Thread by @theBuoyantMan

I am neither pro-ITC nor against. I look for maximum pessimism in market as an attraction indicator.

Around march 3rd week, there was so much pessimism and people were calling for 3500 in Nifty, Nifty breaking 6000, etc. I went in and added sizable amount in PPFAS LTE fund.

ITC is not yet there at the maximum pessimism zone. But it's quite there. Looking at how much pessimistic noise is there around ITC right now, and how company is moving fast with their goals, the maximum pessimism point is somewhere around the corner.

Here, it's important to remember how big institutions, fund managers, and operators operate.

- When big money wants to accumulate, they put operators and market makers into play to keep the stock steady in a range over few months or more, supporting their purchases.

- One other tactic that works is to create a lot of pessimism around the stock/company, especially if institutions are keen to add more and more of the shares, which can be done if they can shake out the retail investors.

The first ones to cut and run at the sign of pessimism are retail investors. Retail investors are also the least patient. So, when institutions want to acquire a company's shares, they employ these two techniques.

How do they create pessimism around a company? Placement of media articles, whatsapp messages and forwards, biased stories on social media, paid articles on moneycontrol and the likes, and so on. They also have one sided pieces written.

Another way they accomplish this is by having brokers or sell side guys with institutional clients put out pessimistic research - so that their clients can acquire the shares at a lower price from the market easily.

The SELL ratings and coverage that some sell-side analysts and brokerage houses post - not all of them are paid off, but when someone has to create pessimism around a company to acquire the company shares for cheap, they do pay up for biased research reports.

On the other hand, when these big institutions want to off load silently, they employ market makers and operators to keep the market stable till they can offload over few days to weeks silently without attracting any attention.

These institutions, when wanting to offload, also have to attract bakras who can buy the shares at such a high valuation/price. That's when they have many brokerage houses and research houses put out highly optimistic reports about the company (like what happened with GMM, HEG).

This is when naive and stupid retail fools arrive at the top and help the institutions get rid of their junk by generously offering their hard earned money only to watch it tank few days/weeks later.

There are other ways to attract and trap retail fools (for ex: circular trading) and other schemes that companies and institutions use. As a retail investor it is very important to not be the stupid naive 95% and be part of the 5% of retail that has some common sense left.

When it comes to ITC - in the last few weeks to months, I have been seeing a lot of whatsapp forwards, telegram group posts, comments, blog posts, social media trolls, and research reports, etc., saying that the stock is going to tank and it's worthless to invest in.

If you look at everyone who's saying that and take a look at their portfolio, you will not see a single short position against ITC. If these people who are criticising ITC and predicting ITC in double digits are right, why don't they put their money where their mouth is?

They won't. They won't short it. If ITC is indeed a worthless stock to invest in, and it is indeed going to go to 2 digits and tank from here, we would be seeing a slow build up of shorts in ITC since March. Nothing of that sort.

And those criticising ITC and predicting its downfall are just doing timepass and aren't really serious about it, coz if they believed in their own thesis, and if they were so confident, they would be short ITC now on a long term basis. Short ITC Futures and keep rolling over.

I don't see such skin in the game in any single person who is posting such comments. Of course, shorting and indefinitely rolling over is not a great strategy on paper - but if you're intelligent enough to call two digits in ITC with 100% certainty, you can figure out a way.

So, it's not yet the highest point of pessimism around the stock. I think we are going to see couple more quarters of such pessimism, probably peaking sometime next year. Around that point, I'll have allocated a maximum of 10% of my portfolio to ITC - directly or indirectly.

Now, this is one single bet, and if it completely fails also, it wouldn't bother me. A series of bets like this - where we take advantage of the maximum pessimism around an otherwise good and well researched company in your portfolio - will lead you to sizable compounding.

Whether this pays off or not is secondary. These kind of opportunities where you can take advantage of other people's weaknesses and it is right to do so are very rare. Being very greedy when others are fearful may not work all the time. But it does work enough to be meaningful.

So, my suggestion to you. Don't fall in love with a stock. Don't fall in love with a company or a ticker. Consider these numbers. Educate yourself in behavioral finance. And play the behaviors of maximum pessimism and maximum optimism. You do this, you'll make a fine investor.

Also, @deepakshenoy has a brilliant presentation in this video - on how to avoid getting trapped in companies that will eventually be wealth destroyers and spot them early. Lots of wisdom packed in this.