Both the charts of YESBANK and CITIGROUP given below span several decades, capturing the ups and downs of these banks’ fortunes over the years. One striking similarity is the massive gains they made during their heydays.
Yes Bank’s chart shows an incredible rise, from around Rs. 10 to nearly Rs. 306 on a monthly closing basis. On a daily basis, it may have even reached Rs. 400. This means it multiplied its value by 36 times. Similarly, Citigroup’s stock price surged from approximately Rs. 10 to an astounding 566 times its original value. These examples serve as a reminder that unexpected events can occur in stock markets, and it is important to draw valuable insights from the past to navigate such uncertainties.
The change in investor behavior and the shifting attractiveness of stocks can happen gradually, influenced by various factors. Yes Bank and Citigroup’s experiences are just two among thousands of examples where companies that were once considered highly sought-after suddenly lose favor. It is crucial to understand and acknowledge that this change in sentiment can happen to any stock.
During the upward trajectory, when a stock is consistently rising over several years, it reinforces the bias that the company is infallible. Investors become convinced that it will continue this positive trend indefinitely. However, when a downturn occurs, it often takes investors by surprise. They find it difficult to accept and reconcile with the fact that the stock they believed in so strongly is now facing challenges. This initial dip in stock prices is often met with denial and disbelief, leading some investors to buy even more shares under the assumption that it is just a temporary setback. Subsequently, when the next dip occurs, it becomes increasingly challenging for investors to maintain their conviction. The fall that destroys years, or even decades, of built-up confidence cannot be dismissed or wished away within a matter of hours.
Looking back at Citigroup’s example, most of the value destruction happened within months, if not years. The market cap eroded significantly within weeks, leaving many investors bewildered and at a loss for how to react. Our natural inclination, coupled with our inability to process this rapid change, leaves us paralyzed, like a deer caught in headlights. These unexpected and sudden shifts challenge our mental preparedness and create a sense of helplessness.
This is why I am a strong advocate for non-emotional and non-discretionary investing. It is crucial to avoid becoming emotionally attached to stocks. Regardless of whether the chart belongs to Yes Bank, No Bank, or any other bank, it should be viewed as a mere vehicle that provided returns until a certain point. Once it stops generating favorable returns, it is time to move on. It is essential to adopt a mindset that searches for alternative investment opportunities, just like finding another bus to reach your destination when the current one is no longer serving your needs.
Do not fall prey to the trap of being overly devoted to a single stock. No matter how much knowledge or research you have accumulated about a particular company, avoid fabricating stories in your mind about its future potential. Instead, detach yourself from your holdings and make decisions based on the current situation. If a stock is performing well, hold onto it. If it is underperforming, consider exiting with minimal transactional costs. In countries like India, where zero brokerage fees are available, investors have the freedom to move in and out of stocks without incurring excessive expenses.
In order to make your investing journey simple and blissful, define your own rules of the game. Clarify your investment strategy and align it with your goals and risk tolerance. By setting clear guidelines and following them consistently, you create a solid foundation for navigating the ups and downs of the market.
If you have any questions, please write to support@weekendinvesting.com
