Not a better love story than Twilight — learning the hard lessons!

While I was still battling my urge to talk to the girl I have been in one sided love for more than 7 years now, I received another bad news. One that was going to shake my belief system, leaving much to introspect. Time and again, I have felt that emotions only make you weak and leave you with a biased mindset but still knowing that, I always get carried away. But this isn’t about loving someone, it’s about an emotional investment in stock market.

I was still studying in 7th standard when I starting investing in stock markets from my dad’s demat account. Getting his permission was a tedious task though — I used to analyse financial results of some 2500 companies, choose top picks from each sector and then again compare those top picks to narrow down to 4–5 companies before finally recommending them to my dad who would not take my recommendations seriously. I started writing my recommendations in a diary and all of them used to give impressive returns within a short time. This helped me convince dad to some extent but he didn’t allow me to use his demat account until one day he found out that I had already purchased some stocks from his account without his permission and he had made decent profit. I got scolded and I was forbidden from using his account again but he allowed me to invest my savings in shares, only condition being — buy and sell orders should be placed through him. Although I trade from my own account now, this setting still works and dad holds my initial stocks in his account.

Beginning of my love story

Like many people remember many firsts in their life, it is all about my first investment. It was Tata Teleservices Maharashtra Limited (or DoCoMo as you would better recognise). I started investing when the shares were priced at Rs.8 and telecom sector was just about to enter a brief golden period. I did not have much and had invested just 2000 but that multiplied faster than it would have with any other financial instrument. I don’t know the exact timelines but within few years it was quoting at around 30. After a while, there came the news of NTT Docomo (Japanese telecom giant) investing some 14,000 crores into Tata Tele. Docomo set some performance criteria for this partnership to work and if these criteria were not meant in stipulated time, DoCoMo was entitled to exit at a pre-determined price which was multiple times the then existing stock price of Tata Tele. It was a jackpot deal for indian investors and the share prices soon started reflecting the same. While it was still a speculation and deal got finalised later, traders somehow got the insider news. Everyday, I would come back from school and check Tata Tele stock prices only to see them going north until one day when it hit Rs.62. As a kid, I got emotionally attached to it and I decided that no matter what, it is the first company I have invested in, I’ll never sell the shares even if it goes bankrupt.
We used to trade through a broker and had to call him to place orders. Tata Tele had just hit 62, around 8 times my holding price. I asked dad to sell his and 75% of my part of share holding and he agreed. The broker’s phone did not connect that day, so we went to his office where he told us to wait for 2–3 days for more appreciation. “Bhai saahab, ek do din mein khabar aane wali hai, hundred touch karega Tata Tele.. hold kar lijiye.” (translated: “Sir, a news is due in 1–2 days, Tata Tele will touch 100.. hold for some time.”) Earlier, when it was trading around 45, our broker had told us to hold and now it was trading at 62, so we decided to listen to him.

First signs of cracks in our heaven

Next day, on 21st January 2008, I witnessed the first major stock market crash in my life. Markets came crashing down by 1400 points and their came news of people committing suicides or suffering from heart attacks. The day after, markets crashed by around 900 points again and my heart sank too. Tata Tele had crashed from 62 to 34 and while markets slightly, it did not. But whole of 2008 was a dreadful year for investors. By October, I had witnessed 5–6 major falls and markets had fallen more than 55% from the peak it had reached in January before the first fall. Tata Tele was no exception, infact, it reacted even more sharply. From a networth of around 16000, I was reduced to some 6600 but still I was in profit.
I decided to finally sell Tata Tele and like a logical investor, invest the money in some more attractive companies. Also, Tata Tele had always been a loss making company but I had faith in it as I had grown up reading all the good things about the Tata group and Rata Tata in particular. I always believed that with a good management, a turnaround was imminent but things had been dragging for long. I sold 75% of my holdings and invested the whole amount in Hindustan Construction Company which I had been following for long but I did not have money to invest into it. It was also badly beaten in the falling markets and although I wanted to buy when it was trading at 30, I could buy it only after a month at 60. Within a month, I sold Hind Construction at 126 and recovered a lot of my losses.

The patch up

As people say, first love is hard to forget. Same was the case with Tata Teleservices. While I discovered companies like Suven LifeSciences in which I invested at around 30 and they later reached 300, I could never get Tata Tele out of my mind. It was an emotional connect but there also was a promise of big money as DoCoMo had valued a share at Rs.112 when it was trading at 17. Come 2010, I performed exceedingly poorly in board and engineering entrance exams, then one year in Kota and worrying about Dad’s cancer during first year in college — I distanced myself from stock markets but when I finally opened my own demat account, I picked it from where I had left. By then, it was clear that Tata Tele’s business was not picking up, they had never earned profits and debts were mounting but being emotionally connected to it, I always chose to believe that our relationship will end with me not ending up a loser. I accumulated more and more in the hopes that someone will acquire them or merge with them and then I’ll get my return. Over next four years, I went on to accumulate 5500 shares which still is a small number but for a normal guy like me, it’s a lot.

A bumpy ride

Tatas missed the goals set by DoCoMo by huge margins. They never turned profitable except for one quarter when they sold off a part of their business and had some other income apart from their operations. They also got stuck in a bad space in the telecom scam under the UPA. The new spectrum allocation, tough competition and other factors, all made it too difficult for Tata Tele to breathe in this space. All this while, I kept on expecting a merger with Vodafone or Airtel and news about backchannel talks regarding a merger, always kept making rounds while share prices kept coming down. I kept on accumulating until I realised it was enough and stopped a year ago. Cyrus Mistry was ousted and fresh attempts were made to sell Tata Tele to Vodafone and Airtel but all efforts failed due to the 36000 crores of accumulated debt. I don’t know when I turned a blind eye to it but then this is how love is — blind. Soon it’s going to die!

The Learning

I’m writing this to own up to my mistake and it is also for all those who ever ask me for stock tips — not every thing I recommend is gold, infact, most of it isn’t. While I do have multibaggers in my portfolio, Tata Tele was an emotional disaster. Soon it’ll be shut down and mostly all my money will be lost if I don’t book lesser losses now, but, there are many lessons that I learnt:

Don’t forget the opportunity cost

If you are investing some amount in stocks and hoping that in long term it’ll double or triple your money but you end up getting just 10–12% or less return, it was a bad investment because you would have anyway got more from banks. I did not consider the opportunity cost in Tata Tele and the 40k that I’m set to lose, should have been atleast 60k by now but it is valued at 27k only — not even 50% of what it should have been.

Learn to book losses

Barring Tata Tele, I have made decent profits recently and that was partially due to the improved ability to book losses. One should not try to wait for the same share to make up for losses. If you invested in A and lost 10% you can sell A and by a better company B which might give you better returns rather than waiting for A to first come to your purchase levels and then give you returns. Do not get too senti about it.

Be reasonable, not greedy

Every company you invest in, might have a potential to double your money, but that doesn’t always happen. You should just try to outperform conventional financial instrument. If you are able to book 10% profit just twice or thrice a year, that is amazing return but we often get caught up in greed. Analysing my own performance over last couple of years, I have made money only where I exited with 15–25% return, elsewhere, i got greedy and in hopes of higher profits, ended up with principal erosion. So booking profit and booking losses is equally important.

Play safe

You’ll always hear stories about Warren Buffet and Rakesh Jhunjhunwaala but no one will tell you about people whose gambles did not work. People like me, who thought their risks were calculated but actually they were not. It’s difficult to earn money and very easy to lose it. You don;t have to make efforts to lose money but earning is tough, so you should always try to put maximum money in safe and sure bets while still investing a little sum in companies like Tata Tele but you should always be particular about booking losses at the right time.

Don’t be emotional

That’s a sin. Be it a normal relationship or the one I had with Tata Tele — emotions are a weakness. Emotions don’t let you think through, and trick you into making biased and illogical desisions. Do not get attached to the company that you work in or invest in. You are just a trader and you should be cool about it. Sell it when it goes up, buy when it goes down — there’s no other rule.

As for me, I have written off my investment and while I can save 50% by selling shares now, I’m gambling for one last time with the logic that Tatas will shut their wireless business and merge the rest with a group company. A merger will atleast get me the principal amount back and no merger will mean 100% loss. Let’s wait and watch and meanwhile read this if you want to know more about it.