and improve their standard of living. Animals are less endowed in thinking skills and rely more on instinct and training to survive.

What has all this got to do with being an investor? Survival of the fittest works in the stock market, just as it does in the African savanna. To ensure survival and prosperity, you have to first decide what kind of an ‘animal’ you are and what kind of an ‘animal’ you aspire to be.

If you have not inherited a huge sum of money, don’t plan on being a lion of the stock market. If you are not the favourite relative of a powerful minister, being an elephant or a rhinoceros is out of the question. That leaves some of the less powerful and smaller animals.

The next decision – to carry the analogy a little further – is to decide if you want to be a predator, a prey, or a scavenger. A bit of honest self-analysis is needed here. If you have enough knowledge, experience and cash – you can be a leopard or a cheetah. That means playing in the same arena as the big boys, but keeping out of their territory. An example? Stay out of stocks where RJ or RD are known to have large stakes. Those who have been badly wounded in Bilcare or Delta Magnets may know what I’m talking about.

Why should you decide to be a prey? Strangely, some investors do precisely that. They hand over their trading account to a broker or a bank (mistakenly referred to as ‘wealth managers’). They are usually HNIs – meaning wealthy and may be quite powerful – who are just not bothered about the dangers that lurk among the tall grass. Like the zebras and the wildebeests, they become dinner (I mean, their money gets siphoned off by the wealth managers).

‘Scavenger’ sounds like a dirty word. But there are solid advantages to being a vulture or a jackal – if you are willing to do a little hard work. If you have the ability of spotting an investment opportunity (usually a less known mid-cap or small-cap stock) before other scavengers jump onto the bandwagon, you can be in and out with a tidy profit.

Moral of the story? Your investment success will depend on your survival skills and the amount of staying power (spare cash) you have.

Related Post

Don't be a bull or a bear in the stock market, be an African python

2 comments:

Jasi said...

Wow! A great way to get home a very relevant point.
You do have a way with words and articulation!

Subhankar said...

Thanks for your comments, Jasi.