They were two friends who got on to investing and a little bit of trading in stocks.
The older one was a ‘Floor Fisher’ – which meant that he had a list of stocks which were worth investing in but wouldn’t buy till the prices of that stock plummeted below a certain preset limit. These limits were set by him and the list contained limits which were ridiculously low. Since they were investing in the NSE/BSE, the following were the limits which he shared with his ‘Wave Rider’ friend.
They were not poles apart, in the sense that both wanted to see profits but their methods were different and distinct. The Floor Fisher didn’t have the mind to keep following the stock prices perennially while the trades were on, he would rather buy the shares and forget about it with a smug feeling that the turbulence of the stock markets wouldn’t pull his shares down below his purchase cost! That was true to a very large extent, but he was also aware of the seminal changes in policies and politics which could alter the pacific course of the stocks he had invested in.
His friend, Wave Rider was alive to every bit of news whether it be stock related or the policies and politics. Everything was a grist to his anxious mill. He didn’t want to lose a good opportunity- an opportunity to make money. He was up to date on news, views and gossip built on hopes, fears, anxiety and a whole lotta emotions. His ride was focused on riding every Wave so that his surfing would give him the necessary High of being on the stock trade. Saturdays and Sundays were horrible days for the Wave Rider- it kept him hanging for the turbulence of the Monday morning and it flattened him from Friday afternoon.
But the Floor Fisher was placid- it was not a calm without any anxiety, but an expectant hope that for some reason the blue chip shares he had identified would fall to the limits he has arrived at – none knew as to how he arrived at those limits.
When he shared the list and the rates at which the Floor Fisher proposed to buy those shares, the Wave Rider burst out laughing.
The conflict between these two started on these grounds:
But before I start the grounds I would like to share the list, which seemed ridiculous not only to the Wave Rider but even to me:
Asian Paints. 2,550
Abbott India 12,500
Page Industries. 33,000
Aurobindo Pharm. 550
Tata Investment Corp. 1300
Vindhya Telelinks. 1000
Finolex Cables. 350
Ambuja cements. 260
Heidelberg Cement. 180
You may go through the current prices to see how ridiculous the targets were.
Now getting back to the reasons for their divergent views:
The Floor Fisher believed, not without reason, that there are only three routes for raising funds by any company to build up their activities- firstly from the banks by submission of a project report and furnishing collateral or alternately to ride on the subsidies of the prevalent policies; Secondly, by holding substantial percentage of shares in the company by the promoters and ensuring that the prices of the shares are kept fabulously high so that a part of the shares held by the Promoters could be pledged and monies could be raised. Thirdly, The Floor Fisher thought that the Promoters/ Management of the Company could sell their hopeful ideas to investors like for example Bloombox Sridhar, and raise money, and make an attempt to fulfill their claims of discovery etc. This is what Wikipedia has to say about Sridhar:
On 24 February 2010, Bloom Energy launched a new energy-efficient and environmentally friendly fuel cell known as the Bloom Box. As of 2010, natural gas and atmospheric oxygen are pumped through a stack of cells, producing electricity, but theoretically any other gaseous fuel could be used. The energy is clean and inexpensive, but development and production of this fuel cell required a large initial investment of $100 million. Sridhar was able to obtain funding for the project from investors such as Kleiner Perkins Caufield & Byers and New Enterprise Associates. Kleiner is represented on the Bloom Energy board of directors by John Doerr, an early investor in companies such as Amazon and Google as well.
Floor Fisher also believed that not everyone purveyed hope without success, but the numbers of the Hope purveyors far exceeded the ‘true performers’. To take the example of an Edison or a Nikolai Tesla or an Elon Musk would be hazardous, as these success stories were one in a million each. But, investors have their own ideas- which only a person with that kind of money could fathom, and our Floor Fisher was utterly unsuited for that task.
With this mindset there was no meeting ground between the Floor Fisher and the Wave Rider. Many a time, the Floor Fisher would give the data of those promoters holding around 74% of the shares of those companies, another 15% by investors from Mauritius and other not so financially clean and transparent jurisdictions and ultimately only around 10% of the shares were the shares supposed to be in the hands of the public.
One day the Floor Fisher said: Can’t you imagine that it could be easier to jack up the market value of these shares which have only 10% float?
The Wave Rider queried: So how would that benefit the Promoters?
The Floor Fisher said: Assume that the face value of the share was ₹ 10; if some assets are integrated to the company prior to an IPO would not the valuation of those ₹10 face value shares go up?
The Wave Rider said: Yes, so what?
The Floor Fisher said, Would it not be in the hands of the promoters to fix up the value of the integrated assets – on intangible benefits to accrue to the company?
Yes said the Rider.
If the promoters of the company add free licences using their political contacts and money power, would that not enhance the value of the shares of the company and consequently give the Promoters the power to project valuations, not entirely connected with reality?
The Rider agreed, but added: Yet people should subscribe at those inflated rates, isn’t it? There’s no guarantee that the investors would invest at all.
The Fisher said: that’s where the demand and supply Principle hand is played! See, there’s going to be only 10% of the shares in the market for the Public and even assuming that they don’t get subscribed, there are underwriters, who would have agreed to pick those unsubscribed shares up!
The Rider said: Ok, so how would that help the promoters?
The Fisher said: Wouldn’t it be easier to sell 10% of the shares in a market, if the promoters show themselves to have the financial prowess and political heft?
Yes, said the Rider.
The game is to win much before it has started, said the Fisher. He added, The idea is to propel the shares to a ₹1000 share, thus by making marginal investments, the 90% of the shares held/ controlled by the Promoters, would be propelled by 100 times! Now look at the eligibility of the Promoters to borrow money from the banks! The Promoters would be able to borrow 50% of the market value, which would be ₹500 per share. Isn’t it phenomenal that by investing a marginal amount the promoters would be able to raise so much capital and thereafter really acquire valuable companies with the bank’s money and enhance the value and earnings through those mergers and acquisitions?
Yes, agreed the Rider.
The Fisher said, Bro you are fueling
those companies, which are nothing but a risky proposition, as such promoters have to rely on the support of the policy makers and the approvals of the executives. And I don’t want to get into those risky investments, though the earnings through my investments could be modest.
The Floor Fisher keeps waiting like a stork on one leg for the stock prices to hit those lower limits, as the Wave Rider is flitting from stock to stock creaming out!
They are friends, whose paths don’t coincide, but they travel watching each other with amusement and wonder!