Your Broker As A Cheat (Part 3)

There is a joke...

"I hear that you lost some money on Dalal Street. Were you a bull or a bear?"
"Neither, just a plain simple ass."

The whole IPO (Not “Initial Public Offer” but “Its Positively Overpriced”) business is a business about an inside job.  Let us break it down in steps and understand it.

It begins with an insincere company wanting public money.  It may have a business model in place.  The next job is to meet a venture capitalist or a private investor.  The “critical investor” will now “develop” the business model and make it more market savvy.

It is at the above the stage that the business has value or creates value.  However, the private investor or the venture capitalist would have negotiated hard and acquired shares in this company at a dirt cheap price from its promoters.

It is at this stage that big brokers and /or financial service providers take a stake in this stock.  The stock is then placed privately with them – either directly or indirectly through benami companies or other off- shore companies.  Please remember that most corporates have huge amount of benami companies that they own through some back-hand way.  It is rumored that many of our Sensex and Nifty companies have more than 25000+ benami companies that help the main company adjust their books of accounts, amongst other things.

This is the part where the game is set.  The financial service providers or brokers have a team that markets this stock heavily.  Your broker will be a part of this racket.

The retail investor now subscribes to this IPO.  Newspapers and the news channels join this game and create a perception for the retail investor.  Your broker will sing a song to you about how great this stock and its future are.  He will talk about valuations, long term growth, value investing, Peter Lynch and Warren Buffet – basically any nonsense through which he can increase his own credibility with you and persuade you.

You and your money are soon toast.

Read more of this in the way “critical investors” exited Air Deccan and Kingfisher Airlines stock immediately after an IPO.  You will know more.

Beware of the broker who asks you subscribe to an IPO.  Ask him why you should subscribe to the IPO and he will tell you that he has got news about it from "the smartest guys" in Mumbai.  He will succeed on you because of your greed.

If you like IPOs, make your own choices.  Junk your broker.  He is a humbug who is more interested in the turnover in his account than your money.

The current financial environment sucks.  So, why are there no IPOs?  Are there not many companies out there that honestly need the public money to grow and take part in the India story?  Are there no good companies that are riddled with debt and could do with some equity to get rid of it?


The problem is that the private investor / the financial services company will not get the 500%+ return that they are expecting on their money as the retail investor is currently not participating in the markets.

The last year, Indian investors lost over INR 10,640,000,000 (USD 221,666,667) PER HOUR OF TRADING.  Are you guessing where the money went?


Well, it’s the private investor, the venture capitalist, the financial service providers, the bank.

And your broker.

Happy Investing !!!

Copyright © Nitesh Kotecha