Investors Beware! This Is How The Operators Work.

The Indian equity markets have been quite volatile since last few weeks and in such volatile situation investors tend to make mistakes. Rather this is the time when they lose patience and take hasty decision. It is the time when the investors follow the herd mentality.

"Once upon a time in a village, a businessman appeared and asked the villagers, what do you do for living? They answered we are farmers and do farming. He said you must have an alternate source of earnings and suggested that since the village was surrounded by a deep forest, this would provide for an ideal earning opportunity for them. He announced to the villagers that if they got him monkeys from the forest, he would buy the animals for Rs 10 each.

The villagers, seeing that there were many monkeys around, went out to the forest and started catching them. Everyone in the village earned in thousands. However, this frenetic pace of hunting quickly diminished the number of monkeys in the forest and the villagers per force had to stop this activity.

Looking at the diminished supply, the businessman announced that he would now buy monkeys at Rs 20. This prompted the villagers to make a renewed effort and they now ventured still deeper into the forest to catch the beasts. Once again, however, the supply diminished and the villagers lost interest, returning to their farms for a living. But then the businessman increased the offer to Rs 25 each. This sparked off enthusiasm in the villagers yet again. However, the supply of monkeys became so little that it was an effort to even see a monkey, let alone catch it!

The businessman now announced that he would buy monkeys at Rs 50! The offer lured each and every villager.  However, in between, the businessman had to go to the city on some business visit and his assistant started to look after the business on behalf of him.

In the meantime the villagers had befriended the assistant as they considered him one of them. In the absence of the businessman, the assistant told the villagers: “Look at all these monkeys in the big cage that the man has collected. I will sell them to you at Rs 35 and when the man returns from the city, you can sell them to him for Rs 50 each.”

The villagers rounded up all their savings and bought all the monkeys. But when they visited the businessman’s place, there was no sign of the businessman or the assistant. There were only monkeys everywhere!"

Now we guess you have a better understanding of how the operators work in the stock market. So beware of such things while investing in the market. The monkeys here signify the operator-based stock.

The question is how to identify such stock. The foremost factor is to analyse the volume pattern in the past one year. These kinds of stocks usually have an erratic volume pattern. If there is any discrepancy on the volume front, it is always better to avoid the stock. The second factor is that you should always make an attempt to understand the business of the company before investing in it.

In the past, we have stated time and again that by asking a few questions to ourselves, we can avoid many a bad investments. So be cautious and avoid buying monkeys as stated in the story.