 | « Back to article | Print this article |
The very reason his psychology is not pandered too. Second, he is sharp and fast, which leaves little time to create news. Third, sellers are generally outnumbered by buyers, so they don't make a sizeable target audience. Fourth, a seller does not buy, the very reason there is not much he can contribute to the industries and sectors, the buyer helps create. Fifth, market crashes require more time to nurse the buyer's pain. Who cares about the sellers anyway?
The seller mindset
If you think this view is wrong, think again. Value creation needs many market players. Value destruction can be done by a few. And only a few buyers can switch roles, becoming a seller from a buyer. Majority of the masses, just move with the wave, excited at a cycle high and inert after losses at a low. My India visit has actually left me a bit surprised. Almost everybody I met asked me about the economy, the market, the crisis.
A few talked about actual losses some about foregone profits and what they could have made had they got out early. Most of them were buyers, or potential buyers. Where are the sellers? A seller is a low profile entity. He shirks attention. He is just there in one corner, sitting easy, waiting patiently for his next move. Unlike the emotional, impulsive, self pitying, greedy, attached, consuming, overestimating, blaming, oscillating from one extreme of love to the other of hate and inflexible attitude of the buyer, the seller is detached, unbiased, cool, accepting, quiet, calculated, ruthless, pound wise, penny foolish and down to earth.
Falling markets
But if there are so many virtues in the seller, why don't we sell before the markets fall 60 per cent. Why some of us can never sell? Why going 100 per cent cash is so hard? The majority of us don't sell because we need the cash. It's the intention of investing the cash that oscillates. Just like our intention to buy increases with increasing prices, our intention to sell accelerates as markets fall. Just as we seem to covet and try to buy things that get more expensive, we sell when things become cheaper. 0.1 per cent of the India (listed market capitalisation) was worth nearly 500 million euros at the Jan 2008 top. Now it's nearly worth 200 million euros. But we were more excited then and not now. We sell because we panic, which blinds us and we fail to comprehend that there is a limit down to where prices can go. We forget that markets always give us another chance. We sell because we think that's our last chance to exit and save the pennies left to salvage.
Right time to sell
Why despite so much sharp skill, one big fall and we see hedge funds packing up. Hedge fund, a misnomer, can't hedge themselves. Is the hedge fund industry itself skewed with a buyer's bias? One hedge fund manager's letter recently said, "I made money in this market and I am now tired and calling it quits." This lack of energy is linked to the excitability A J Tchjevsky talked about in the 12-year excitability index. We move from a passive society to an inert society as we move ahead in the economic cycle, a classic buyer psychology cycle. We are no more excited and feel tired as the cycle ends.
Warren Buffet's Berkshire Hathaway on the other hand is most active when markets go awry and companies dip below their 'intrinsic value'. Even with their buy-hold strategy, the institution has a seller psychology. How else could you explain that one of the biggest financial institutions of the world known for its buy-and-hold hypothesis survives a historical credit crisis? The institution never says it's tired and so is closing up. The seller's psychology is to conserve. The seller conserves energy because he has less time unlike a buyer, who feels he has all the time. A seller's psychology by its very nature is contrarian. And it's the buyer's bias which forces us to exit after a 60 per cent - 90 per cent fall. A real seller exits near tops not near bottoms.
At a recent meeting with a researcher from Ecoenergy, I was asked how to create a perception about value. The professor was addressing the green idea. How to increase awareness in market players for green assets and green markets and specifically carbon trading? This question of value might appeal to the seller more than the buyer. The seller's psychology understands that value and perception are self sustaining. Make water 15 times more expensive from here and every green asset will become a value buy. This value perception is broken when we consider the buyer.
How can you otherwise explain no demand for a dividend at the market top and scampering for dividends at a market bottom? How can you explain that retail participants are sleeping the whole secular trend and wake up near a market top to buy, just to see their savings crash? How does a buyer invariably get surprised all the time be it on oil, gold, Sensex or the dollar? Anybody can buy when an asset turns attractive. But it's the timely selling action that completes the transaction. The seller psychology is hence more about timing and exit than the buyer's psychology.
Need for sellers
Despite all this skew towards the buyer's psychology, the sell psychology plays a very important economic role. It brings in the balancing force. The 'seller' is instrumental in bringing change, by bringing in the 'new'. If it was not for the seller, the Davids would have never got a level playing field against Goliaths. No small business would have survived and entrepreneurism would have never existed.
And E Schumacher's' book Small is beautiful would have never been read. And we would not have registered the fact like Hammer and Champy said, "Change is never slow, it's dramatic." John Maynard Keynes ideas with money supply failed to work during the Japanese slowdown. But his idea of digging holes and filling them elucidates the beauty of our economic cycle, which is incomplete without the hole sellers dig in the market. If you cannot enjoy a 60 per cent crash, you are suffering from a buyer's bias, which is omnipresent. Try cherishing the collapse, thinking of all the great opportunities that come with it.
And don't be surprised with anything whether it means a new high on Dow, gold at $3,000, oil at $500, Sensex back at 2,800 or comatose equities for a decade.
About the market now, the preferred positive seasonality is here. The Yale Hirsch cycle is turning up from November and April. But the sustained primary multi-year positivity should only start after the 2010-2011 lows. Till then get ready to trade, up and down. Meanwhile, just think about all the buying opportunities across global assets which would not have existed without the seller. 'Seller is smarter than the buyer' is also a summary which won the Nobel Prize in economics in 2002. But then maybe the father of behavioral finance suffers from a seller's bias.
The author is CEO, Orpheus CAPITALS, a global alternative research firm
