As I sit down to write this note, Dalal street has just witnessed the kind of carnage that it has rarely seen. One of the biggest single day crashes in history and the kind of fall that has not been witnessed in almost a decade. Indian investors have lost over 7 lakh crore in a single day. And yet, in the midst of all this, there is a strange class of investor, who is quietly satisfied! Yes there is! Who is this investor? And how do they operate?
The bears have hammered the market, while the bulls are running for cover. Everyone is asking the age old question. Who ultimately wins in the market? The bulls who ride the highs or the bears who swim in the shallows?
Not that I am any kind of expert, but it strikes me that perhaps it’s neither. Partly in jest, I have always observed that there is a 3rd class of extremely successful investor, who I call “the vulture”! And I mean this in a thoroughly complimentary way. The vulture is a bird of many virtues. It is meticulous, has legendary patience and takes decisive action at the right time. Similarly, one observes that there is a class of investors who remain unfazed by all the periodic volatility in the market. Seemingly unaffected by the pomp and glamour of the market and doing nothing? This investor seems to be characterized by the following traits:
1. The vulture does meticulous research and makes his or her own list of “must have” stocks, based on long term viability and fundamental analysis
2. He sits on cash and waits for the black swan event that he knows must inevitably come along in any stock market. Here is where patience counts. Sometimes the vulture has to wait for years on the sidelines, without joining in the party around him that everyone seems to be enjoying.
3. When the moment is right, he does not attempt to call the bottom or make money from the hope of further falls in the market like the bears. The vulture goes right in, picks the stocks that he wants and returns to his branch. Not participating again. Just keeping a sleepy eye out for the next positive peak of euphoria that must also inevitably come along some day. When it does, he unloads his shares decisively and sits on cash again.
Does the vulture need a carnage to thrive? Yes, he does. But he doesn’t create the carnage. He just profits extremely well from the consequences of mistakes made by others. In the end, the bulls and the bears may be stronger. But the vulture is a much more efficient bird! I would daresay that many legendary investors were neither bulls nor bears. They were vultures 🙂