Election, Exit Polls & Value Investing

by Bhuvan Gupta
June 12, 2024
Just now Indian elections are concluded. Like many of you I was also hooked to the news channels on 1st June eagerly waiting to watch Exit polls and poll of polls. I was very happy to see that we’re going to have an stable and strong government in India.
Just before the results on 4th June and after the exit poll while discussing with a client, he asked me, “Who’ll win the election ?”
I thought he is talking about Indian election but he was referring to the USA election. He was very sure of BJP winning the election with higher majority, hence the question does not arise. I was sceptic, what to do ? it is my job to be optimistic and sceptic at the same time.
And the judgement day came and all the exit poll stood right and wrong at the same time.
Now you must be puzzled how that is possible ? Now let’s first understand why they were wrong ? Majority of the exit poll predicted higher number for ruling BJP while when result came-in BJP not only secured less seats (240 seats) but also fell short of clear majority. That’s why all exit polls are precisely wrong. And then we all started seeing the drama and blame game.
Nobody has the time to read the terms and conditions of the Exit polls. Let’s come back to investment, trading and life. The moment exit polls started announcing the numbers on 1st June opportunists, traders and FIIs started taking the positions and Sensex zoom to 3.39% on Monday 3rd June. They got benefitted from the bullish view.
Next day when reality kicked in bears snapped the whole market and and by the time market closed it tanked 5.74%. Several lower circuits broke. Many traders who had taken leverage position on 3rd June were trying to cover their position by taking opposite positions which tank the market even further.
Bullish sentiment of 2nd June got decimated and it was looking like a defeat for the ruling party and in many followers who would have also been traders and FII must’ve lost a lot of money on 4th June.
Obviously some smart people who bought on Friday 31st May and sold on 3rd June would have made quick smart money.

Now let's enlarge our telescope and see the market from 31st May to the time of writing of this article: Sensex is up 3.78%.

Now why so ?
On 4th June evening Prime Minister thanked the nation and started meeting the alliance and other members. They started echoing their unconditional support for the BJP 3.0 and as the events unfolded by 9th June market embrace these decisions.
Market loves stability and it got clear to the market participants that stable government is formed and worries are over.
All the exit polls had predicted BJP government is coming back to power hence all of them are approximately right :-). The problem of our bias is we don’t see the big picture and we get happy and sad due to not meeting our expectation by 5-10%.
Value investors like me neither bought nor sold in the election because we’re always fully invested in the market for long term at quality stocks at lower valuation. We’re net buyers and not the sellers. We don’t borrow, nor we short the stocks. Such a lazy people, you see -:) And I did make money in the last week doing nothing !!
Now coming to my clients’ question “who will win the USA election ?”.
My answer to him was, “It doesn’t matter”. At least to me as a value investors it does not. In the democracy the best should always win and a smart, visionary entrepreneur will deliver in all weather and make all shareholders wealthy by aligning or being away from the politics and political leaders.
Now coming back to the life and AI. We don’t have to trust it to the core. Use it as today we use internet and cloud. Don’t run after it blindly. Don’t forget that AI is not only “Intelligence” , it is also “Artificial”.
In investing and life always remember, “it is better to be approximately right than precisely wrong.”.
Hope you liked my article. Thank you for reading. I don’t endorse any political party and my views to them are personal. This article is not an advice to invest in shares. It is my reflection on the biases which all individuals have. Knowing our behavior will help us to be a better human being, trader and investor.

Bhuvan Gupta

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