That was just one of the umpteen one-liners shot by Robert Downey Jr in the latest Sherlock Holmes flick. To me, it is the greatest piece of original investment advice since Benjamin Graham wrote his seminal Securities Analysis, seven decades ago.
In the best of times, official statements have been euphemistic. These days, they are becoming blatant lies, which is why I am recommending the Holmes’ wisecrack to you.
A few months ago, Business Standard reported a company was planning to delist its shares, since the foreign investor in the firm wanted to increase stake substantially. The same day, the company told the stock exchanges there were no plans to delist and the foreign partner has not made any proposal to increase stake. Last week, the company announced its delisting offer after the substantial stake increase by the foreign partner.
Similarly, the promoter of a family-owned listed firm, who was in talks with a Japanese buyer, denied any sellout plan. Business Standard reported the story, duly recording his denial. Within a month, the board approved the sell-out plan. Funnily, on the day of the deal, at 2.35 pm, the company issued a clarification dismissing another news item on the deal as “speculative.” At 5.47 pm, the sell-out became ‘official’.
Even in some recently concluded large deals, such denials have been recorded on the exchanges before the final announcement which turned out to be a denial of the denial. In addition to the mental agony caused to people who write about these deals as they wait for vindication in the form of an announcement, it is pure disservice to investors.
An information asymmetry is created deliberately in the market between people who know which of the two (the news report or the denial) is true. Shares worth thousands of crores change hands. More often than not, it’s the small guy who carries the can.
One argument is that such negotiations are extremely sensitive and rest on multiple variables. So, stock exchange announcements can’t be made until everything is final. There is some truth in this because it is not difficult to find deals reported but never consummated.
Even as these reports await their vindication, the largest statement maker of all, the government, has begun the New Year with a grand statement. Foreign individuals and pension funds can now buy shares directly.
A top official called the move a “game-changer” which will open “floodgates” for foreign money. But the Street’s own theory goes like this: Conventional routes to bring back money from abroad have become either risky and/or difficult due to attack from regulators. This new route will open floodgates for this hot cash to come back in time for state elections. That big blast, which will lift the ‘politically connected’ stocks, is eagerly awaited. Because, like Holmes says, a bomb blast is the best place to hide a gunshot, as no one is looking for a marksman’s trail there.
