InvestorQ : Are there any specific Indian cases of hope hype and hysteria?
Abhi Yadav made post

Are there any specific Indian cases of hope hype and hysteria?

Abhi Yadav answered.
3 years ago

Hope is when value is least apparent and most likely. Hope is buying Infosys at 100 in 1995. Hope is buying Bharti at Rs.18 in 2003. Hope is buying Eicher at Rs.100 in 2009. Each became a multi-bagger over the next 5 years. If you ever want to create wealth through equities, you have to bet on hope. That is the starting point.

Hope is also when the power of compounding works best for you. Imagine buying a stock at Rs.2 (SAIL in 2002) and it goes to Rs.40 in 2 years (a 20-bagger). Had you bought the stock Rs.8 higher, you stock would have been just a 5-bagger in 2 years. That is nothing to write home about. When it comes to hope, the earlier the better! That is why timing matters a lot and you need to be an early bird to catch the worm.

Hype is when the short term value is most apparent. A 50% return in one year is surely not a multi-bagger. But for a savvy investor, that is a lot of money in a short time. Hype is when the stock is ripe for short to medium term trading. Buy on dips works perfectly on such stocks during the hype phase. The undertone of the stock is still positive and bullishness is continuing.

Hype is also the stage when there is a broad-basing of the ownership pattern of the stock. The number of institutions owning the stock increases. There is widespread retail interest also coming into the stock. This is also the stage when the P/E of the stock expands towards the upper end of the sector spectrum. There are more analysts tracking the stock and suddenly every retail and institutional investor wants a slice of the game.

Hysteria normally begins with theories and ends in tears. It is all about theories. How internet redefined business was a theory that would give perpetual value to tech stocks. Land banks were touted as another asset with perpetual value. Most theories try to sell the idea that this time is different. It rarely ever happens. This is the stage where you have to be very cautious. It looks like it will go on forever but you will be surprised at how soon it can end.

Hysteria is the last stage and hence its length and ferocity is hard to predict! But suffice to say that the earlier you get out of the stock the better. The hysteria on Himachal Futuristic lasted for quite a few months in 2001. But when it exploded, the stock was on lower circuit for 3 days in succession. The final turnaround in hysteria is normally impossible to predict. Better safe than sorry! When you see the first signs of hysteria it is always better to exit the stock. If you missed the last 15% rally on the stock that is perfectly acceptable.