Everybody directly or indirectly was HIT, and HIT HARD by the turbulent roller coaster ride the financial market experienced during the last three years. Like others, I too got a bolt on my neck. However when I look back, it looks like a fair deal to me. There could not be a better time for students of my age group and my faculty to see (without being drastically affected) how small actions may pile up into such devastating financial atomic bombs. From the sub prime crisis to the systemic failure by some of the largest banks internationally, nothing else could have given such practical preaching and further strengthen the quest for reasons which led to these consequences.
Unfortunately everyone affected does not constitute the population we students belong to, and I sympathize with them. But for students of finance and to an extent management streams it turned out to be a case study like none other. The thirst for enhancing profits led increased reliance on sub prime mortgages, and by the time the banks realised how deep the waters were, they were already gasping for air. Mammoths like Lehman Brothers, AIG etc. could not take the blow and had to ultimately file for bankruptcy. Even the world’s biggest banks had to beg for government’s support.
The jitters sent by the stock market made the public pneumonic. The so called market gurus who were predicting the Sensex at 25000 in a quarter from April, 2008 were now predicting a zero degree south journey for the coming months, contradicting themselves. We saw the unprecedented rise in property market, which gave the bull boost to the infrastructure companies, die and proving such companies to be the biggest losers when the bull bubble bursts. The cash flow of such companies were severely hit and they too had to ask for restructuring of their borrowings.
Various companies had to temporarily shut their plants to restrict their cash outflows. Companies not in such troubles too out of prevailing passivism took desperate defensive steps and postponed their CAPEX plans and adopted cost cutting in all ways including depletion of their employee strength.
We also witnessed how a company which looks strong, huge and immensely successful wakes up one morning to say that in its balance sheet on the left nothing is right, and on the right nothing is left. Here we saw the power of compounding which could not have been demonstrated in a better way. The manipulations which were small some years back grew beyond proportions with the growing factious size of the business.
We saw again and again the tendency of capital markets to over react to any news, be it good or bad. People out of insatiable lust for overnight money multiplication, rather then investing shifted to trading and that too on the back of so called sure shot tips. Countless tips floated in the market every now and then, taking down with it the hard earned money of several people.
And lastly we saw, that people too just saw, and did not make much from the situation. Even when the market was at one third level of the highs it touched a year back of this turmoil, people expected more of such substantial corrections (I guess, they expected total breakdown of capital market) and thus missed the upward tide. Warren Buffet grew old teaching to buy when other sell and to sell when others buy, but we saw ourselves doing just the opposite.
Apparently, all this is not new to anyone of us. If we just rewind our memory we will realize how lucky we students were to gain such knowledge and experience which none of the books could provide. Its said, ‘In theory, there is no difference between theory and practice; in practice, there is'. Books tell us there are Ups, downs, Cycles, Bulls, Bears, Depression, etc and also the definitions for them. But to see “HOW” all this happens, we had to be present all this time.’
In the end when we join the dots, the product is “Experience so un-bookish and so understandable” that I would never call this an expensive deal even though the losses incurred. However to keep this deal worthwhile we should learn the lessons because when the time next dip comes, we will have a much dearer stake to loose.