My article, "Where everyday is April Fool's day" which appeared appropriately in the 1st week of April, resulted in some unexpected feedback from a few readers.
The article talked about how foolish some investors are throughout the year. Towards the end of the article, I made my readers an outrageous offer ("Do you seriously want to be rich?") Promising huge profits from a tip, I invited readers to subscribe to my Special Five Star Flash which would make them very rich, very quickly. To make sure no one actually subscribes, I gave the game away by adding a note at the bottom of the coupon which said: "Please draw no cheques in favour of Intelligent Investor April Fool's Offer."
To my surprise, and to that of my colleagues at Intelligent Investor, some of you have filled in the coupon and send cheques for Rs 200 each as your subscription to the Special Five Star Flash! One reader from Uttar Pradesh, Mr Srivastava, wrote a letter which was published in the next issue of Intelligent Investor. He expressed his "burning desire to enquire whether such a phenomenon can take place," and went on to promise that "when I have sufficient money I will definitely send the required amount and maybe much more, to know more about these magic stocks."
Mr Srivastava, and all those who sent or even contemplated sending the subscription money for the Special Five Star Flash: You've been April fooled!
There is no magic stock and there is no Special Five Star Flash. There couldn't possibly be. If, indeed, there was a stock which I knew will soar from less than Rs 20 per share to more than Rs 150 per share in less than 3 weeks, and if I was willing to let you know the name of that stock for only Rs 200, the question you should have asked is: Why is he telling?
If I really knew which stock will multiple more than 6 times in three weeks, I would have no incentive to tell anyone. Indeed, if I could find only six such stocks then (ignoring transaction costs and taxes) in a mere 18 weeks I could turn Rs 1 lac to more than Rs 450 crores! Simple arithmetic shows how: Rs 1 lac . . . Rs 6 lacs . . . Rs 36 lacs . . . Rs 216 lacs . . . Rs 1296 lacs . . . Rs 7776 lacs . . . Rs 46656 lacs!
If you take a look at the 52 week high-low figures of Indian stocks, you will find many whose prices moved from less than Rs 20 to more than Rs 150 in a short time. Does that mean you could have made a lot of money in these stocks? No!
The vital point to note is this: Such magic stocks do exist, but they can be identified only with hindsight, never with foresight. If they could be identified in advance then there would be many investors who turned Rs 1 lac into Rs 46656 lacs in no time at all. The fact that there are no such investors around is proof that hindsight and foresight are not the same things. But even if you suspend your disbelief and assume that such magic stocks can be identified in advance by some very smart person, the question that begs to be asked is that why is this very smart person selling that advice for only Rs 200. Surely the investment advice which promises to generate returns of more than 650 percent in less than three weeks is worth a lot more than Rs 200!
If anyone offers to make you rich quickly by selling you stockmarket tips for money, then you must ask what his true motives are, for it is likely that this person is either a stockbroker who wants to earn commissions from your trades (see my Strategic Commentary article in this issue) or this person wants to unload his lousy stock on to you. Or, he's making an April fool out of you!
Note
This article is submitted by Sanjay Bakshi who is the Chief Executive Officer of a New Delhi based company called Corporate Investment Research Private Limited.
© Sanjay Bakshi. 1997.