Your Broker As A Cheat (Part 12)

There is a joke…

A long time ago, a visitor from out of town came to a tour in Mumbai.

At the end of the tour, they took him to the financial district. When they arrived to the Gateway of India, the guide showed him some nice yachts anchoring there, and said, "Here are the yachts of our bankers and stockbrokers."

"And where are the yachts of the investors?" asked the naive visitor.

All those concerned with regulating the markets are taking the Indian Investor for a ride.  Here is a typical pattern –

A company’s stock is usually in the hands of Foreign Institutional Investors and the Domestic Institutional Investors and the Promoters.  There are very little shares in the hand of the retail investor.

The price of this stock is then jockeyed into stratosphere.  Specific targets are given to the jockeys and market operators.  The main broker then gives a signal to his sub-brokers.  This is the time when the broker will issue a “Stock Analysis Report”.  This report is an advertisement and a gimmick.

At this stage, your broker or sub-broker may furnish you this report.  As a prudent investor, you must keep checking the shareholding pattern of the company’s equity (www.bseindia.com).  Here is what will happen if there is a game going on.

You will see a steady decline in the quantum of shares held by the Foreign Institutional Investors (FII), the Domestic Institutional Investors (DII) and the PROMOTERS!!  Guess who is now holding the stock – the other category, which are essentially the retail investors.

Grapevine has it that the FII is actually the Indian Politicians who route their transactions from countries like Mauritius etc.  The DII are Indian Mutual Funds.  The point here is that, if the grapevine is true, one must never be impressed by the amount of stock held by the FII as it is just and illusion of "foreign" investment.  The stock will be transferred to the retail investors at a high price – come what may.

I suggest to you readers to surf the Bombay Stock Exchange website and look for all stocks have lost more than 70% value in terms of their lifetime high price.  You will observe the pattern of “stiffing the retail investor” as mentioned above.

If your broker has recommended any stock to you that has this pattern, then know your broker to be a cheat.

Happy Investing!

© Nitesh Kotecha