Posted on August 8, 2014 // 35 Comments

Note: This article was originally written in June 2012. I am re-publishing it given that I have received quite a few emails in the recent past with people asking me what made me quit my great job in the stock market that promised a bright future.

I’ve received several emails from readers of Safal Niveshak asking why I left my “lucrative” job as a stock market analyst.

“It must be a well-paying job! So why in the world did you leave it?” asked one of them a few days back.

I’ve shared my reasons to leave my job with them in private, but thought there was a need to confess in the open – to the entire Safal Niveshak tribe.

After all, even you might be wondering what really hit me to have left the safety of a job that promised a bright future.

So here is a confession from an (ex) stock market analyst on “why in the world” he left a well-paying job to start a mission that some have called “a journey into the unknown”.

My Confession Statement

I confess to you that the reason I left my job as a stock market analyst was that, after being in that industry for eight long years, I was feeling out of step with something that knew no bounds.

I left the industry for it was (and remains) a place where people are brash, arrogant, reckless, and – literally – daring. It always was like this, but with my conservative, unadventurous, humble genes, I could not tolerate it anymore!

As good luck would have it, I was not working as a “broking” sell-side analyst*, but an “independent” sell-side analyst, and in a company where people were still honest to clients (and Im sure they still are), a large majority of whom were small investors.

But I was truly disgusted – with the stock market profession, with the analyst community for its hypocrisy, with the press for celebrating them, and with corporate India in general for its willingness to deal with the devil.

Despite working for an independent research company, I realized over a period of time that I was recommending stocks into the “unknown” – to real people with real-life savings, but those I knew nothing about – and just because they had paid in advance for that research.

So if there was a service that was supposed to recommend (either Buy, Sell or Hold) one stock per week to a paid subscriber, the research team was obligated to write that one report per week.

While we had a strong internal process of choosing stocks that helped us recommend some great stocks and avoid some really dud ones, just the velocity of recommendations created greater chances of making wrong (under-researched) recommendations.

In fact, by the time I was leaving my job, we were writing almost 100 reports a year (or around eight per month), a gigantic number for any small investor to digest!

What is more, as I said above, it was a “one-size-fits-all” kind of a philosophy, as the same stock recommendation was being bought and acted upon by a young executive, and a retiree.

Anyways, 2008 happened, and a deeper realization set in within me. I asked myself – What if my “one-size-fits-all” recommendations have made the difference between a comfortable retirement and a miserable one?

The answer pinched me hard, and laid the ground for my exit from the industry, which I had already started hating for the above-mentioned and below-mentioned reasons.

Travelling every day with people, and travelling to a place that I detested (Nariman Point, the heart of the financial system in Mumbai, and also the heart of greed) had really gotten over my senses.

But, Once Upon a Time…

When I stared my career as a stock market analyst, I believed the profession had nothing to do with manipulation and everything to do with balanced, rational thinking.

I had made the leap into this career in part because of the money, but also because being an analyst seemed like a perfect job for a serious guy like me who liked to reason his way through life.

Sure, emotion and hype sneaked into my line of work occasionally, but in the end, the stock market was rational, analytical, and cool. Fooling people wasn’t part of the equation.

Or so I thought. But what I saw outside my company, and in the stock broking industry, made me realize how my charming views about this profession were plain silly.

Of course. the stock market profession is as much about fooling people as the advertising profession, which believes that the product it sells, is the best product a consumer must buy.

Everything in the stock market profession, as I’ve discovered over the years, is all about the money.

Over the years, a typical sell-side analyst’s job – especially one who works for a broking company – has changed from giving good advice to investors to helping their investment bankers do deals.

Thankfully, being with an independent research company, I never had to deal with this enigma (which I thought was a stigma).

Brokers need action to make any money, since their compensation is largely based on transactions. So each time a sell-side analyst recommends a stock, it is jumped on and embraced like a new lover.

However unlike institutional investors (like fund managers) who largely make their own investment decisions and use a sell-side analyst’s research as one of the many inputs, the brokers and the small investors who follow them actually take every word the analysts write or say as the gospel. Now this is what scared me!

So, while most people would leave their jobs because they start to hate the people they work with, I left my job because I hated the entire community into which I belonged.

20 Reasons I Won’t Return to a Stock Market Job

I love lists as you must have noticed in the past (like 5 ways to this, and 10 ways to that). So here is another list – this time of 20 reasons I will never return to a job in the stock market…

1. It’s a place where logic, as I’ve learned over the years, doesn’t always matter.

2. It’s a place where the priorities are out of order – making fast money and evangelizing big investors is on the top of this priority list. The small investor, I think, does not exist at all!
3. It’s a place where analysts are able (and are paid) to find stocks that are “good values at any price” and stocks the values of which will “perpetually rise”.
4. It’s a place where daylight robbery happens in the plain sight of everyone, from investors to regulators – and no one seem to mind.
5. It’s a place where you are counted among the few foolish if you try to stay objective.
6. It’s a place where dealing with small investors is considered a wastage of time – that distracts the analyst from “doing research”, and siphons off time that otherwise might be used to serve big, institutional clients and win “best analyst” votes.
7. It’s a place where “risk” is thrown out of the window…literally!
8. It’s a place where “warnings”, worst case scenarios”, and other details that institutional clients read and take time to understand never make it to the regular folks (people like you and me).
9. It’s a place where the only game they play is called “expectations”, and reality, even when it bites, never gets etched in the mind.
10. It’s the only place where trees rise to the skies.
11. It’s a place filled with misplaced belief that analysts seem to have the magic wand to reverse a stock’s decline, simply by saying it wasn’t so.
12. It’s a place where information travels unevenly. Of course, the small investor gets the least information, and gets it last!
13. Its a place with so many disappointments and reversals that at the end of a few years, you lose the ability to be shocked by anything.
14. It’s a place where, as you gain experience, you lose your powers of rational thinking.
15. It’s a place where, if you have some sanity left, you will add a line in your valuation model that reads – “adjustment for irrational exuberance”.
16. It’s a place where the small investor is playing a loser’s game.
17. It’s a place where your obligation to be independent isn’t economically logical, especially when you are working with a broking firm whose primary purpose is to maximize profits.
18. It’s a place filled with “smart” men and women who know the price of everything, but the value of nothing.
19. It’s a place where two types of people meet up in the morning: those with experience and those with money. At the end of each day, those who had experience have the money, and those who had money have the experience.
20. It’s a place where they fool people.

Believe me, I’m not trying to create a holier than thou picture here, for I was, in a way, a part of this place oncethough safeguarded by the independence of my employer.

But you get to know that you were once a rat only when you come out of the rat race, which I have.

Now as an outsider to the stock analyst profession, I can see how scary (and funny) things look like.

Are You Scared?

I am sure, given that you have been saving your hard-earned money and investing into stocks and mutual funds all these years, my confession must have frightened you.

But wait till you hear the last part of my confession, and here it is…

For all these ills that caused me to exit the stock market analyst profession, there was one huge lesson that I believe will drive the rest of my investing life. And it is…

Think independently and don’t let yourself be influenced by the “noise”. Stay focused on analysis, valuation, and margin of safety. Despite all its ills, the stock market is still a place where you, if you can keep your head when others around you are losing theirs, can achieve your financial freedom.

Among all the crooks (and many that are highly respected in the industry) I’ve seen around me over the past so many years, I’ve also met a few sensible, level-headed investors who’ve practiced the above lesson (of thinking independently and not getting influenced by the “noise”, plus staying focused on analysis and valuation instead of the stock price) and have done quite well for themselves.

Our very own tribesman Mr. R. K. Chandrashekar (who started investing when I was born, and whom I had the pleasure to meet in the Bangalore Workshop) stands testimony to this.

This lesson is also the core of Safal Niveshak’s existence…

• To help small investors think independently and not get influenced by the “noise”.
• To help small investors stay focused on analysis and valuation.
• To help small investors ingrain in their minds that if they are buying individual stocks, the rule should be caveat emptor (buyer beware).
• To help small investors claim entire responsibility of how they are handling their life savings.

All in all, Safal Niveshak is my experiment with truth. And the truth is that I am pained by the disastrous investment results experienced by great numbers of small, unsophisticated investorsand you might be one of them.

If I can persuade just a few of you to avoid dangerous investment practices (by avoiding the noise) and adopt sound ones that are designed to preserve and grow your hard-earned capital, my mission will be accomplished.

If you take anything away from my writings, this should be it!

I hope, despite my confession about the road Ive traveled to reach here, you would remain alongside me, as we walk together on this journey of becoming independent, sensible, and successful investors. Whatsay?

* Analysts are generally put into “sell-side” and “buy-side” categories. The key difference between these two types of analysts is the type of firm that employs them and the people to whom they make recommendations.

A “sell-side” analyst works for a brokerage or an independent research firm and makes recommendations to the clients of the firm. In effect, such an analyst “sells” research (either when the client transacts on this research, or when a client subscribes to that research)

A “buy-side” analyst typically works in a non-brokerage firm (like a mutual fund) and provides research and recommendations exclusively for the benefit of the companys own money managers (as opposed to individual investors). Plus he also “buys” the research that the “sell-side” analyst has to offer, largely by way of transacting on that research and paying a commission to the broker who sold it.