Dear all,
It is pleasure writing to everyone after a long time on few issues which is of major concern about market now. Now Pyramid Saimira forgery case is hitting headline and we would not go in detail of the case; our concern is safety of the investor.
Jim Rogers famously said; Get inside information from the president and you will probably lose half your money. If you get it from the chairman of the board, you will lose all of your money.
Many times I have advised not to take investment decision based Rumors or Tips as many call it, as many time vested interest is always there. Many branches wanted to know about some operated stock where I have normally warned them not to follow or at least not to ask me. Many say I have inside information that market is going to fall or rise Indian market is like an ocean and can’t be controlled by few big people and we have seen this over many years as many have failed.
There are few stock with low floating stock or small market cap where it can be operated, that is where we have cautioned many times. I never believed in Multi bagger as I have no brilliance in finding one, and I never wished to waste hard earned money in experimenting as 1 out of 100 or 1000 stock have become multi bagger.
Playing market volatility in a simple, tried and tested way reasonable returns has been earned and till now in 2years and 6month, 6list was introduced VALUE-24, CONTRAINAN-24, QUICK15+6, ARG30, COMPACT-15 and FANTASTIC-15 and only ARG-30 didn’t perform well. Where we have used simple method of buying good stocks in bad time as correction has been part and parcel of market, most of the time we were in top 200 stocks for 80% of our investment.
Our objective has been simple as worldwide interest rate is again near zero and any returns above 20% P.A would be reasonable, never try to double you money in short time, as saying goes only by folding the currency only it can be possible. Equity as an investment avenue has been always better if risk is understood and if informed decision has been taken.
The "Bigger Fool" Theory (This has been send before just a reminder now).
Small investors fall prey to day trading practices in a manifestation of the "bigger fool" theory: This is the financial market version of "jumping on the bandwagon" -- without examining the actual worth of the stock or the company, traders blindly buy whichever stocks other traders are buying, building the illusion of a "hot" stock through rumor and day trader behavior.
While large investors tend to have experience and a better appreciation for the fundamentals of the businesses in which they trade, poorly based decisions can affect the stocks of entire industries when large numbers of small investors get together to form a "medium-sized shark. Because of the "Bigger Fool" theory, this can work until the market runs out of bigger fools, at which point an overvalued stock will come crashing down.
There is a widely held theory in economics called the Bigger Fool Theory, which states: Buy a stock and you'll make money as long as some other fool is willing to buy the stock from you at a higher price in order to sell it to an even bigger fool at an even higher price. (Crash, p. 15) Day traders and others who ignore the business behind a stock, focusing instead upon rumors, hunches and trends, make their money because of this principle. It doesn't matter how overvalued a stock is as long as there are enough people who think they can still make a profit off of it. Networks of day traders who follow the same strategies and listen to the same rumors often provide each other with the bigger fools necessary to make their profits.
But what will happen when reality catches up?
Investor and trader lose their hard earned money and stocks which they had thought would help them in future financial planning would erode the plan.
What would be best investment advice?
Always divide risk have more than 15-20 stock as minimum, we are not Warren Buffet to part own a company and impose our rules. Invest in best management practiced companies.
Never try to catch a top or bottom (Bottom is always dirty) invest specified amount on regular basis on good growth companies. If you are an investor never hedge your position (Option are ice-cream it always melt). In case of fear increase your cash position so that you can average in case of correction.
Important point I noticed is many withdrew money from market around 8000-10000 Point in Sensex fearing market would come to 6000-5000, and we never said this is bottom you buy, recollect buy 50% now if market goes down to 5000 we will buy another 50%. Time spent in the market is more important than timing the market, so always try to manage your cash position as per trend but always be invested minimum 20% at any given point of time.
Indian stock market has made many transformation, and now handling of SATYAM & Investigation of PYRAMID SAIMIRA point to better handling of crisis, still we have long way to go.
To conclude investor should understand “Buyer Beware” is always better than to repent latter, there are so much information available today, use that to maximum before any investment decision is made.
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