6 learnings from the Scam of 1992: The Harshad Mehta Story

“Risk hai to ishq hai”, ‘Scam 1992 - The Harshad Mehta Story’ - the stock market series based on a book by financial journalists Sucheta Dalal and Debashish Basu is trending on Sony Live. It’s more to do with actions investors should not take rather than how to invest in the stock market. Like most stock market operators, Harshad Mehta tried to control a handful of stocks which in some way predicted the direction of the overall index and thereby the mood in the market. After watching this series, one can surely avoid some ditches. Here is our take on this talk of the town series.

1) Taking a Debt to Invest

Harshad Mehta has been shown diverting money from the money market (banking system) to the stock market, which was illegal. The money he was expected to return to the bank, he instead invested in stocks. He invested bank’s money for few days/ months and expected to make short-term earnings out of the same. Thereafter he returned principle amount to the bank. But in this process, he lost money in stocks and was not able to return to bank.

We could do the same, borrow money from friends or relatives to invest in stocks. At the time of borrowing we set a certain date of return, but it should be borne in mind that stock market is an unpredictable arena. No-one can really say for sure. Almost like a gamble, in short-term it’s a play of luck.

2) Invest > Gamble

Harshad Mehta is seen predicting the moves of the stock market. Also, infusing money to artificially boost the stock market for short-term. It is really a demand and supply game where more money infusion leads to an increased demand and the stock market goes up and vice versa. It’s silly but quite true that trading or gambling is treated as synonymous to investing. It should be clear that investment is for a span of 3-4 years and not for 3-4 months. Buying stock of a company means we own a part of that company; it would be wiser to behave like the owner instead of a gambler.

3) Investing in News

Harshad Mehta is seen getting inside information of the company and trading based on the same. This is called insider trading, which is illegal. Rather one should study the business of the company one is investing in. For all we know that piece of information could already be priced in the market. Investments are to be made based on the fundamentals of the company.

4) Risk Threshold

Harshad Mehta pours bag and bags of money to kill ‘the Bears’. Bears are one who earn in falling market. Greed for extraordinary returns within a limited span of time lead him to take unnecessary risks to satisfy his ego at any cost. It’s but natural to want to put in more money if we face a loss, to recover the lost amount. In the end, we are left empty handed. Deciding a threshold of risk is a smart move before we decide to invest.

5) Humility

In his good times Harshad Mehta does not pay heed to anyone’s advice. Not friends, brother or well-wishers, neither his wife. He thought he was better than everyone. This attitude can tank us. Humility and an attitude of listening not only in investing but in everyday life ensures longevity and growth of the tasks we undertake.

6) Don't Invest on tips

As already mentioned, the stock market is a demand and supply game. Mehta himself bought bundles of shares to boost shares of the company. If we are investors, our inbox can be filled with messages asking us to invest more and more. When we buy, a stock is pumped to a higher level and the operators who have circulated the message start selling it. This leads to operators making money not ourselves.

Stock Markets is a place to invest your hard-earned money. Study the business. Investing should be an act of calculated decisions. It’s your money on the table.