Bears sabotage Futures & Options (F&O) & cause massive losses to traders
Yesterday, 17th October 2018, the Bears hatched yet another devious plan to cripple Dalal Street.
At 1500 hours IST, they sabotaged the NOW terminal which is used by elite traders to execute buy and sell orders for futures and options.
The system hanged with the result that traders who had taken positions could not exit in time.
Even the stop loss mechanism which normally bails out traders from trouble was paralyzed.
Naturally, traders lost colossal sums of money and were seen weeping copious tears on the steps of Jeejeebhoy Towers.
Due to huge volatility portfolio stop loss of 5% was hit in many accounts.
The system, NOW terminal, did not work. By the time it started working, 2 clients have lost 10%.
Very bad day.— P R Sundar (@PRSundar64) October 17, 2018
Trading software hanging problem.
— P R Sundar (@PRSundar64) October 17, 2018
If the trading software does not work, we have to ask the broker to square off the position. They did not do yesterday despite my instruction.
— P R Sundar (@PRSundar64) October 18, 2018
Bulls also suffer massive losses
The Bulls were also at the receiving end of the deadly Bear attack.
The Nifty Midcap 100 Index plunged a massive 2.26%, wiping out fortunes in the blink of an eye.
#MarketAtClose | Bears return to rule in last hour of trade, market erases gains. #Sensex & #Nifty shed over 1% each; #Nifty back below 10,500 & Nifty Bank underperforms as financials lead losses in market pic.twitter.com/k6YywQDQli
— CNBC-TV18 (@CNBCTV18Live) October 17, 2018
From Day's High
Nifty -265 pts
Sensex -840 pts
Nifty Bank -760 pts
@CNBCTV18Live— Mangalam Maloo (@blitzkreigm) October 17, 2018
Blood bath in NBFC Stocks
NBFC stocks were the worst affected by the meltdown.
| Stock | Loss (%) |
| DHFL | 12.22 |
| Edelweiss | 10 |
| Piramal Enterprises | 10 |
| M&M Financial | 8.12 |
| L&T Finance | 8 |
| Repco Home Finance | 7.86 |
| Reliance Capital | 7.35 |
| Cholamandalam | 6.74 |
| Shriram Transport | 6.18 |
| PNB Housing Finance | 6.13 |
| Manappuram Finance | 4.82 |
It is baffling as to why NBFC stocks are so vulnerable to Bear attacks given that two eminent Billionaires, Ajay Piramal and Nirmal Jain, have already issued clean chits that all is well with the sector and there are no liquidity problems.
I think NBFC sector fears are exaggerated. Sector has robust regulatory framework, is growing well helping financial inclusion-nation’s growth by delivering credit to underserved!Excessive panic can cause heart attack in a healthy body. Equity sentiment alwys moves in a pendulum
— Nirmal Jain (@JainNirmal) September 26, 2018
#EXCLUSIVE | Things have started to settle down in the NBFC space w/ capital flowing much easier than few days back. Ajay Piramal of @PiramalGroup says NBFCs are critical for the growth of the country as they lend to MSMEs which are the backbone of the country. @Ajaya_buddy pic.twitter.com/YvPwR6r7ne
— ET NOW (@ETNOWlive) October 9, 2018
However, according to some knowledgeable experts, the golden days of NBFCs are now over and the premium valuations at which they are presently quoting is not sustainable.
CS on NBFCs
Growth slowdown in NBFC will impact stocks’ premium multiples
Remain cautious on those trading at high multiples (BAF),
large MF short term refinancing needs (IIFL, JM), & wholesale
loan books (LTFH, JM)
Prefer banks (HDFCB, ICICIB)@kothariabhishek @CNBCTV18News pic.twitter.com/wJB9L2CbMe— Nimesh Shah (@nimeshscnbc) October 12, 2018
Too many people are still promoting Housing Finance Companies
Fact
Their margins as well as growth will get compressed going forward
Competitive intensity is maximum here as its the safest loan categoryIf you want to buy NBFCs go for diversified ones.
— sandip sabharwal (@sandipsabharwal) October 17, 2018
My Networth Plunged from $80 Million to $18 Million: Mohnish Pabrai
Mohnish Pabrai realized that the panic level amongst novice investors has now reached dangerous levels.
People are running helter-skelter, completely distraught at the merciless destruction of their wealth.
He rushed to counsel them.
“At the bottom of the financial crisis, my net worth was down to $18 Million. It was a huge drop from the peak of $80 Million,” he said.
Mohnish chose his words carefully and spoke in a deliberate and slow tone, knowing he has to be understandable to even the rawest of novice.
He was addressing distinguished academicians and students at the elite Boston College.
I enjoyed giving my talk on “The Ten Commandments of Investment Management” to Prof. Arvind Navaratnam’s students at @BCCarrollSchool at @BostonCollege. Enjoy! https://t.co/dJGZ3dxukf
— Mohnish Pabrai (@MohnishPabrai) October 13, 2018
Convert adversity into opportunity
Mohnish explained that he is “differently wired” as compared to other investors.
While other investors were bemoaning their fate during the great stock market crash of 2008, Mohnish was rubbing his hands with glee.
“When I was going through the financial crisis, what was exciting was just the sheer number of investment opportunities. While your portfolio is burning and crashing, you are seeing mouth-watering investment ideas,” he said.
“I sold cheap stocks to buy cheaper stocks,” he added with a chuckle.
Mohnish explained that the entire commodity sector had crashed and stocks were available at such bargain basement prices, that he knew he would be able to effortlessly rake in at least 5x multibagger gains from them.
However, because he did not have the time to study their individual merits, he bought the commodity stocks in a random manner and as a “basket”.
Needless to say, when the crisis blew over, Mohnish had not only recovered his losses but had raked in massive truckloads of gains.
“Not a single one was a loser. Almost every single one went up four, five times,” Mohnish said with understandable pride in his voice.
Stay in senses and keep chopping wood
Mohnish also offered philosophical advice to investors.
He explained that he had learnt from his father that during times of crisis, one must “keep senses about” and “keep chopping wood and move ahead”.
“We must understand that present circumstances never last. If you are having a really good time in life, that’s not going to last. If you are having a really bad time in life, that’s also not going to last,” he said.
“You must have confidence when you are at the bottom of life that it is going to get better,” he added with a soothing smile.
Top Ten Commandments for success in stocks
At the end, Mohnish issued Ten Commandments that all managements and investors have to faithfully follow.
Mohnish Pabrai: The Ten Commandments of Investment Management https://t.co/psIsbEAJoA pic.twitter.com/vdo4ct0Cwj
— Acquirer’s Multiple® (@acquirersx) October 16, 2018
These commandments are the following:
1. Thou shall not skim off the top [fees]
2. Thou shall not have an investment team
3. Thou shall accept that thou shall be wrong at least one-third of the time
4. Thou shall look for hidden PE of 1 stocks
5. Thou shall never use Excel
6. Thou shall always have a rope to climb out of the deepest well
7. Thou shall be singularly focused
8. Thou shall never short a stock
9. Thou shall not introduce leverage
10. Thou shall be a shameless cloner
It is notable that Mohnish has now made it compulsory for us to become “shameless cloners“, which we have already been doing since time immemorial.
Light at the end of the tunnel?
Mohnish’s advice that we should take advantage of adversity in the markets to tuck into stocks at bargain basement prices makes a lot of sense.
In fact, according to Mark Minervini, an authority on Futures and Options and author of a best seller named ‘Trade Like a Stock Market Wizard: How to Achieve Super Performance in Stocks in Any Market‘, the markets are in deeply oversold territory and a sharp bounce back is expected soon.
We may see a few days of rally, but that’s to be expected from a deeply oversold condition. The likelihood is there will backing and filling or even lower lows achieved before a reliable bottom is established. Some of the biggest ST rallies occur in corrections and bear markets.
— Mark Minervini (@markminervini) October 17, 2018
This theory is corroborated by Peter Brandt, a veteran trader and also an authority on the subject.
#INDIA #NIFTY Good news (for now) for all the Factor friends in India pic.twitter.com/nMlEYRlzD7
— Peter Brandt (@PeterLBrandt) October 7, 2018
So, it is explicit that it we can brave the storm now, we will also be able to take home massive gains and become millionaires, the way Mohnish did in 2008!
Normal ordinary investor like me should not go down beyond top 100 stocks and even from that don’t invest in PSU stocks. For small and mid cap stocks invest only maximum 10% in each category that too through mutual funds and only if you are investing for 10 years or more. Those who don’t understand stock market should only invest in hybrid aggressive funds.
why do investors get so scared during bears, this is the time to invest or if you are already invested forget about markets and divert your attention to other hobbies….I would personally never park in largecap when midcaps are available on big sale….50 to 70% off…buy when there is blood in the street,worst thing to do is buy FD’S or Gold/real estate…markets always come back
Many of Indian small and Indian mid caps have corporate governance issues, it is difficult for an ordinary investor to find it out, better bear some mutual fund fee for safety in mid and small universe, most of investors burn their figures while speculating (without proper information you can not claim that as investment) in these stocks. Many of such third grade stocks has gone up by 5 to 10 times, just 40 to 50% correction for them is just starting phase, many of them may go down by 80 to 95% and majority of them may never recover.
Bizarre is “thou shall never use excel “. Not able to understand the meaning of this commandment.
Dont do complex financial modeling and projections. If the basic numbers (PE, P/BV, ROCE etc.) dont make sense, dont invest.
With financial modeling, we can come up with widely different valuations depending on assumptions.
In his book he also states around the lines that if the investment hypothesis is not very brief, then we dont understand it well enough.
If you are stupid enough to write calls on open high and trending lower market, ofcourse you will face losses. It’s not called a bear attack, it’s called stupidity. And it was opportunities for people who were nimble enough to enter into the right side of the market.
Trading in the direction of trend is profitable. But the issue with option writers on the day of expiry is, they think market will most probably remain in range and max pain will work.
But market can do whatever it want and whenever it want.
PS: Even i have lost 3% due to put writing, expecting market to be in a range.
Seems Dhan Do author is ready for another book “Dhan Lo”
What is he trying to say? Should portfolio be allowed to go down from 80 to 20 without doing anything?
This is similar to the current rage new age management formula that “you should fail to succeed”. Similar to “your portfolio must be down from 80 to 20, then only you should intervene and restructure it”. This kind of theory is nowadays is taught even in best B-Schools (IIMs), which tells that “you must fail to succeed”. Not able to succeed. If you are trying to take the stigma out of some “failure”, then, it’s ok, but, if you are therorizing to young B-School graduates that “you must fail to succeed”, then, I think there is something wrong with the theory itself.
When you invest in a stock like Rain Industries, owned by Mohnish Pabrai and Dolly Khanna. What happens is we forget that they invested at Rs.35, and can afford to have 1000% percent cut, When guys like me have a 30% cut being brave is committing suicide. So, follow the “masters” blindly if you want to retire rich, not necessarily in the next 5 years. You may become homeless, they won’t.