May 18, 2007


Experts are as clueless as 'Aam Investor'

Bajaj Auto lost almost 16% of its value in last 2 days, when details of de-merger scheme were made public. The particular information that dilution of insurance business at very low valuation is the main reason. Everybody, who was under the impression that de-merger will unlock the value, a la Reliance, was in for a surprise - an unpleasant one at that.


Average investor is not able find the real value of insurance business, as there are no listed entities for benchmarking. Most of the information they have is from the so-called experts/tipsters coming on the business channels. Turns out even they were equally clueless. Even the respectable brokerage houses who come out with research reports, were caught off the guard. Just see the amazing number of analysts putting a "buy" on the company with targets almost 50% higher than CMP.

So, what lesson should average investor learn from this episode?

One, don't take expert advice (free or paid) on stocks as final word. Do some of your own research. If you can't do that, use the option of mutual funds. Though similar set of problems may exists for them, but diversification lessens the grief.

Two, investing based on events is akin to timing the market, a cardinal sin.

Three, even blue-chips are vulnerable and risky. When somebody says, blue chips are safer, I can only point them to April 2003, when Infosys lost more than 40%(yes, forty per cent) of its value in two days. Risk is inherent to the stock market.

Enough of gyaan!

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