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Sunday, March 23, 2014

Sunday musings: ask questions first and shoot later

In the American ‘Wild West’, shooting first and asking questions later was simply a survival strategy. If you didn’t shoot first, you were probably going to end up dead. That mentality prevails even today. The invasion of Iraq by the US is a classic example.

Politicians are adept at shooting off with their mouths first – particularly during election campaigns. If an opponent is seen as a potential threat, slander and muckraking begins straightaway. One can always apologise later, but the stigma often sticks. Narendra Modi will never escape the spectre of the Godhra riots. Arvind Kejriwal is the butt of jokes for being too honest.

The proverb has two connotations – to act boldly, or, to act without weighing the consequences. When a group of peaceful protesters suddenly morph into a vicious stone-throwing mob, ‘weighing the consequences’ could lead to the situation getting completely out of hand. Shooting first – with rubber bullets or water cannons – may be the only choice.

Inexperienced investors – and sometimes even seasoned ones – often fall through the crack between the two meanings. Quickly buying or selling a stock because it has suddenly spurted or crashed is considered bold behaviour. Justifications are then provided or sought to prove that it was a smart move.

A recent example has been the stock price of KSB Pumps. After consolidating in the range of 180-240 for 18 months, the stock broke out to 280, pulled back to 240 and then in a sudden price spurt rose past 340. Investment forums are now full of chatter about why this is a great stock to buy. One contrarian(?) investor confidently stated that he had sold at 280 because the stock was overvalued.

In the world of investments, a survival strategy is to ask questions first and shoot later. Too often investors get into trouble by buying a stock or shorting an index at exactly the wrong time. Probably they don’t want to ‘miss the bus’ – not realising that a little patience would enable them to catch the next bus.


Khambatta said...

Hi Subhankar,

I loved your last week's Sunday musings and this one is no less.

I believe that if you miss one bus, there is always another bus coming; it is better to see where the bus is going before getting on it, rather than ending up somewhere you may not want to, just because there is a bus available.

Subhankar said...

Thanks for your comments, Nasir.

Couldn't agree with you more.