Imtiaz Gadar, CFA is the Head of Public Markets at Bank Alfalah, Pakistan. Previously he served as the Head of Research at KASB Securities (Partner of BOA Merill Lynch) as well as JP Morgan. He was ranked as the best analyst in Pakistan four times by Asia Money and the CFA Association of Pakistan. He also served as the Vice President of the CFA Society in Pakistan.
Disclaimer: The post has Urdu in between because English alone would not fully capture the concept.
Recently, while scrolling through my social media account, I saw a capital markets colleague had shared a picture with his wife where both of them were out shopping. My idle mind suddenly started visualizing what would happen if us capital market folks combined our professional roles with household roles (e.g. shopping). For instance if wife calls husband and asks him to buy 2 kgs of potatoes on the way back to home.
Technical analyst’s response: Buy Potatoes?? I think we should be selling potatoes, it’s made a double top at this level and its formation is also pretty bearish.
Wife: But I want potatoes.
Techie: Ok, then at least wait for the weekly closing on Friday to see if potato prices give a break out confirmation.
Research Analyst response: yes I can buy the potatoes but you know what I think you should also consider looking at onions. I think the relative prices of both suggests we should be buying onions and I was reading this international report which also pointed to why onions were the better ones to buy at this stage…..
Wife: Thank for all that wonderful insight and considering all that … please buy 3kg potatoes
Fund Manager (associated with a bank) reaches home and says: Here are half a kg potatoes.
Wife: I said we need 2kgs
Response: I know but leaving room to buy another 1.5kg in case the price tanks and we need to average our holding costs before potatoes breach their tolerance/stop loss limits.
Mutual Fund Manager calls wife and confirms that he has bought 2kg potatoes. Reaches home with 4kg potatoes
Response: Everyone was buying 2kg potatoes. So there was no alpha in buying 2kg
KATS Operator reaches home. Here are the 20kg potatoes.
Wife: but I said 2 kg
Response: Oops… Galti say aik zero ziyaada ho gaaya (Oops…One zero got added by mistake)
Wife: Ab 18kg ka kia karoon? (What will I do with this extra 18 kg?)
Response: Error account main daal do (Put it in the error account)
Equity Salesperson calls home. Main nay 2kg potato lay liye hain. Aur bhi mil rahay PRs18 par. Lay loon kia? (I already got 2kg of potato. I can get more at just PRs18 per kg. Should I bring more?)
Wife: Nahin 2kg is enough (No 2 kg is enough)
Response: Yaar market main rush lag raha hai.. sab ziyaada ziyaada lay rahay hain… mere khayal hai 2-4kg aur lay lenay chahye PRs18 main (But there is a rush in the market. Everybody is buying more. I think I should buy 2-4 kg more)
Wife: Nopes 2kg is fine
Calls back after 5 minutes: Acha woh jo 2kg liye thay, agar woh PRs22 par bik rahay hon, tu bech doon? (By the way can I sell the two kg that I bought earlier if people are willing to pay PRs 22/kg?)
Foreign desk (executing for international AMCs) trader’s wife calls after 3 hours and asks where are you?
Response: market main hoon. Aloo lay raha hoon. 700 gram mil gaaye hain PRs18.50 ke hisaab say (I am at the market buying Potatoes. Got 700 grams at PRs18.50 per kg).
Wife: kia matlab? 3 ghantay ho gaaye hain? Kissi say bhi PRs20 ke hisaab say lay lo (What? Its already 3 hours? Just buy it from anybody at PRs 20 per kg)
Response: rate ki baat nahin hai… Main 30% of volume ke hisaab say hi loon gaa, bhalay PRs25 ke hisaab say milain (It’s not a matter of price. I am just buying at 30% of volume participation rate)
Naïve Retailer reaches home with 2kg Gobi (cabbage)
Wife: But I said potatoes
Response: Yaa I know but when I reached the market, I met Mota bhai, our Gujrati stock broker neighbor and he said why are you buying potatoes? I am buying cabbage and that too 20-25kg. I think you should also buy cabbage. In fact he said I should just relax in the car and he took the money from me and got 2kg cabbage for me. Nice guy!!
Mota Bhai reaches home: Here are the 2kg potatoes you wanted and I also sold the 2kg rotten cabbage you had bought yesterday.