Adani Group Shares and the Plight of DIY Investors

The last week of the stock market was exciting as well as entertaining. It was almost a roller coaster ride. And, as usual, there were many learnings for the retail investors.

On 24 Jan Hindenburg, a US-based investment research firm reported that there are many serious issues concerning the Adani group. The next day all seven listed shares of the Adani group collapsed like pack of cards.

This was the time when an FPO (Follow-on Public Offer) of Adani Enterprises stock amounting to Rs. 20,000 Cr was in progress. The rumor had it that the FPO will not be fully subscribed. However, the Adani group pulled it off successfully.

The FPO was priced in the range of Rs. 3112-3276. However, on the day of the closure of FPO, the Adani Enterprise share was trading at around Rs. 2000, a huge discount on the FPO price. That day Mr. Adani declared that in the interest of retail investors, they are withdrawing the FPO. The next day it was chaos in the market. Almost all Adani group shares hit the lower circuit. Since then unprecedented volatility was observed in all these shares.

Everyone in the market including the self-proclaimed market experts are still clueless about what is happening in these companies. A few insiders may be aware of what is cooking up and they are shorting these stocks to the glory. Someone out there is minting money out of this fall for sure. However, as it happens every time, the retail investor is the one who is facing the brunt of this.

WELCOME BACK ONCE AGAIN TO THE BRUTAL WORLD OF THE STOCK MARKET!!!

There is nothing new in this story. Such instances have occurred in the past and will keep happening. This is not the first time and certainly will not be the last. The market is driven by sentiments. It is ruthless, unpredictable, and unforgiving.

I am aware of many DIY (“Do It Yourself”) investors who have invested in these stocks and facing a notional loss of more than 50% of their capital. They are worried and clueless now. When these stocks were making new highs every day, they were jumping with excitement. And now when the same stocks are falling heavily, they are running for the cover. They don’t know where to hide.

When everything is fine, you feel under control and confident. However when the portfolio is bleeding in red, when the market is abuzz with rumors, when the stocks are hitting lower circuits every day that is the time your true mettle is tested. This is the time that tells you whether you are competent to invest in stocks or not. In such times, you need a lot of courage to sell at a loss and move forward. And mind you, this is easier said than done.

Investing in direct equities is a full-time profession. You need to be right in the forefront, active, and engaged all the time. Many DIY investors have full-time jobs and are bogged down by daily office responsibilities. They do not have enough time or knowledge to research and invest in the market. Still, they invest their hard-earned money based on tips from friends who themselves are equally ignorant.

WHAT SHOULD DIY INVESTORS DO NOW?

In the absence of appropriate guidance, all these DIY investors are thoroughly confused, jittery, and indecisive. So, let me extend a helping hand to them. Follow these thumb rules and you will save your skin:-

1. Investing in shares is always risky. Markets will surprise you on the downside. Such disasters will keep taking place. It is extremely difficult for you to handle these. First thing first, avoid investing in stocks and move to safer heavens like mutual funds. You will able to create enough wealth without getting sleepless nights. These are the words of wisdom.

2. Even after my caution, if you still want to invest in equities then whenever you face such situations, exit at the first instance and run for the cover. Flight to safety is the best policy.

3. Do not buy more and try averaging. There is a saying in the market that says, never try to catch a falling knife. You may get severely hurt.

4. Do not enter into such stocks just because they have fallen more than 50%. Who knows, they can further fall by 100% and become a big zero.

Avoid playing with the fire. Stay safe!!!

Warren Buffet said, “Only when the tide goes out do you discover who is swimming naked.”