Swami Vivekanand while defining Poison said excessive of everything is poisonous. This rule is equally applicable to the stock market.
The investment in stocks in based on the principle of fear and greed. The common-man always finds him at the center-stage of this pendulum. He is either too fearful to selloff everything at loss or too greedy to keep everything near his chest and suddenly finds himself in an uncomfortable situation.
I have been myself an investor for more than 14 years in stocks. I have seen all the types of days and have my share of mistakes where I have lost and earned good amount of money. I have even traded on the floor of the stock market in those old days when the computer based trading system was unheard of.
First of all let’s understand the difference between investment and speculation. Investment is made for specified time duration with very clear objectives after careful analysis of the stocks. On the other hand speculation is based on the whims and fancies of the individuals and sometimes based on the advice of the so called gurus of the stock market.
I am sorry to say but almost 90% of the common investors fall in the second category. They had never been smart enough to do the analysis of those stocks in which they are putting their money. They loose the money faster then they loose their pants. We have witnessed three very prominent scandals in last 15 years. These are named as Harshad Mehta, CR Bhansali and Ketan Parkeh scandals. In all these three scandals it was only the common man who burnt his fingers because of his excessive fear and greed.
When we buy vegetable we tend to bargain with that poor vegetable vendor for a sum as small as Rs 2 but when it comes to stocks we forget everything. Why? It’s nothing but an example of excessive greed and the same is equally true when we are to sell the stocks in the market.
So how should we protect our interest in the market? First of all never invest for shorter duration and always invest in the quality stocks when they are offering attractive valuations. What does an attractive valuation mean? It simply means that we will not invest in a stock or industry which is much hyped and already seen a rally. Like in IT stocks in year 2000-01 or in Retail and Real Estate before the crash of 2008 started.
If I have invested in the stocks after making all the relevant analysis based on the study of the books of the company I will not sell just because the stock has seen a short term loss.
If someone bought 100 shares of a company in 1992’s IPO at an investment of Rs 9500 today it’s worth in crores. You may like to know the name of the company. It’s Infosys but how many of the common investors have been able to locate this? Alas I do not know a single of them… But I know many of them who have invested in penny stocks and lost their pants.
So friends have lots of patience, less of greed and fear and smart understanding to get the best out of stock market.
Please feel free to share your views/thoughts...
Niteen S Dharmawat