‘Forest’ friends in Dalal Street

With its tricky jargons and complexities, the stock market is a maze-like labyrinth that often perplexes new investors. In the previous episode, we unravelled the jungle and highlighted a few animals and their behaviour. Now, we are untangling others from the world of bourse...

Rapid Rabbits

Known for impulsive behaviour, scalpers and intraday traders are the picture-perfect examples of nimble rabbits. Quite averse to overnight risk and aiming at instant profit, rabbits (traders, not investors) avoid holding a position even for a day. Often considered the darlings of the brokerage firms for their multiple entries and exits on a single day, they pay huge brokerage to the Depository Participants (DP). Dividend, Return on Equity, PE Ratio, Return on Capital Employed, Free Cash Flow, and so on and so forth are all not really up their alley.

For instance, Hari purchases 5,000 shares of ABYZ at 9.32 a.m. for ₹125 and at 9.34 a.m., the price hits ₹125.20. Within two minutes, Hari would book a profit of ₹1,000 [5,000*0.20]. In the same vein, he would make more entries and exits before the market closes on the day, booking up small profits at each trade. This way, he makes a considerable amount of profit on a single trading day and also would pay a hefty brokerage fee to the DP.

Thoughtful Turtles

For Turtles, market crashes are like water off a duck’s back, they just shrug it off and move on. Jumping with joy, they consider the bearish market an opportunity to accumulate more shares. They remain unfazed by any bad news, short-term fluctuation or volatility in the market. The more the stock nosedives, the more they buy and keep on averaging it.

Let’s assume Hari had purchased one share of ABYZ for ₹125, after which the market crashed bringing the stock to ₹25. Instead of indulging in panic selling, prudent Hari will buy five stocks for ₹125. When the price was record high at ₹125, Hari purchased only one share, but after the crash, he bought five. If the market remains bullish, Hari could buy only two shares for ₹250. But, owing to the fall, Hari’s portfolio now has six shares costing ₹250, thanks to the market crash and averaging.

Oblivious Ostriches

When faced with danger, an ostrich buries its head into sand. Likewise, these investors turn a Nelson’s eye to any bad news in the market, in the hope that the news would disappear on its own. They just blindly believe that “all is well, when really all is not well.”

Let’s assume that an Ostrich investor heard it through the grapevine that ABYZ will pull down the curtain soon, and that’s the reason its shares fell like ninepins from ₹125 to ₹25. Despite getting this inside scoop, this investor doesn’t sell the shares and realise at least ₹25 per share. Instead, he believes, often without a valid reason, that the news is not true and that the stock will recover soon. Alas! The news would be true and the entire money is lost forever.

Speculator Stags

Stag investors, otherwise dubbed as IPO opportunists, are speculators who eye on making quick profits, predominantly in the IPO markets. They are often compared with deers for their speed in the execution of the strategy. They are not average Joes who easily settle down with the usual bullish or bearish markets. Day traders, they target quick bucks as soon as a stock is listed on the bourse. Generally, the IPOs of the most reputable companies are oversubscribed and stocks would be allotted only to a limited number of applicants. Hence, stags cash in on this opportunity. They apply for quite a bulk number of shares during the IPO and the moment the shares are listed at a high price, they offload the shares and exit the ring.

These forest friends are just metaphors that shed insights on various trading/investing strategies in the stock market and by now, we hope you know which kind of investor or trader you are.