#Vitarkka: Traditionally, Indians have always favoured holding on to some cash and gold as a rainy day investment. Be it for a medical emergency or a wedding in the family. Demonetisation appears to be an experiment to change the habits Indians have cultivated from time immemorial. This experiment along with higher tariffs to decrease gold imports (essentially to reign in the out of control Current Account Deficit) and the final nail in the coffin being the clamping of banks where a majority of lending was to the property sector, be it housing loans, building loans or land loans, has pushed the economy to a corner with few investment options clearly directed by the government. Gold after oil is the second largest imported item and the real estate sector was erstwhile the largest employer (both direct and indirect) in the country and both these being the go-to investment products earlier.
With the traditional investment products, gold and property both solid and tangible assets were being made unattractive by a host of government policies, the investors are automatically pushed to the stock market (either directly or indirectly). Directly if one takes the bold dive into the world of statistics and predictions and indirectly when one relies on advisors from banks and elsewhere for investment vehicles, it invariably ends up in the stock market.
The stock market works psychology to its hilt. Just like in a casino, fortune favours the brave and connected. A trained mind can make money whilst the weak get preyed upon. A habitual gambler comes back for more hoping to hit that elusive jackpot. No different from the lottery which promises a massive pot of gold and collects small sums of money from millions to make one person’s dream come true purely based on the probability theory. The stock market playing is very akin to gambling in casinos considering advanced levels of financial structuring sophistication being employed by hood-winkers and fly-by-night operators, coupled with poor regulatory backbone, that an average Joe despite his above average IQ and research skills, finds it difficult to arrive at the true credentials of all the companies whose stocks are traded on the market. Essentially meaning that despite tremendous due diligence, the stock market is always stacked against the common player and there are only a handful of experts who seemingly escape unscathed with their millions. So, a common man playing at the stock market is like an addict who keeps going back for more and more and gets drowned in debts or loses all savings.
Notwithstanding the voluntary indulgence in the stock markets, the bigger schemes floated with government sanction which eventually defraud a common man, is scarier. Despite the lessons of the great financial crisis which most developed countries faced, especially the USA in 2008 owing to the great ‘Derivatives’ market concept, which was legitimised by legal sanction given by the governments, wherein even Pension funds of unsuspecting generations of people was allowed to take a punt on what is fundamentally gambling and this spelled doom from the beginning. Alas! It ended up to be so too. However, despite many conscientious individuals and companies and consortiums calling for a ban on it, the US today has all but drowned that voice. Instead of seeing this as a warning sign, our government has allowed for the elaborate sham of a scheme called ‘Derivatives’ to be played out on our public too.
Just like the Casino, the stock market is always stacked against the small guy. Many a poor soul has lost good money which would have probably been a whole lot safer with a much smaller and secure yield of 6% per annum in a bank fixed deposit.
The science is just not that solid. The valuations have no science in many cases where the stock prices go up. Is it sentiment? is it a juicy piece of news? is it manipulation? is it a bull run? There are a million questions as to why the prices of an absolutely worthless stock goes up. But hey, if someone’s making money, someone has to be losing money too. Taking the example of new age companies like Amazon, Flipkart and many other companies which have mind boggling valuations while making losses or very little profits, whilst companies which have a ton of profit have mediocre valuations, it simply does not make good economic sense. The ‘herd mentality’ traps people into believing the gold rush has arrived. Like in the bitcoin race, the first ones in and the first ones out made all the money. Those who decided later are left stranded. It’s no different than how a casino works.
Like in any of these schemes, you will find bosses who make all the money and as the scale of the stock market is large and with its many operators and players, it cycles continuously to ensure that the show must go on.
We live in a World of hypocrisy where stock market and horse racing gambling are legal for people to bet their money either on companies or horses but a casino is bad juju. But after evaluating the facts and seeing the stock market for what it is, how is it any different than gambling in a casino?
When Horses and companies can be bet on, why shouldn’t the same be allowed in sports or casinos?
Raj Kaushik – Vitarkka