Stock Nightmares- Events to Remember

Investment Learning
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I searched few similar threads including one I created earlier on manipulation, fakery. No where I could fit my thoughts into it, hence a new thread.

Objective of thread- to share stock stories which were deception in first place and ended up as catastrophic wealth destroyer.

I am not talking about market corrections when fear grip market and it just barge downwards. I am talking about our interaction of stocks in life where we lost money or managed to escape.

Not due to sole reason of our mistakes but stock in first place was a manipulative company, meant to deceive people, created to siphon funds. The acts cannot be undone now but learnings can be passed on. I would request others to share similar stories.

I had few instances in my 22 years of experience in stock market, initial data is not available for me to represent now. My mistakes were perhaps more infatuation, a combination of tender age and parody of successful investment methods. I will share where I can represent them including lessons learnt, root cause and much more. Hopefully it would help you not to repeat some of the serious mistakes what I did in these particular stories.

Story 1: Stock Name- Concurrent India Infrastructure Limited

Impact- managed to escape from 10/12% portfolio downside

First a visual representation of stock to have a better view.

It was month of January in the year 2010. I was sitting on decent profits from 2007 bull run. Luck of course supported me when I overdrew profit for a real estate purchase and co-incidentally market got hammered out, balance of course I had capital protection point. Then you know our hands feel itchy, ego scratch the right side of brain; we feel superior. That’s how this stock caught my attention, second it was infrastructure bonhomie. Advertisements to nationalism infrastructure was stamped everywhere. Bonds to bands, television to short vision!

So, I bought this company around 9 rupees, added at 11/12 again, constantly I added till 32. All in matter of 4 months. Last few pyramids (purchase) were pretty high to my standard, you can see reverse pyramid. But I am not Bernard Baruch to road rolled lighter weight of base. It was May 4th week I woke up to a night mare and click the panic button next day. I didn’t sleep whole night, ditched the office and was extremely tense till transaction went through. What really happened in 15 days then which led me to a conclusion that I am a super idiot, nothing more.

Please note the events which you will find similarity with so many other companies.

  1. Company was announcing order left and right. Suddenly it acquired a logistics services company.
  2. Couple of interviews on Business television channel, couple of research reports calling dark horse and multi bagger.
  3. Unusual social networking on stock forums (that was the last year I been to that forum, after that I never look back). If you understand which forum I am talking and if you want to succeed never ever put your footstep there unless you are champion of behavioural finance which of course I am not.
  4. Blogging, website even CA student website; you heard it right. They didn’t even spare not a single financial website where they could go.
  5. Company announced second acquisition of a Pune based company.
    Then of course hell broke loose and the exposure was out in open.

It all triggered with stock exchange announcement by company who was building a 25th floor tower for some 10 Cr INR. 40 lacs per floor, what match box tower? I don’t have a problem with 10 Crore projects but I do have an issue 25 floor project for 10 Cr. That sets my brain cell to do a triangulation, we call do a cross verification even if forensic is not possible for us to do.

  1. I call up the Srilanka JV partner to found it was absolutely an arbitrary phone number.
  2. Company was doing a PMSSY project even before tenders were finalised. PMSSY project office was responsive to my email.
  3. Checked few paper cuttings from Guwahati where original project value was 30-40 Cr given by government. Company claimed to have 70 Cr subcontract order.
  4. Dialled my friend in Vedanta Finance to ask whether there is a vendor master in company name. He couldn’t find at all.
  5. Google was helpful but the problem is just because one is not available in website you can’t say they are non-existent.

But something really made my assumptions concrete was this

## ‘enormous messaging on unrestricted forum through hundreds of multiple identification and desperate attempt to protect the company.’

2010 onwards if I see a small cap grabbing attention on public forum which is unrestricted with pompous messages I just abandon the idea. But my saving grace was accidental, I ran away after selling. But what really unfolded was more serious than I thought:

  1. Sikkim Hydro authority (a govt undertaking) denied giving any project to company on newspaper. Money life latched on to it and published the news. This was first blow for downward spiral. I made a point from then, will always approach a publishing agency in case of any doubt. Doesn’t matter they respond or not.
  2. Company scrambles to reply, obsessive messages increased manifold on websites. Money Life tighten the noose, exposes further questions on financials. A lot of people supplied information (including me) on our analysis. Money life published most of them.
  3. The logistic firm call off acquisition and accused the company.
  4. Company informed most of orders cancelled, almost bites the dust.
  5. The Pune company which it acquired vanished including its website.
  6. The company suspended finally by BSE, the last trading price was 1.13 during 2013. Five years gone by, no sign of retracement.

It has super growth result, media attention, blog writers (who preach growth investing now, irony!). It picked up hot theme of day and pumped the shares before dumping. Again, research reports given by analyst went to oblivion.

I don’t know how many people lost money in that saga, but it was one of disgusting incident I saw in front of eyes. Unknowingly or knowingly I was part of the event, to escape in the end but could have catastrophic impact.

I am leaving with various links which unfolded those days:

http://www.bseindia.com/corporates/ann.aspx?scrip=531261&dur=A&expandable=0

Point is every time we may not have a media agency coming to our help. So before jumping on a small cap, take two steps back and due a triangulation.

Suddenly my interest has gone up looking at another company here. Possibly all fine, let’s do a triangulation next week if possible.

How did the wealth destroyed, here is the picture:

Dec 2007 shareholding: promoter 0.12%, public-99.88%

http://www.bseindia.com/corporates/ShareholdingPattern.aspx?scripcd=531261&flag_qtr=1&qtrid=56.00&Flag=New

Dec 2008: Promoter 14.97%, Public 85.03%

http://www.bseindia.com/corporates/ShareholdingPattern.aspx?scripcd=531261&flag_qtr=1&qtrid=60.00&Flag=New

Dec 2009: Promoter 43.31%, Public 56.69%

http://www.bseindia.com/corporates/ShareholdingPattern.aspx?scripcd=531261&flag_qtr=1&qtrid=64.00&Flag=New

June 2010: Promoter 32.36%, Public 67.64%

http://www.bseindia.com/corporates/ShareholdingPattern.aspx?scripcd=531261&flag_qtr=1&qtrid=66.00&Flag=New

Dec 2012: Promoter 20.55% Public 79.45%

http://www.bseindia.com/corporates/ShareholdingPattern.aspx?scripcd=531261&flag_qtr=1&qtrid=76.00&Flag=New

See how the distribution happened. Just map with market price like I did in Fiberweb. You will get much clarity.

I have another 4/5 real life experiences, will post them soon.

Stay safe and Best Wishes

Suvi

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Nice writeup. How many times did this company change its name? Kushagra Software Ltd to Concurrent to Shriniwas Power & Infrastructure Ltd.

I would like a similar case study done on Ricoh India by those tracking that company.

I think there are some common warning signs to watch out for

  • company changing names to create more hype based on the current market fancy sector say infra earlier or analytics/data/defence etc now
  • frequent change in auditors
  • resignation of key management, auditors, independent directors
  • acquisition of some unknown company or expansion abroad mostly in Africa etc
  • low promoter holding
  • lot of announcements, positive research reports especially before fund raising like QIP
  • lot of foreign debt, FCCB etc, frequent debt refinancing
  • pledged shares
  • accounting issues (Ambit does a good job flagging these), lack of free cash flows, write off of inventory or sales, auditor remarks
  • government as major or only customer - leading to corruption - leading to delay in payments
  • promoters politically connected
  • receivables outstanding increasing continuously
  • part-time CEOs, CFOs
  • M&A transaction with group companies
  • competing unlisted subsidiaries
  • not paying FD interest
  • growth funded to large extent by rising term debt or working capital debt and not through cash flow from operations
  • rising current asset items like inventory, receivables, advances far ahead of business / revenue growth
  • working capital loans far greater than net current assets
  • effective tax rate being significantly below full tax rate
  • declining cash flow from operations trend
  • rising capex with no increase in contribution margins or gross profit
  • consistently high capital work in progress or capital creditors
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Hi Suvi,
Good thread to identify the pit falls of a company.
I don’t have the details of erstwhile SATYAM Computers.
But the story is somewhat similar.
Promoter’s holding reduced to the point he can no longer handle the company.
Bust !!!.
If anybody has the story its worth discussing here.
Prasad.

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Learning, unlearning- biased?

Before I move to another stock story let us look back to learn lessons from Concurrent Incident. But before we get specifics of lessons I wanted to tell you something. Never listen to anyone with a preconceived notion in mind or even impression. That includes me or anyone, if one appears on Television must be a great investor, it’s Mr Munger; how can he be wrong? They have been right or wrong in their real life, we are not able to read them properly perhaps. I am a victim of this, some changes desperately trying to do; but it would require time to wire the right side of brain. I will give 2/3 important points where I have suffered severely in past:

  1. Buy and hold- because I am long term investor. One of chief reason for folks in stock market to disappear. There is no problem with buy and hold but the adjective is missing; ‘Winners’.
  2. Getting more than mutual fund- market is not there to pay you a return. Who asked you to compare with mutual fund? Have you met people who cracked even 200% plus in a year? Market is like mountain, it gives opportunity to explore and conquer; doesn’t discriminate anyone.

I want to cover much more in other thread. Take them as pinch of salt if they sound contrarian to you if heard something else anywhere. Additionally, my own survival and mistakes also aspers question on them. But I am trying to align my footprint to the people who has demonstrated and shared their footprints.

Come back to Concurrent story. Could we have sense somehow and saved ourselves? I think yes. This was a classical accumulation and distribution story. First key point would be:

The technical footprint

The man who most understood about crowd behaviour in a stock market was Jesse Livermore. Aptly put he simply defined, hold a stock till the time it behaves normally. Exit when stock behaves abnormally. As per him the behaviour of a stock depends on three aspects a. traits unique to the stock b. traits adapted from group it belongs (sector/industry) c. traits applicable to economic of demand and supply.

I would cover all of this in ‘Speculation and Technical analysis thread’. For now, I want to divert your attention to point c i.e. economics of demand supply. No body perhaps better understand modern economics other than John Maynard Keynes. If you customise his idea of ‘constructive price behaviour’ in the stock market it would be:

a. When more people wants to pay a higher price, price goes up. (Demand outstrips supply with an agreement for higher value).
b. When more people scared of a higher price, prices goes down. (Supply outstrips demand with an agreement for lower value).
c. When buyers and sellers perceives a fair value in market, price equilibrium is established.

Both buyers and sellers are disengaged themselves from buying and selling activities.
Let us focus on point no 3, what it says? When buyers think possibly stock won’t go up further he stays away. At the same time sellers think more price appreciation to come and doesn’t sell. The volume goes down, price contracts week after week. It comes to a point which looks like a straight line with very low volume each day.

But the beauty of speculation is it can’t remain static in a position for very long. Price breaks out of this range supported by either buyers or sellers. Let’s talk about these things in other thread. In a nutshell every item where fair value is determined by demand and supply in a free market shows up a constructive price behaviour. That means:

  1. Price shoots up initially.
  2. Profit takers start taking profit till they exhaust their shares.
  3. Fresh buyers disengage themselves assuming no further juice left out.
  4. Volume comes to a standstill; price volatility becomes insignificant.

Example- Tinplate

General Disclaimer: I do not have any shares other than Shree Cements. However, my wife is invested in stocks, trades in stocks including Tinplate. And I may have influenced in her decision making.

See the rectangle piece there, absolutely volume has gone out with both buyers and sellers disengaged. Look at the breakouts after base, huge volume with price increase. When pullback happens it happen with a lower volume and lower volatility. Classic economical behaviour of buyer bullishness. Will this happen when intentional accumulation and distribution done?
One has to accumulate at lower price and distribute at higher price to make money. The distributor who is given responsibility will make sure price doesn’t fall beyond a point or else distribution would resulted a loss. This is a critical point for manipulative stock, despite of market conditions stock will show strength at a strong support level otherwise dumping point.

See the two tall bars on right side, hardly any price movement with huge volume. This picture would be more clear from money control.

You would see lots of big volume bars between Mar and Aug with very little price movement.
Positive crowd behaviour- big volume big price increase
Negative crowd behaviour- big volume, big price decrease
Suspicious crowd behaviour- big volume, no price increase.
Confused crowd behaviour- low volume, big price increase. Low volume, big price decrease. I won’t call confused as manipulative.

The manipulative stocks won’t demonstrate a constructive price behaviour.

How does promoter managed to accumulate so many shares at lower price?

No one plays a hard ball game. Good thing with crook is they don’t mind to be called as crook as long as their benefit keeps coming. Meaning they won’t accumulate 100% and distribute 100%. It’s number of shares that needs to be distributed, if you target 50 Cr, then say 1 Cr shares needs to be distributed in a such way it fetch 50 Crs.

Focus on public category holding more than 1%. See the names (use the BSE website), some of them vanish and new names appear. Second how supply happens from public category, then in the end supply didn’t come back to this 1% or more name. It went to public, let’s check how:

In Dec 2007- 6569 individuals were holding 60.88%. If you take out 1% category or more it would be around 19%.

Dec 2008- 6455 individuals holding 58.42%. If you take out 1% category percentage moves to 20.

Dec 2009- 6662 individuals holding 34.14%. If you remove 1% category percentage comes down to 15%. Accumulation time.

June 2010- 9232 individuals holding 52.46%. Remove 1% you will get 24%

Dec 2010- 11147 individuals holding 54.70%. Now remove 1% it goes up to 27%.

Sep 2011- 11749 individuals holding 57.43%. Now company didn’t provide any data for 1% breakup. SEBI hammered a penalty, who cares for 50000 Rs penalty? I have find most of this type company will violate when it requires the most in end.

Dec 2011- 11687 individuals holding 63.37%. Remove public category its around 42%.
Dec 2012 (last available)- 11180 individuals holding 68.85%. Remove 1% category you will get 45%!

Most of price actions happened between Jan 2010 to Aug 2011. Public handed 25% or more shares , game is over.

Again, it may re-start, new business model and new name. No surprise for guessing, E-commerce!

Let us discuss about fundamental landscape tomorrow or day after. What could have been done from fundamental numbers i.e. balance sheet and profit loss.

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Dear Prasad

Satyam was called for a forensic investigations, joint exercise between CBI and KPMG. Yes I am bit familiar with what happened there, in due time I will put down whatever I know of. Except the forensic portion, which anyway we should not discuss in public forum unless report has been made public.

Others, please feel free to pitch in.

Regards

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Nice Thread and an important one !
Price behavior is very important because you only come to know the real reason later when damage has been done. So after burning my hands many times (some idiots like me don’t learn by committing mistake only once !) I learnt and am still learning to watch price behavior closely. This has helped me avoid many like parekh aluminium or hanung toys or diamond power infra and such many brothers and sisters who are real wealth destroyers. But still a long way to learn avoiding such wealth destroyers.

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interesting read @The_Confused_Consult

i’m holding Opto Circuits - which is one such story

moneylife regularly does a cover on such manipulated stocks

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Good thread to start !!
Return of money is more important than return on money (read somewhere)
Dr. Vijay Malik in his blog wrote on how to evaluate the mgmt through simple methods like google search + youtube (+ valuepickr)
It has helped me to avoid stocks like shilpi cable, lycos, noida toll bridge.
Recently i was researching bliss pharma, and got to know that company faked the documents to get registration for selling the products in Ghana just by doing google search with words like “scam / fraud with companys name / promoter name”

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Really a nice thread

Shilpi Cables is also one such company. The management delayed and/or failed to disclose the information on the exchange. The official posting on the insolvency petitions being filed/the orders etc were posted much after the happening of the event and were doing rounds in the public domain.
In the interview at CNBC on May 16 2017 the MD said that the independent directors/CFO etc have not resigned voluntarily but have resigned as a part of the strategy. The relevant extract from the trans script copied from moneycontrol website is as under

Nigel: What about the board? Has the board met? The last couple of times, you said you were meeting on April ‘x’, April ‘y’ and then you did not meet at all. Have you met? When is the last time did the board meet if you could tell us? And why so many resignations in the last one month? Something is going wrong?

A: No, nothing is going wrong. It is just again a strategy move to overall, to get more new talent on the company side, so it is part of our strategy. It is not like something is going wrong.

Reema: You fired these people as a part of your strategy or these were voluntary resignations?

A: No, it was part of the strategy. It was not voluntary resignations.

Reema: So, you fired these people?

A: You cannot use that word because they are quite senior people. It is a part of the strategy and regarding the board, people are travelling.

The official communication to the stock exchange was the normal resignation. What was the strategy is not disclosed till date. Perhaps it was to keep under the wrap the misdeeds of the company. However the biggest surprise is that neither the regulatory authority nor the exchanges has taken any cognizance of the same and sought clarification or initiated action.

Recently on 19.09.2017 the company has informed the exchange that an investor/PAC had more than 12% stake in the company as at 01.01.2017 and as on 07.07.2017 it was more than 26%.One fails to understand what was the secretarial/Registrar doing? Why no open offer? All appears to be a big fraud played upon the investors. The 52 week High Low is 252/18. CMP 18.90. Either the management needs to come out in clear terms about affairs of the company and the role of past and present directors and the KMPs or it needs to be investigated by appropriate authorities.

Disclosure Invested

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Resurrection through restructuring

After crowd behaviour second check should be on pure fundamentals. That would mean financial information provided to stock exchange or other regulators. Next stage we will look at how to cross verify financials with other information provided by company like announcements, presentations etc. Last leg of our journey would be more perception building and breaking beliefs. That includes Google, little bit of scuttlebutt etc.

But we won’t use Concurrent again as example for checking fundamentals. Let us move to understand another type of wealth destruction. Accumulation and distribution though one of oldest category of manipulation has been not the smartest these days thanks to the enormous data that was available on price, volume etc. There is a smarter way where you don’t get a single day even to sell even if you are panicked. That is by restructuring a business, I mean more on legal entity restructuring. Call it merger or demerger, they can be used to wipe you out if you are not diligent. And no time given!

Stock Story 2: Swarnajyothi Agrotech and Power Ltd.

http://www.swarnajyothi.com/

http://www.fivexfinance.com/

Impact: no escape, no remorse. 80% wealth destroyed overnight, I was just a spectator again!

Before we go anywhere let me express something. My fraternity (Chartered Accountants) is single handed blamed for a lot of accounting mess. Some public perception goes to the extent we help clients in evading taxes, plunder money through business restructuring, puncture holes into accounting standards, conduct audit with a disclaimer, last but the not the least we ideate, write, advise and evade! It’s not me who is saying but the perception was reflected with Honourable Prime Minister of the country on CA day.

Am I saying all CA’s are out of falsehood and treachery? No, every profession has black sheep so we do have. Due to our watchdog nature every line comes out from our pen goes under scrutiny, we have been doing since 1949 officially. Sometime we failed, some of us did not behave the way they were supposed to but there is another side to us as well. We have transformed from rules based to control objective based, we moved away from transaction assurance to process assurance, error and omission to fraud. Of course, hegemonic institutions need time to put some of things into right track, but as a fraternity we equally feel frustrated for the black sheep and condemn their activities. But public should not deny us as the gravitational force behind financial regulations, tax system, governance transparency for years. We were the one who wrote COSO, we are the one who implement GST, we will be the one who will implement uniform direct tax laws in future. We are not trying to undermine other’s contribution but we have the rights to highlight our contribution.
Back to story😊

Chronological Events:

  1. Octant Interactive Solutions was a software company for decade plus. It hit a high of 240/250 but before fell to some 9/10 rupees and become non-volatile on bourse.
  2. Name changed to Octant Industries who happens to have a castor oil factory.
  3. Company announced a demerger of its finance company called Five X Finance and Investments.
  4. Octant Industries announced series of new orders including capital expenditure. This includes setting up bio mass plant, solar power plant. The board include IAS, Accountants etc.
  5. Rampant spamming on unrestricted forums begin with a view to sell the story.
  6. Demerger took place with five to one ratio. Meaning Octant Industries shareholder will get 1 share against 6 shares hold. On cut off date CMP was I think around 13-14.
  7. Octant industries name changed to Swarna Jyothi Agro. Preferential shares allotted to promoter and private companies where promoter involved.
  8. Five X finance did not list for 3 years leaving shareholder running from pillar to post.
  9. Five X finance relist finally at 10/12 rupees and plunge back to immediately 3/4 rupees below 1 rupee. CMP 0.88.
  10. Swarnajyothi Agro- after initial hype stock languished at 4 rupees.
  11. Company struggled business wise, asked for financial period extension. Assets got sold of in auction by bank, never reported to stock exchange.
  12. Disclosure failures, penalty by SEEBI. Finally trading suspended in Mar 18 when price was 2.83.

In a nutshell, if you would have hold 100 shares in old company Octant industries. Today it’s value would be- 16 Shares of Swarnajyothi, 84 Shares of Five X i.e. 112 Rupees against investment of 1400. A whopping 90% loss, in fact cruelty was on the day of demerger cut off wealth got destroyed by 70% by giving a ratio of 1:5 against a finance company.

There is more to story:

  1. The irony is when Five x listed on bourse suddenly public was holding 94% in company. And promoters become majority in Swarnajyothi, thanks to preferential allotment.
  2. No one knows what happened to Bio mass plant or solar plant.
    Note: based on information available on public domain. I have no enmity towards management or company. They may have valid information than I do. These may be proper business methods and processes, I am not calling out or concluding anything rather compiling the information.

Now the links:

Interestingly a lot of similar characters were involved between Concurrent and Swarnajyothi including original promoters.

http://foreclosureindia.com/listings/Hyderabad/178121.html

Could these unpleasant events spotted from financials? Let’s talk next.

We will explore another case study where a promoter with minority holdings became majority holdings promoter by acquiring an affiliated business.

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Misinterpreted,I thought you are holding Opto Circuits. Apologies.

Yes Money Life covers every fortnight under ‘unquoted’ though I would want to see more detailed.

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Indeed you making a valid point of using Google. Myself use a bit only as last gate keeper as authenticity could be questioned. plus problem of plenty of information.

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A: No, nothing is going wrong. It is just again a strategy move to overall, to get more new talent on the company side, so it is part of our strategy. It is not like something is going wrong.

Reema: You fired these people as a part of your strategy or these were voluntary resignations?

A: No, it was part of the strategy. It was not voluntary resignations.

Look at the lines, contradiction and confusion. With new industries shaping it would turned to a herculean task to decode accounts and business going forward.
But I am curious to know why would you invest in this after knowing?

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*Money Life edition covering PwC forensic report. on Rico India

As it’s come under their paid subscriber and I am of them, obliged not to reproduce anything. I will just give few key nuggets. You can read the entire article in this fortnight magazine.

  1. Book falsification
  2. Doctoring of revenues
  3. Strange business partners
  4. Personal dealings
  5. Shredding of information and data
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read somewhere - when top mgmt is resigning, first exit then research

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@Leading_Nowhere is doing a wonderful job of dissecting and signalling what to look in annual reports. to me its a beautiful job and may be we should have a new thread on it.
his style of doing the job is bit different and amazing.
it will be of great value if he accepts to show some light to non-finance guys like me.
thanks,
prasad.

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I put some thing in another thread which may be relevant to you in this context. Don’t know how to use a better link. Hence copying it from there.

QUOTE: Then obviously how does an ingrained fundamental investor learn the nuts and bolts of crowd behaviour or speculation? I never refrained from approaching those who are approachable. I chased a stock market wizard and US investing champion, some useful guidance shared by him. My request to 20 plus guys would be, do not hesitate; chase your man BUT give him/her a hope that he can see some of you within him. This means in simple language is demonstrate some hard work and objectivity before expecting nuggets from wizards.

Finally, I have my mentor, if you don’t have one go for it. They are fun and interesting, knowledgeable and helpful, guide and examiner and more importantly you chase them initially; after some time, they chase you to finishing line. UNQUOTE

So in short, chase him till he chases you. But I hope you will respect my other lines mentioned there too.

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In fact invested prior to all these. And am not fast in book8ng the loss. Of course trying to be hard and cut the loss.

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It’s about RICOH INDIA LTD & not Rico Auto Ltd.

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Thanks Hemant
Oversight, rectified now