The Rise of Harshad and the Equity Cult

Picture the marble market that runs at the back of your school every lunch break. Kids bring marbles, swap them, buy and sell them, and slowly everyone learns a rough "price" - a big shiny marble is worth, say, ten small ones. Nobody decides this. It just settles, the way water finds its level, because lots of children are trading and each one only pays what a marble feels worth to them.

Now imagine one kid - let's call him Aman - walks in with an enormous, secret pile of marbles that isn't even really his. Every day at lunch Aman starts buying one particular kind of marble - the green swirly ones - and he doesn't buy quietly. He buys loudly, and each day he offers a little more than yesterday. Ten small marbles, then twelve, then fifteen, then twenty. Other children watch the green swirlies climb and think, something must be special about green swirlies - look how the price keeps going up! So they start buying too, which pushes the price up even more, which makes Aman look like a genius who spotted the green swirlies before anyone else.

Here is the whole trick, and it's the idea this chapter is about. The rising price did not come from green swirlies suddenly becoming precious. It came from one very well-funded buyer choosing to push the price up, day after day. The market wasn't discovering a truth. It was watching a performance. And almost nobody in the playground could tell the difference, because from where they stood, a price going up looks exactly the same whether it's rising for a real reason or a fake one.

Once upon a time in India, in 1992, something shaped exactly like this happened on the real stock market - a boom where prices soared and a small number of heavily-funded operators were doing a great deal of the pushing, using money quietly borrowed from inside the banking system. Then it all came apart. We are not going to retell that story in detail or point fingers. We are going to learn the shape of it, using our own playground, our own rupees, and our own everyday examples - because that shape shows up again and again, and a person who can recognise it is much harder to fool.

To understand why this trick works so well, you have to understand what an ordinary person actually sees when they look at the stock market. They don't see how well a company is run. They don't see its factories or its honesty or its debts. Almost all of that is hidden away in dull reports nobody reads. What they see, flashing on a screen or printed in the paper, is one thing: the price, and whether it went up or down today.

That price is called "the tape" - an old word from when prices really did clatter out on a ribbon of paper. And here's the thing about the tape: most people quietly treat it as the truth. If the price of a share keeps rising, they assume the company must be getting better, because why else would people pay more? A rising price feels like a crowd of clever strangers all voting "this is good." It feels like proof.

But a price is not proof of anything. A price is just the amount at which the last trade happened. If that last trade was between two ordinary people weighing a business carefully, the price carries real information. If that last trade was Aman buying green swirlies from himself to make the number go up, the price carries no information at all - it's a costume, not a fact. The tragedy is that the two look identical on the screen. A manufactured rise and an honest rise wear the same green shirt.

This is why a well-funded operator has so much power. He can't easily make a company genuinely better. But he can make the one thing everyone is watching - the tape - do whatever he wants, at least for a while, as long as his money holds out. And when the tape climbs, people invent a story to explain it. "This sector is the future." "This man has a golden touch." The story feels like the cause of the rising price, but it's the other way around: the rising price came first, and the story was scrambled together afterward to make sense of it. A bubble is not really a story about a company - it is a rising price that people wrap a flattering story around, and the story then pulls in more buyers, who push the price higher, which seems to prove the story true. Once that loop is spinning, it can carry a price far, far away from anything real.

Let's slow right down and look at the actual machine, because the trick is simpler and sneakier than people imagine. To lift a price, an operator doesn't need to convince the whole world. He only needs to control the last trade, again and again.

Suppose a share is trading around ₹100. Our operator wants it at ₹150. He doesn't announce anything. He simply starts placing buy orders - but cleverly. He buys a bit at ₹102. Then a bit at ₹106. Then ₹112. Sometimes he is even buying from himself - using two different accounts, one selling and one buying, so that a trade happens at a higher price without any real change of hands at all. To the screen, it looks like genuine demand. Each of these small, rising trades re-writes the tape, and the tape is all anyone else can see.

Two things then happen on their own, and this is the beautiful, dangerous part. First, real outsiders notice the steady climb and start buying too, hoping to ride it - so now the operator has free help pushing his price up. Second, the higher price makes the earlier buyers look smart, which makes them buy even more. The operator lit the fire; the crowd pours on the fuel. He might only need to do a fraction of the buying himself once the crowd catches the fever.

Notice what the operator has not done. He hasn't improved a single thing about the company. He hasn't invented a product or earned a profit. He has only rented the appearance of demand. That's why we say he is running the tape rather than the business. One buyer with enough money can set the visible price of a share all by himself, because the price is simply the last trade, and he can keep being the last trade - so a rising tape can mean genuine demand, or it can mean a single deep pocket deciding it should rise. The catch, which we'll come to, is that this only lasts as long as the money keeps flowing in. A painted price has to be held up by hand. Let go, and it falls.

So the operator needs a lot of money to keep being the last trade, day after day, across many shares. Far more than any one person has. Where does it come from? This is the second, deeper half of the trick, and it's about something invisible: the plumbing - the pipes that move money around behind the scenes.

Think of the country's big banks as enormous water tanks, connected by pipes. All day long, huge amounts of money flow through those pipes as banks lend to and settle with each other. Now, here's the crucial gap. When money is promised from one tank to another, it doesn't always arrive the same instant. There's a delay between "I promise to pay you" and "the money has actually settled" - sometimes a day or two. During that delay, a large sum is, in a sense, in transit, sloshing through the pipes, not yet in anyone's tank.

A clever operator who sits in the middle of that plumbing - helping banks trade with each other - can quietly divert some of that in-transit water into his own bucket, use it during the delay to buy shares and push prices up, and then return it before anyone notices it was gone. On paper, every tank's records still balance, because the money is supposed to come back. It's a loan that nobody agreed to give and nobody can see. The operator is spending the banking system's money to paint the tape, and the banking system doesn't even know it lent it.

Feel how dangerous this combination is. On its own, an operator with his own ₹1 crore can only push a small stock a little way before he runs out. But an operator who can secretly tap the banking pipes might command ₹100 crore, ₹500 crore, sums no honest single buyer could ever gather - and he can aim all of it at the tape. The borrowing is the multiplier. It turns a small pusher into a giant one. And because the borrowed money is hidden, nobody watching the boom has any idea how much of the rising market is standing on nothing but a temporary loan that must, one day, be repaid.

Let's put rupees on the table and watch the machine run, start to finish, on one make-believe share. illustrative

There's a company - call it a cement maker - whose share sits quietly at ₹100. It's a fine, dull business. On its own, with real buyers and sellers weighing it honestly, it might drift between ₹95 and ₹110 for years. Nothing wrong with it; nothing thrilling either.

Now our operator, Aman, decides this share will be his showpiece. Over three months he spends, in stages, about ₹40 crore lifting it - much of that money quietly tapped from the plumbing, not his own. He buys in rising steps: a slab at ₹110, another at ₹130, another at ₹160, sometimes trading between his own two accounts so a trade prints at a higher price with no real buyer at all. The tape climbs: ₹100 → ₹130 → ₹180 → ₹240.

And now the free help arrives. Newspapers notice the "hot" cement share. A television face calls it a rocket. Ordinary savers, seeing a number that has more than doubled, pour in - and their buying lifts it further, to ₹300, with Aman barely lifting a finger. By month four the share that was worth ₹100 trades at ₹320. On paper, Aman's early ₹40 crore of buying is now "worth" far more, and he looks like the smartest man in the market.

But look closely at what actually happened. The cement company made no more cement. It earned no extra rupee. Nothing about the business changed at all. The entire rise - every paisa of it - was built out of Aman's borrowed pushing and the crowd's excitement about that pushing. The price is real in the sense that you could sell at ₹320 today. It is fake in the sense that nothing underneath justifies it. It is a tower of pure demand, and demand can leave as fast as it came. Hold that image: a ₹320 price with a ₹100 business inside it, and a mountain of hidden borrowed money holding up the gap.

Now comes the part that turns a clever trick into a mass event: the crowd doesn't just follow the rising price - it starts to worship the person they think is causing it. And this worship is what pulls in far more money than the operator could ever borrow.

Think about how it looks from the outside. Here is a man whose picks keep going up. Every share he's rumoured to be buying soars. To an ordinary saver who can't see the plumbing or the self-trading, there's only one possible explanation: this man is a genius. He must understand something the rest of us don't. He becomes a hero - "the big bull," the golden hand, the man who prints money. People stop asking whether his shares are worth the price. They just want to be near him, to buy what he buys, to ride his magic.

This is the trap, and it's a trap made of a very human feeling. We badly want to believe that someone, somewhere, has cracked the code - that wealth comes from a special person's genius rather than from patient, boring, uncertain work. A big bull gives that wish a face. And once enough people believe the face, their belief becomes a real force: their buying really does push prices up, which really does make the hero look right, which pulls in the next wave of believers. The worship builds the very success it claims to have discovered.

The danger is that the worship switches off exactly the questions that would keep you safe. A person who thinks, "I don't need to check this company - he's buying it, and he's a genius," has handed their savings to someone else's story. They no longer own a view of what the company is worth; they own a view of a man. And a man, however dazzling, can run out of borrowed money, or be found out, or simply be wrong. The most powerful fuel in a bubble is a hero - a single person whose rising picks become a story so flattering that people buy the man instead of the business, and stop asking what anything is actually worth. The moment a market is trading on faith in a person rather than knowledge of a business, it has quietly become a religion, and religions don't reprice gently.

Let's follow one ordinary person into this trap, so we can feel it in rupees. illustrative

Meet Haridya, a schoolteacher with ₹3,00,000 saved patiently over many years. She isn't greedy or foolish. But everywhere she looks, the market is roaring, and everyone is talking about one man whose every share turns to gold. Her cousin doubled his money following him. Her staff room buzzes with his name. Haridya starts to feel that staying out is the truly foolish thing - that she's the only one not being clever.

So she stops thinking about businesses and starts thinking about the man. She puts her entire ₹3,00,000 into the cement share we watched Aman lift, near ₹300, precisely because it's one of the hero's shares. She does no other checking. Her whole reason is: he's a genius, and this is his stock. Notice what she has actually bought. Not cement. Not a business she has weighed. She has bought a story about a person - and, without knowing it, she has bought the very top of a tower held up by hidden borrowed money.

For a few weeks she feels brilliant. The share ticks to ₹330 and she's up ₹30,000 on paper. She tells herself she should have done this years ago. This good feeling is the most dangerous moment of all, because it's the moment she stops being cautious and starts believing. She even considers borrowing a little herself to buy more - after all, it only ever goes up.

And this is the quiet heart of the danger. Haridya doesn't understand why the price is where it is. She can't see the operator, the self-trades, or the plumbing. She has borrowed a conclusion - "this is a great buy" - from a crowd that borrowed it from a man who is standing on borrowed money. Ignorance stacked on borrowing, all the way down. The most fragile position in any market is borrowed money in the hands of someone who doesn't understand what they own - because they have no way to judge when to be afraid, and the borrowing means a single bad move can wipe them out before they even realise the ground has shifted. Haridya's ₹3,00,000 is now sitting on that exact spot. She just can't feel it yet, because the tape is still green.

Here is the twist that catches almost everyone. The longer the fake rise goes on smoothly, the more dangerous it becomes - not less. Calm feels like safety. In a manufactured boom, calm is the poison.

Think about what a long, steady climb does to people's heads. Every day the market goes up a little and nothing bad happens. Week after week, the worriers are proven "wrong" and the bold are proven "right." Slowly, everyone learns the same lesson: it's safe to lean in harder. People who were cautious start borrowing to buy. People already borrowing borrow more. Savers move their whole savings in. The operator, seeing it working, taps the plumbing for even bigger sums. Each peaceful day, the amount of borrowed money holding up the market grows - and grows invisibly, because a rising tape hides everything.

So the market gets more fragile precisely when it looks most solid. Underneath the calm surface, more and more of the structure is made of debt that must be repaid, held by people who don't understand what they own. It's like a crowd all crowding onto one side of a boat because that side has been dry and pleasant so far - the very calmness of the ride is what packs the weight into the spot that will capsize it. A long stretch of calm, rising prices is not proof of safety - it is the thing that manufactures the danger, because peace convinces everyone to borrow more and doubt less, quietly loading the market with the exact fragility that turns an ordinary wobble into a collapse.

This is why manufactured booms don't deflate slowly and kindly. They snap. The same borrowed money that pushed prices up in a gentle staircase yanks them down in a single drop, because the instant the borrowing has to be repaid, all that buying turns into desperate selling at once.

Let's watch the snap, in rupees, and see what it does to the operator and to Haridya. illustrative

Every hidden loan has a due date, even the ones nobody admits exist. One day, somewhere in the plumbing, a bank asks for money that was supposed to be there and finds it isn't - it's tied up in shares. Questions start. The quiet tap on the pipe is noticed. And the moment the borrowed water can no longer be diverted, the operator's fuel is cut off. He can't be the last trade any more. Worse, he now has to repay enormous sums, which means he must sell the very shares he spent months lifting.

Watch the cement share fall. Aman stops buying, so the tape stops climbing - and the crowd, whose only reason to buy was that it kept climbing, stops too. Now everyone wants out at once. From ₹320 it slides to ₹250, then ₹180, then ₹120, then below ₹90 as forced selling piles on forced selling. There is nothing underneath to catch it, because there was never anything underneath - remember, the real business was only ever a ₹100 sort of thing, and even that now looks shaky because the whole market is panicking. Within weeks the tower is rubble.

Now count the cost for Haridya. She bought her whole ₹3,00,000 near ₹300. She holds on the way down, because surely the genius will rescue it - that's what worship does, it makes you loyal to a falling knife. By the time she gives up near ₹90, her ₹3,00,000 is worth about ₹90,000. She has lost roughly ₹2,10,000 - years of patient saving - and remember the cruel arithmetic of losses: to turn that ₹90,000 back into ₹3,00,000, it would have to more than triple. It isn't a dip she waits out. It's most of her savings, gone, because she bought a man's story at the top of a tower of hidden debt.

And here's the lesson sitting inside her loss. Haridya was never punished for backing a bad company - she barely knew which company it was. She was punished for two things this chapter has named: she trusted a rising price as if it were proof, and she stood on borrowed excitement she didn't understand. The operator built the trap; but it was ignorance-plus-borrowing, hers and the whole crowd's, that made the trap so crowded and the fall so cruel.

The slip is almost never "I want to gamble on a con." It's much gentler than that. It's the quiet, sensible-feeling thought: "The price keeps going up, and all these other people can't be wrong." That single sentence is the doorway to every manufactured boom, because it treats the two things a bubble is made of - a rising price and a following crowd - as if they were evidence the thing is safe. They aren't evidence. They're the trick itself.

Watch how it works on an ordinary, careful person. First they notice a share (or a whole market) climbing steadily. Then they notice respected-sounding people are in it and doing well. Then they feel the sting of being left out while others get rich. That sting grows until the caution that would normally protect them - do I understand this? is the price sane? whose money is holding it up? - gets switched off and replaced with a simpler feeling: everyone I admire is doing this, so it must be fine. The crowd and the rising price, working together, talk the caution right out of them. And the more heroic the person leading the boom seems, the more completely the caution dissolves.

Now the honest part, because this lesson, taken too far, can hurt you in its own way.

The first thing this chapter is not saying is that every rising price is fake, or that every market boom is a con. Most of the time, prices rise for perfectly real reasons: companies genuinely earn more, the country genuinely grows, and patient owners are genuinely rewarded. The whole point of investing is to sit through many real, honest rises over the years. If you become so suspicious that you treat every climb as a trap and never invest at all, you've simply found a slower way to lose - your savings quietly shrink against rising prices while you wait for a crash that, this time, isn't coming. The lesson isn't "fear all rises." It's "know the difference between a rise with a business under it and a rise with only borrowed money and a story under it."

The second thing it's not saying is that operators or heroes are always easy to spot. They usually aren't - that's precisely why the trick works. You often can't see the plumbing or the self-trades from the outside. So the defence isn't "identify the con man." The defence is humbler and more reliable: judge the thing, not the person. If you always ask "what is this business honestly worth, and does the price leave me a cushion?", you don't actually need to unmask the operator. A share priced at ₹320 with a ₹100 business inside it is a bad buy whether the man lifting it is a fraud or a saint. Anchoring to worth, not to the tape and not to a hero, keeps you safe without requiring you to be a detective.

And a third, quieter caution: don't swing so hard against hero-worship that you refuse to ever learn from genuinely skilled people. There are investors worth reading and thinking about. The line to hold is this: admire a method you can understand and check for yourself; never outsource your judgement to a person just because their picks have been going up. The first makes you wiser. The second makes you the crowd at the top of the tower. Being cautious isn't enough on its own - you have to be cautious about the right thing, which is always the same thing: what is it worth, and whose borrowed money is standing between me and the truth?