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A Lesson in Investing Fraud from a Movie Theatre

Jul 1, 2019

Editor's note: Dear reader, today I would like to introduce you to the best trader I know - Vijay Bhambwani. His knowledge of the markets and skill in trading is second to none. In this piece, Vijay writes to you about the importance of real world knowledge in investing.


Vijay Bhambwani, Editor of Weekly Cash Flow

My maternal grandparents lived in Nashik when I was a kid. Grandpa was a doctor, which was a big deal in the 1960s and 1970s. Nashik was a tiny town back then, and a doctor was a very well-known personality.

Being big city kids, we got bored very easily in Nashik. Nowadays, my kids tell me that a lot in the holidays! So we went to the movies often. My grandpa would call the movie theatre's manager and we were assured of the best seats and a guided tour of the projector room.

Believe me, in those days, it was the equivalent of visiting the cockpit of a 747 Jumbo Jet! But me being me, could hardly be satisfied. I wanted to sit with the ticket clerk in the box office and sell the movie tickets. The process of wetting your thumb and forefinger, and counting the tickets, like a wad of currency notes was very exciting. Being a local doctor's grandkid helped in getting one's wished granted.

That's when I noticed something peculiar...

The ticket clerk had two wads of each type of tickets. Stalls and balcony, and he would issue patron tickets from one wad and the next patron from another wad. I asked him why, he looked helplessly at the manager, who nodded his approval.

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The clerk taught me the first lesson in investing fraud.

He said one bunch of ticket sales would be disclosed to the tax authorities and the other was to be handed over to the owners in cold cash. I asked him why the theatre was not air conditioned, like we have them in Bombay (as Mumbai was known back then).

He said the theatre was "officially" losing money because 50% of the box office sales were never reported in the books. This was a revelation for a young mind such as mine.

When I grew up to take my own investment decisions, I promised myself I would never invest in companies that sold their goods and/or services in cash. I would keep thinking of my movie theatre experience as a kid. Decades later, when a new financial news channel started, the editor (who was a friend) requested me to talk to some of the newbie "troops" to give them some guru gyan.

You have got to understand the unbridled excitement of a trainee research analyst or journalist fresh out of college. Everything is so hunky dory. They are so enthusiastic.

One of them started with how real estate stocks in India were cheap, going by the price to earnings multiple (p/e) etc.

I narrated the movie theatre anecdote during my childhood, now even newbies know that property deals in India are done in 30/70, 40/60 etc manner. Meaning 30-40% in cash (black money) and 60-70% in cheque.

I asked him what happens to an investor of a real estate company's stock? Does he get Rs 30 in cash for every Rs 70 he receives by cheque as dividend? If not, where was the cash going?

The guy sat still like he had been struck by lightning. It was his Eureka moment of truth. He mumbled something about not being taught about this aspect at school or college. Well come to think of it, nor was I.

I learnt it in a movie theatre's box office in Nashik as a kid. Some lessons are best learnt only from the university called life. This is why real doers of deeds think differently from armchair experts. Field work is the difference.

If you want to invest in someone else's business, by buying his company shares, you have got to be an optimist by nature. It can't be any other way. But you can't let the guy cheat you blind by siphoning money in cash for god's sake.

Now you know why I never recommended a buy and hold in any real estate stock in any of my TV shows.

Have a profitable day.

Warm regards,


Vijay L Bhambwani
Editor and Research Analyst, Weekly Cash Alerts

PS: Small cap stocks are back in the news. After the recent correction, sentiment could turn positive for this segment of the market. I recommend you listen to our small cap expert Richa Agarwal. She has picked the the best small-cap stocks in the market.

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1 Responses to "A Lesson in Investing Fraud from a Movie Theatre"

DINESH NAYAK

Jul 1, 2019

An interesting article but the analogy of the movie theater fraud and cash component in real estate deals is not exactly analogous. For everybody, a builder-developer is a cash cow. A building project requires a host of approvals / permissions / No Objection Certificates and one has to shell out cash to obtain them. Local gangs take their cut. Political parties take their pound of flesh. Even various "Sarvajanic Utsav Mandals" do not spare them. Of course,a movie theater owner is also a target of extortion by these elements but he doesn't have to repeat it for every new movie he screens. Besides, Income Tax Department chaps do not come and check the occupancy for every show whereas every project of a builder is subject to scrutiny.

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