Tuesday, 22 September 2009

The Split

Long long ago, I had opened a trading/demat account with ICICI Direct with the hopes of cashing in on the stock market. The stock market was just about starting to deal with the sub-prime mortgage crisis in the U.S (also known as the father of the current recession) and I thought I will buy low, sell high.

The way I purchased shares was simple and something which every other rookie does: ask the local stock guru for a purchase tip. Using that methodology I bought Bharti Airtel and Larsen & Toubro.

But then I wanted to buy some shares on my own. I mean, where's the originality of thought in just asking some allegedly smart folks and then buying shares? Where's the hard work? Where's the sweat and the pain? So, one day, when I generally felt like it, I purchased Reliance Communication and Kotak Gold (ETF). Of course, I did no research and both purchases were based on gut feeling that the stocks would go up.

Once the recession actually sunk in and the stock markets tumbling, I did the most convenient, Ostrich-eque, thing: I stopped looking at the value of my stock portfolio. ICICI used to send me statements and I used to shred them without looking. The companies, whose stock I owned, used to religiously send me their annual reports, and I would give that to the kabadiwala and earn 25p (or maybe less). I completely stopped following the stock market.

Circa September 2009 and I finish reading "One up on Wall Street" by Peter Lynch (courtesy my illness). Inspired, motivated, I opened my ICICI Direct online account; the market was catching up and I was optimistic about my stocks rebounding. Unfortunately, most of my stocks were in the red. The stocks recommended by the stock gurus were the reddest (40% losses in both).

After a lot of moping and cursing the gurus behind their back, I started researching on my reddest companies. Well, turned out that both Airtel and L&T had announced a 1:1 split in one of the past months -- the time I was emulating Rip Van Winkle. After a bit more rummaging around, I found out that my portfolio still showed the stock quantity as before the split. The price of the stock, though, was the one after the split!

No wonder the 40% loss!

After a bit more googling, I discovered that ICICI Direct doesn't update your portfolio after something like a stock split; you have to do that yourself!

The 40% losses turned to 15% gains. It's like discovering the 500 bucks, which you thought you had lost, but was actually hidden in one of your pockets.


Rake said...