CAUTION - OPERATORS AT WORK

about 4 months ago
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For someone who has been in the market for the past 25-odd years, there are many lessons that we learn on the way. Some we learn and continue to make mistakes, again and again, learning and re-learning; whereas some, one tight slap is enough to last a life time.

What we have seen time and again is that when you start getting random “tips” from “market friends” and “hot stocks” get forwarded on Whatsapp (earlier it was SMS), its most certainly a time to get extremely cautious. Such tips have always been deadly.

Like recently, one stock which has been doing the rounds vigorously is of RattanIndia Power. There were major forwards from many, saying that it is “surely going to hit 200!” Looks like many are interested as the volumes on the counter, the two-week average is over 70 lakh.

Beware of such stocks. These are typically known as “operator stocks.” And they operate in a very typical way –

  • They buy in huge quantity and then huge artificial volumes are created on the counter through circular trading (buying-selling between them), leading to an unjustified price rise.
  • This continues till volumes expand and the price rise is substantial enough to attract attention of the public.
  • Suddenly you will see website “analysis” helping spread the word, obviously supported by the operators.
  • This then leads to an excited chatter on the social media chat boards and that spreads the word further.
  • Then these messages start popping, urging you to buy, giving you unrealistic targets based on no fundamentals.
  • The public falls for it, expecting to make a quick buck.
  • Instead, what happens is that they get trapped; the operators start selling and the price starts falling.
  • The public panics and tries to sell but at that juncture, there is no buyer and they find no exit.
  • There are some who continue to hang-on, having the “conviction” that the price will rise again; some even buying when the price falls. Eventually though, reality sets in; it always does.

Thus the gullible public, lured by greed, remains trapped in a stock which has no or little fundamentals while the operator goes laughing all the way to the bank.

And mind you, the stocks being operated might not always be a zero on fundamentals; some might have some meat, which then gets confusing for many. Always the usual suspects – low market cap, low promoter holding, poor earnings might not be a dead give-away.

But one big give away – these “stocks” are always touted to be bought in a big way by a well-known equity firm or broker or brokerage house. By adding a name of repute, the operators try to give the stock a false sense of reflected glory. This adage of a “name” is what traps most.

That’s how it is – a low-priced stock is always a honey trap. Even the most veteran of investors sometimes fall for it as they get fooled, despite their experience, to think that they are buying into a future blue chip.

3P Land Holdings, ABVL, Ambica Agarbatties, Diana Tea, Vardhman Polytex, Filatex Fashions – take a look at the list of stocks hitting new 52-week highs today and you will get the gist of this story.  

Well, this happens to all of us in the market, one time or the other. But remember, if you are fooled once, you can say, “shame on you” but if you are fooled twice, its “shame on me.”

If you have been trapped, write it off and say a big “Thank You” as this is a very important lesson learnt to make a person into a true investor. But always keep that pinch of the loss alive as it’s a lesson in itself to keep reminding you to stay sane when the next “tip” comes calling.

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