Costly typo or more?

So if you have used Tinder & Twitter or either of it, you already know about #OnTinderAtTinder. So basically you have nice looking pic on app but in real life you look totally different and its not just limited to female, males do equally indulge into same. Just try it or ask your work colleague ;). Anyway point is, nice looking pic entices you and when you in meet in real life , you are in for a surprise. In Stock market language that's kind of Value Trap, you look at the stock, you see the "attractive valuation" you buy it and then after holding for long time you understand you have got into Value Trap. Valuation were not attractive but cheap and some times stock deserve to to trade at cheap valuation. RS Software is probably Value trap, read on to know more.

This has to be very costly typo or whatever it is, not sure who is responsible for this error – auditor, company officials or somebody who made that particular excel or some secretary who mailed wrong file or did mistake in calculation or company software (so company who made that software would be responsible) etc  etc.

So this company called RS software has been in limelight for giving phenomenal return – 279% over 33% by Nifty over last 5 years…that’s pretty awesome (period from 2011 till 2014)



However then came correction, stock corrected from high of ~396 to ~120.



And on 23-jan-16 company declared its 3QFY16 results, given below



Just look at that line item number 14, showing share of profit /loss of associates – Rs2,009 lakh or Rs20cr effectively wiping up of all the loss company had reported during the quarter. (wrong result copy on BSE)

Now comes the best part or the part where somebody would lose his job & correction in market cap.It happens that it was typo, it was suppose to be just Rs20 lakh or Rs0.20 cr, meaning loss continues (corrected result copy on BSE).



As of today company has a market cap of around Rs180cr and cash of Rs125cr....one is probably looking at a value trap.

So  long time ago in early days in my career, I remember during one meeting with a company a senior analyst was enquiring with company management about internal controls, risk management, auditors etc and management was like,” ya we use state of the art system” and analyst probed further like what softwares do you use? I was like what does that mean?…what do you mean by that? And bingo management was pretty much caught off guard and they said we use all original softwares by microsoft ,sun, oracle etc etc the best of the best. And if you know how organization are run, one ought to have ERP, to avoid such (above one mistakes) typos and frauds that anybody may try to commit knowingly or unknowlingly. Needless to say installing an ERP doesn’t guarantee that such thing would not happen.If you understand this software you would know that these don’t allow power to be in single hand. Hence committing fraud always needs more than 1 person, moment the number increases chances of fraud reduces, because not everybody has black heart. Hence we have infosys , HDFC, Unilevers, Asian Paint and many such good names.

 

Why did Stock go up so fast?

This happened to me some time in 2014, just after Modi had won landmark election mandate....still gives me hearty laugh

 



Why did Stock go up so fast?

So I met an acquaintance after long time, after exchanging usual pleasantries, talks took turn towards stock market. This acquaintance is typical trader, who only believes buying today and selling tomm. These kinds of guys are very impatient; temperament is of action & reaction. Their mantra is “if you move you survive or you die”, “make money today, who has seen tomm”. In past whenever we have spoken on few occasions I always tell him “I don’t do trading its doesn’t suit me. I buy and hold for 2-3 or more years – long term investor thing”. But man being man created by nature, he doesn’t believe that is possible, there is always circling question on his face that clearly announced “how can one survive without trading?”



This one time I visited  him and he had looks that  had complaint written all over it. He reminded me of one stock that I had discussed during last meeting with him and I quickly admitted yes, and that broke the dam. In bit harsh tone he said “you say you only do long term thing”, I nodded my head in admission and he replied “but this stock went up 5 times in less than a year, how do you explain that?”. I was not sure what to say, but acquaintance being impatient, again repeated the question and demanded answer from me how did stock rise up so fast when same was suppose to happen over 2-3 years.  I knew I have to get out or else guy would probably sue me for loss in probable profit he could have made. I said “it’s all because of Modi winning election” and made quick dash, not before he asked for another stock tip and I gave him name in hurry. I hope stock doesn’t go up so fast and so soon.

What motivates us?

It was Diwali time and wishes were being constantly exchanged by friends on cell, mail, facebook etc. Analyst had recently upgraded his cell and had installed whatsapp on it, so maximum conversation was beginning to shift there.

One evening, a message popped up with photo of goddess Laxmi that said “Pass this along lucky Laxmi pic to 10 people and wealth would follow you for rest of your life”. This is very simple and amazing message. To a rational mind this should sound absurd, how is it possible without doing anything just by passing this one can get money....that’s all....so simple ...huh?....this in fact is nothing new phenomena at all.  One who has lived during 1999-2000 (circa – 1999-2001...the rise of dot.com), followed by mobile boom and had been part of cycle when PC & net revolution swept through country one could easily related this. During those days one received numerous mails and sms on similar lines. And most of the time people without thinking too much followed instruction of forwarding it. Messages came in variety, right from blessing of goddess Laxmi (wealth) to all time happiness for family to all time peace or really scary one with some pic saying you have opened it and invited trouble forward it to avoid it thing. And message pretty much went on & on & on till the time it found it on new medium from email to sms to facebook to whatsapp to ....some place new.

So even though most people can easily make out this is just time pass activity, why do they still do it?.......................Well answer to it is “Greed and Fear”

Human beings are greedy and fearful. So when one receives a message that says “forward to receive good luck/wealth” our minds are motivated by either of 2 above mentioned factor: Greed and Fear. We think, 1) “hell who doesn’t want more money, also what does it cost me anyway to forward this msg” or here is 2^nd thought “ok this is stupid message, nobody can become rich by simply forwarding msg......but....what if my neighbour or my friend suddenly become rich and I didn’t...then what?....damn let me not take any chances and forward this”.

I am sure most of you would have spotted Greed and Fear in above decision; most of us have learned Maslow’s theory of Motivation (hierarchy of needs), there too security is first basic thing we seek and till date it works on us. There is difference in being greedy and ambitious; there is difference in being scared and panicked. Whenever our decision are based on extreme situation (irrational choices).....one tends to pick a wrong choice. Remember all those individual who invested in a scheme that offered to double their money fast, remember all those stock tips that stock broker or agent gave you.

Human beings are flawed creature. We are not perfect and so is nobody, our choices are only half chances (picked up from a song).......hence we try to maximise our chances for survival and winning. Before making any decision specially pertaining to investment/money, try being rational, think for a minute whether decision being taken is on its merit or driven by greed & fear.