InvestorQ : Are there any key lessons for traders and investors to learn from what has happened in the case of LVB?
Arti Chavan made post

Are there any key lessons for traders and investors to learn from what has happened in the case of LVB?

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Rutuja Nigam answered.
6 months ago
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The LVB shareholders and the Tier 2 bond investors have seen their entire holdings being written down to zero. Here are some key lessons to take away.

· It is a timely reminder of the Latin phrase, “Caveat Emptor”; which means let the buyer beware! This is the basis of all financial contracts in India also and you must remember that investing in equity and debt is no different for the Caveat Emptor principle.

· The RBI and government have highlighted that their primary focus has been and will continue to be the protection of the interests of the small bank depositor and the integrity of the financial markets.

· It is going to be really difficult to expect the central bank or the government to worry about equity and bond investors who enter into contracts fully aware of the risks involved. Like in the case of Yes Bank, the government has been clear that those who take the risk in search of higher returns must bear the risk too.

· Then there are some lessons for short term speculators too. A lot of small and large speculators like to punt on such stocks hoping to make a quick buck out of the crisis. For example, it is quite common for individual and institutional investors to speculate in troubled banks in the hope that the government would intervene and bail them out.

· The RBI argument is that traders buying into speculative stocks or bonds in the midst of distress are speculators and should be aware of the downside risks. They must be prepared for big losses too. It is surely painful in reality but LVB crisis was well known. If they still held on, that is a conscious risk they took.

It is a lesson in risk for the investors and for speculators. They should hopefully be more cautious in the future.

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