Question: I'm seeing my account values take a daily dive and I've lost all of my gains from the past year, and then some. I'm hearing recession predictions and I'm wondering if I should cut my losses and get out of the market now. Do you think this is the beginning of a bear market?
The Mole's Answer: Don't panic! The bad news is I have absolutely no idea what the market will do in the short-term, nor does anyone else. The good news is that I'm 100 percent confident that:
The market is a great long-term investment.
The ups and downs of the market impact our financial futures a whole lot less than our reactions to it. Unfortunately, we seem unalterably programmed to buy high and sell low. And even though history shows us time and again the error of this, we keep doing the same thing and expecting a different result.
The market is now down about 10 percent for the year and more than 15 percent from its high in October of last year. Sensationalistic headlines read something like "worst start ever for the stock market," and "as January goes, so goes the year." Such anxiety-inducing hype makes it virtually impossible for us to ignore the doom and gloom and just stay the course, but that's exactly what you should do.
Behaving badly
The current crisis du jour in the market, like almost all of them, has its roots in how we invest. It was incredibly easy three months ago to say that we have a high tolerance for risk. We had just seen our U.S. stock portfolio nearly double and our international stock portfolio nearly triple. With such a whopping gain, one would think we would surely be able to handle a small 15 percent pullback, right?
The truth is that most of us are fair weather investors. Our tendency to be risk tolerant in good times, and risk averse in bad times, causes us to feel a bit bullet-proof. The result is getting into stocks when the market is up, and doing the traditional "panic and sell" when it turns downward.
It may be hard for many of us to remember back to October of 2002 when stocks bottomed out, having fallen by nearly half since 2000. To jog your memory, go back to an article written by Jason Zweig, at the bottom of the bear market: Are you wired for wealth? Jason gave us a glimpse into our minds and explained why most of us were panicking and selling at the exact wrong time.
How to be an investor
It's easy to consider yourself an investor in good times, but it's the down markets that separate the real investors from the speculators. An investor understands that, after five straight up years in the market, a pullback is just part of the game. It's okay to feel the pain as long as you don't let it drive you to panic. As much as I hate to admit it, I look at my own portfolio daily for some reason I'll never be able to explain. I feel your pain, but I know my instinct to sell is dead wrong.
An investor needs to understand and have faith in the fact that capitalism works. Not to mention the fact that in the history of the U.S. stock market, it has only lost value a couple of times over a ten year period. Because rebalancing is a critical part of one's investing, now is the time to reallocate more toward equities, as long as one had a proper asset allocation strategy in the first place. After all, it's better to buy things on sale, isn't it?
My Advice: If you can't sleep at night wondering how much more stocks will fall, then the stock market was never right for you in the first place. Moving in and out of the market is likely to give you a low return.
On the other hand, if you can accept that bear markets are a necessary part of stock market investing, then look at this as a buying opportunity. If the market goes down further, it's an even better buying opportunity.
In the words of Warren Buffett, "Be fearful when others are greedy and greedy when others are fearful." That may be easier said than done, but it's good advice.
Thursday, January 24, 2008
Friday, January 18, 2008
(advanced) how to buy a stock that opens in upper circuit
if you really want to buy a stock that's hitting upper circuit regularly, try this:
(caution: these stocks go up like rocket and come down likewise, you can lose your pants pretty easily)
1. login to your online trading account at 9:50 am
2. bse opens at 9:55 am, 5 mins before nse
3. as soon as the market opens, check whats the first price. it will be 5% higher (or the circuit level for the stock) than yesterday's close and it will show "no sellers"
4. put an order at this price for the number of shares you want to purchase
5. do not cancel your order and leave it open for entire day
the trick is to be as early as possible in the queue of buyers. during the course of day, trades happen at the circuit price even if the system shows no sellers available. keep checking the volume, you will see it increasing during the course of day.
another tip, look at the average volume for the last few days. at the time of your putting the order, if the number of pending buy order is significantly lower than the average of last 5 days, you have a good chance.
put in your trade as early as possible, before 9:57 am on bse to be precise :)
speed of execution is the key ! do return and leave a comment if you managed to buy the stock. all the best
(caution: these stocks go up like rocket and come down likewise, you can lose your pants pretty easily)
1. login to your online trading account at 9:50 am
2. bse opens at 9:55 am, 5 mins before nse
3. as soon as the market opens, check whats the first price. it will be 5% higher (or the circuit level for the stock) than yesterday's close and it will show "no sellers"
4. put an order at this price for the number of shares you want to purchase
5. do not cancel your order and leave it open for entire day
the trick is to be as early as possible in the queue of buyers. during the course of day, trades happen at the circuit price even if the system shows no sellers available. keep checking the volume, you will see it increasing during the course of day.
another tip, look at the average volume for the last few days. at the time of your putting the order, if the number of pending buy order is significantly lower than the average of last 5 days, you have a good chance.
put in your trade as early as possible, before 9:57 am on bse to be precise :)
speed of execution is the key ! do return and leave a comment if you managed to buy the stock. all the best
how to trade ? why only buy ?
thanks rashmi and gurvinder for taking out time for this and leaving your comments.
guru, there is no correct or best way to judge a company. There is a simplistic approach that's easy to understand and hard to execute.
for people with a trader's attitude, like yourself, it does not really matter which company your buying. its more of momentum play and bahti ganga mein haath dhone waali baat ! its more about getting in and getting out fast. setting a target (both if you make a profit and if you make a loss) and sticking to it. this is tough if you have a 10 am to 10 pm job ;)
the biggest problem arises, when you turn from trader to investor on stocks which are red and keep on holding till it drops further and try to average it out. its never wise to catch a falling knife. on the other hand, its equally bad to book out profits on good performing stocks.
if you can limit your loss to 7-10% and keep holding your winning trades, trust me, you will be surprised at the returns. booking losses early is important. i have learned this the hard way, you will too soon :)
as regards to your buying dabur, i would have looked at the market leaders in the fmcg sector. itc, hll ... these are very defensive picks. and over the last 1 and a half year hardly shown any big rally. as regards, to some of the financial numbers there are theories and counter-theories for every theory ! no financial or technical chart would have suggested that jai corp will go from 400 to 25000 in a years time !
rashmi, just in case you are wondering, a trader is one who trades with a short term outlook, means he buys and sells within a period that can be one day to 2-3 months. Whereas, an investor "buys" the stock and keeps holding it.
before you start to invest, you need to ask yourself two questions. the money that you are putting in the markets, when do you want it ? remember the good old days of kisan vikas patra, fd, recurring, etc ? these all were locked for at least 5-6 years. if you have similar or more time frame in mind then its comparatively much easier to make money in stocks.
understand this, stock price is nothing but a reflection of how a company is performing. so if you want profits from your investment, you have to give it time. coming from the baniya community, we understand that profits do not come from day 1 of opening a dukaan :)
stock market becomes a pseudo-gambling if you are speculating the price in short term. the drive for quick gains. people go for 10% annual return from fixed deposits, however, they want 100% return in a month from stocks ! this is where you get burnt.
its proven that if you have moderate expectations you will make money.
in short, someone who is just getting started, have an investors outlook. do not run for quick gains. buy and hold. monitor. add more if the price reaches a certain level. say you buy 5 shares of reliance at 3000 each. you set a target if it reaches 3300, i will add 2 more, and so on.
hence, all you are doing is "buying". you sell it only when you have no other source of income or need the money urgently.
now, what is the guarantee that it will go up only, right ? this is where you buy companies which have been there for years. they have stood the test of time. look around yourself, things are happening. its much better than what used to be in 1995 ! so there is no reason why these companies would not be at a higher level 10 years down the line.
do not go on so called "hot tips", friends saying i made 200% in 2 months, etc. stick to the basic. buy companies which stand a chance to be there when your grandchildren will be hitting adulthood. this has been a winning strategy to most. ask any parsi !
hope i cleared your doubts. leave a comment. i really appreciate them :)
guru, there is no correct or best way to judge a company. There is a simplistic approach that's easy to understand and hard to execute.
for people with a trader's attitude, like yourself, it does not really matter which company your buying. its more of momentum play and bahti ganga mein haath dhone waali baat ! its more about getting in and getting out fast. setting a target (both if you make a profit and if you make a loss) and sticking to it. this is tough if you have a 10 am to 10 pm job ;)
the biggest problem arises, when you turn from trader to investor on stocks which are red and keep on holding till it drops further and try to average it out. its never wise to catch a falling knife. on the other hand, its equally bad to book out profits on good performing stocks.
if you can limit your loss to 7-10% and keep holding your winning trades, trust me, you will be surprised at the returns. booking losses early is important. i have learned this the hard way, you will too soon :)
as regards to your buying dabur, i would have looked at the market leaders in the fmcg sector. itc, hll ... these are very defensive picks. and over the last 1 and a half year hardly shown any big rally. as regards, to some of the financial numbers there are theories and counter-theories for every theory ! no financial or technical chart would have suggested that jai corp will go from 400 to 25000 in a years time !
rashmi, just in case you are wondering, a trader is one who trades with a short term outlook, means he buys and sells within a period that can be one day to 2-3 months. Whereas, an investor "buys" the stock and keeps holding it.
before you start to invest, you need to ask yourself two questions. the money that you are putting in the markets, when do you want it ? remember the good old days of kisan vikas patra, fd, recurring, etc ? these all were locked for at least 5-6 years. if you have similar or more time frame in mind then its comparatively much easier to make money in stocks.
understand this, stock price is nothing but a reflection of how a company is performing. so if you want profits from your investment, you have to give it time. coming from the baniya community, we understand that profits do not come from day 1 of opening a dukaan :)
stock market becomes a pseudo-gambling if you are speculating the price in short term. the drive for quick gains. people go for 10% annual return from fixed deposits, however, they want 100% return in a month from stocks ! this is where you get burnt.
its proven that if you have moderate expectations you will make money.
in short, someone who is just getting started, have an investors outlook. do not run for quick gains. buy and hold. monitor. add more if the price reaches a certain level. say you buy 5 shares of reliance at 3000 each. you set a target if it reaches 3300, i will add 2 more, and so on.
hence, all you are doing is "buying". you sell it only when you have no other source of income or need the money urgently.
now, what is the guarantee that it will go up only, right ? this is where you buy companies which have been there for years. they have stood the test of time. look around yourself, things are happening. its much better than what used to be in 1995 ! so there is no reason why these companies would not be at a higher level 10 years down the line.
do not go on so called "hot tips", friends saying i made 200% in 2 months, etc. stick to the basic. buy companies which stand a chance to be there when your grandchildren will be hitting adulthood. this has been a winning strategy to most. ask any parsi !
hope i cleared your doubts. leave a comment. i really appreciate them :)
Wednesday, January 16, 2008
err ... what is sensex, nifty ?
even if you want to avoid, you just can't avoid these two magic words. and its OK to not know a sh*t about what it means, how it is calculated, why people lose sleep over it or why these numerous channels telecast them live.
if you are the one who has heard friends, local paanwala, bus conductor utter these words and never probed further thinking you will looked down upon as a dodo or a mamu, here's help.
now if you have got better of your ego, lets demystify some pompous financial jargon.
stock market: in india there are many stock markets. would you believe if i said hyderabad, kolkata, etc. have their own stock markets ? i was surprised to know that as a new kid.
however, globally, the bombay stock exchange (bse) and national stock exchange (nse, delhi) are the most popular ones.
sensex at 21000, nifty at 6000 ... darn ... how are these damn indices calculated !
sensex and nifty: of all the stocks that are on bse, 30 "top" stocks are chosen from different industries by a panel. these stocks are usually the market leaders from their respective industries. for example, icici bank, state bank of india and hdfc bank from banking sector, infosys, tcs, etc from information technology and so on ...
each of these stocks have different weights to it, adding up to 100. Confused, OK lets make it simple. say there are only 3 stocks in the index and i will call it dodo index. in this index i have 3 companies, viz. umesh infrastructure ltd (uil), umesh power ltd (upl) and umesh airlines (ua) (phew ... am already day dreaming).
assume, uil is at rs 200 today and has 30% weightage, upl is 1000 with 40% weightage and ua is 150 with 30% weightage. so how do we make dodo index ?
simple we multiply the price with the weightage,
i.e. 200 * 30% + 1000 * 40% + 150 * 30% = 505 !
so now if tomorrow the prices rise and uil is 220, upl is 1010 and ua is 130, the dodo index will be, 220 * 30% + 1010 * 40% + 130 * 30% = 509 !
so it means, dodo index has gone up by 4 points :) that's it ! wasn't that tough.
back to sensex and nifty, same logic applies, same calculations apply, just that sensex has 30 stocks and nifty has 50. also sensex is bse index and nifty is nse index.
coming up next ... different kinds of caps that you can buy in stock market :)
if you are the one who has heard friends, local paanwala, bus conductor utter these words and never probed further thinking you will looked down upon as a dodo or a mamu, here's help.
now if you have got better of your ego, lets demystify some pompous financial jargon.
stock market: in india there are many stock markets. would you believe if i said hyderabad, kolkata, etc. have their own stock markets ? i was surprised to know that as a new kid.
however, globally, the bombay stock exchange (bse) and national stock exchange (nse, delhi) are the most popular ones.
sensex at 21000, nifty at 6000 ... darn ... how are these damn indices calculated !
sensex and nifty: of all the stocks that are on bse, 30 "top" stocks are chosen from different industries by a panel. these stocks are usually the market leaders from their respective industries. for example, icici bank, state bank of india and hdfc bank from banking sector, infosys, tcs, etc from information technology and so on ...
each of these stocks have different weights to it, adding up to 100. Confused, OK lets make it simple. say there are only 3 stocks in the index and i will call it dodo index. in this index i have 3 companies, viz. umesh infrastructure ltd (uil), umesh power ltd (upl) and umesh airlines (ua) (phew ... am already day dreaming).
assume, uil is at rs 200 today and has 30% weightage, upl is 1000 with 40% weightage and ua is 150 with 30% weightage. so how do we make dodo index ?
simple we multiply the price with the weightage,
i.e. 200 * 30% + 1000 * 40% + 150 * 30% = 505 !
so now if tomorrow the prices rise and uil is 220, upl is 1010 and ua is 130, the dodo index will be, 220 * 30% + 1010 * 40% + 130 * 30% = 509 !
so it means, dodo index has gone up by 4 points :) that's it ! wasn't that tough.
back to sensex and nifty, same logic applies, same calculations apply, just that sensex has 30 stocks and nifty has 50. also sensex is bse index and nifty is nse index.
coming up next ... different kinds of caps that you can buy in stock market :)
Tuesday, January 15, 2008
first time investors ... start here !
so you have heard about stories how a certain friend doubled his money in a month. read people screaming on business channels. seen sensex hitting 20000 being celebrated as diwali. and still do not know how to begin.
my friend, you are not alone. there are lots like you, even i was. i will try to make things simple for you.
so how do we begin ...
1st and foremost, get yourself a Income Tax PAN card, proof of residence and a normal bank account. if you have all of these, move to next step.
2nd, move your lazy bum and make a call to icicidirect to open a demat account ! no i do not get any commission from them. i strongly recommend icici direct as they have the most novice friendly platform.
once you call them, these guys are after you literally to get your account created. so make that first call to them.
just in case you are wondering what a demat account is, its an account where in you hold you shares just like you hold your money in a bank account. some time back, shares used to be physical paper and that led to a lot of issues like fraud share certificates, paper getting torn, burnt, lost, etc etc. that is when it was decided to "de-materialise" the share certificates into an electronic form and hence the name, "demat" :)
if you are reading this, you are doing well !
3rd, if you have a PAN card, it should take 2 weeks to open your demat account, if not it might take 4-6 weeks to get PAN and demat.
4th, you do not need lakhs and lakhs of rupee to get started ! a small sum of Rs 5000-10000 is good. keep this money aside as something you do not mind loosing. i am not discouraging you here. go with the mindset, its ok if you lose this money. trust me, this mindset makes a lot of difference.
alright ! so now you have what it takes to start your first trade !
how do i know what to buy ?
guys, let me make a confession here ! i was drawn to the markets for lure of easy money. how wrong was i, the sooner you realise this the better.
the first step is often the toughest, so the sooner you take it the better. follow the market for few days. no i am not asking you to get glued on to CNBC yet ! follow means, check a couple of times in the day as to what levels the sensex is on.
choose a day when the sensex is down ! yes down (its not a typo error) ! let me ask you, when do you like to buy stuff from a mall ? whenever there is a sale going on, right ? same applies to stocks. buy on a day, when there is a small "correction" or dip.
i would strongly recommend one of the following stocks as your first trade. icici bank, reliance industries, ntpc, sbi, ongc, hdfc and reliance communication.
do not let the number of stocks you get for your money deter you ! if you are buying reliance industry and all you want to invest is 5000, you will only manage to buy 1 stock of reliance.
there you are ! you have made a grand entry to the stock markets. don't be afraid and start to panic, if you see your stock price go down the very next moment you buy it. also, do not put all your money at on shot. space it out over days and weeks !
after you have invested all your "starting capital" forget them for 3-4 months, ok ... if that's tough to do, check it once a day, no more :)
the rest as they say, will be history ! all the best, make that first call to open your account :)
my friend, you are not alone. there are lots like you, even i was. i will try to make things simple for you.
so how do we begin ...
1st and foremost, get yourself a Income Tax PAN card, proof of residence and a normal bank account. if you have all of these, move to next step.
2nd, move your lazy bum and make a call to icicidirect to open a demat account ! no i do not get any commission from them. i strongly recommend icici direct as they have the most novice friendly platform.
once you call them, these guys are after you literally to get your account created. so make that first call to them.
just in case you are wondering what a demat account is, its an account where in you hold you shares just like you hold your money in a bank account. some time back, shares used to be physical paper and that led to a lot of issues like fraud share certificates, paper getting torn, burnt, lost, etc etc. that is when it was decided to "de-materialise" the share certificates into an electronic form and hence the name, "demat" :)
if you are reading this, you are doing well !
3rd, if you have a PAN card, it should take 2 weeks to open your demat account, if not it might take 4-6 weeks to get PAN and demat.
4th, you do not need lakhs and lakhs of rupee to get started ! a small sum of Rs 5000-10000 is good. keep this money aside as something you do not mind loosing. i am not discouraging you here. go with the mindset, its ok if you lose this money. trust me, this mindset makes a lot of difference.
alright ! so now you have what it takes to start your first trade !
how do i know what to buy ?
guys, let me make a confession here ! i was drawn to the markets for lure of easy money. how wrong was i, the sooner you realise this the better.
the first step is often the toughest, so the sooner you take it the better. follow the market for few days. no i am not asking you to get glued on to CNBC yet ! follow means, check a couple of times in the day as to what levels the sensex is on.
choose a day when the sensex is down ! yes down (its not a typo error) ! let me ask you, when do you like to buy stuff from a mall ? whenever there is a sale going on, right ? same applies to stocks. buy on a day, when there is a small "correction" or dip.
i would strongly recommend one of the following stocks as your first trade. icici bank, reliance industries, ntpc, sbi, ongc, hdfc and reliance communication.
do not let the number of stocks you get for your money deter you ! if you are buying reliance industry and all you want to invest is 5000, you will only manage to buy 1 stock of reliance.
there you are ! you have made a grand entry to the stock markets. don't be afraid and start to panic, if you see your stock price go down the very next moment you buy it. also, do not put all your money at on shot. space it out over days and weeks !
after you have invested all your "starting capital" forget them for 3-4 months, ok ... if that's tough to do, check it once a day, no more :)
the rest as they say, will be history ! all the best, make that first call to open your account :)
Monday, January 14, 2008
my investment strategy
thanks to some of you, and your active persuasion, i am starting my own blog. make no mistake, I AM NO EXPERT ON STOCKS, so i do not take any responsibility for any losses that you make, however, any profits that you make can be generously shared ;)
cutting straight to point, FSL has been a pain (and i am typing this from a pure investment angle), thanks to esops, this script holds the maximum weightage in my portfolio and has generated a meagre return of 10% during the time others have given at least 50% !!
calendar q2 2008 is when i will sell it if it does not cross 100 convincingly.
i have few simple strategies when it comes to stocks:
1. get a share of the wallet ! invest in companies which benefit from your and my day to day spending
2. buy a stock which will last for 15-20 years
3. buy and buy and buy ! i am not a seller
4. buy stocks or businesses you understand, i understand a shit about oil refineries, hence i did not pick reliance petro, though i saw it going from 70 to 250 !
5. last but not the least, buy companies not stocks
i have classified my portfolio based on the time frame that i think i will be holding them:
1. stocks for my "grand-children":
we often hear, "if only my dad had bought 100 itc or infosys in 1991, i would have 2 crores today" ! phew, thats over, how many have you bought for your kids, or with a time horizon of 10-15 years ?
my top picks (i own these) in this category are: icici bank, sbi, ntpc, hdfc, reliance communication, adani enterprise, l&t, punj lloyd and gujarat ambuja. these are my never sell stocks. i know reliance is missing, i plan to add it soon.
2. stocks that are potential mutibaggers:
my top holding in this catagory are adlabs, mic electronics, revathi cp, india humes pipes, reliance infra, jai corp.
each of these have a convincing story behind them. mic electronics is into led lighting which is being touted as the replacement for bulbs and cfl lamps in the near future.
adlabs is riding on the entire movie production and cinema hall exhibition space. its backed by anil ambani and has plans of going global. can double from current levels in a year.
revathi cp, indian humes pipes, reliance infra and jai corp are plays on the infrastructure boom thats about to take place in india. a little speculative and risky. worth 5-10% of your portfolio
from time to time i will be updating this profile. if you have any queries please leave a comment, i will try to reply to the best of my knowledge and abilities.
and yes, thanks for stopping by ! leave a comment so that i know you were here :)
cutting straight to point, FSL has been a pain (and i am typing this from a pure investment angle), thanks to esops, this script holds the maximum weightage in my portfolio and has generated a meagre return of 10% during the time others have given at least 50% !!
calendar q2 2008 is when i will sell it if it does not cross 100 convincingly.
i have few simple strategies when it comes to stocks:
1. get a share of the wallet ! invest in companies which benefit from your and my day to day spending
2. buy a stock which will last for 15-20 years
3. buy and buy and buy ! i am not a seller
4. buy stocks or businesses you understand, i understand a shit about oil refineries, hence i did not pick reliance petro, though i saw it going from 70 to 250 !
5. last but not the least, buy companies not stocks
i have classified my portfolio based on the time frame that i think i will be holding them:
1. stocks for my "grand-children":
we often hear, "if only my dad had bought 100 itc or infosys in 1991, i would have 2 crores today" ! phew, thats over, how many have you bought for your kids, or with a time horizon of 10-15 years ?
my top picks (i own these) in this category are: icici bank, sbi, ntpc, hdfc, reliance communication, adani enterprise, l&t, punj lloyd and gujarat ambuja. these are my never sell stocks. i know reliance is missing, i plan to add it soon.
2. stocks that are potential mutibaggers:
my top holding in this catagory are adlabs, mic electronics, revathi cp, india humes pipes, reliance infra, jai corp.
each of these have a convincing story behind them. mic electronics is into led lighting which is being touted as the replacement for bulbs and cfl lamps in the near future.
adlabs is riding on the entire movie production and cinema hall exhibition space. its backed by anil ambani and has plans of going global. can double from current levels in a year.
revathi cp, indian humes pipes, reliance infra and jai corp are plays on the infrastructure boom thats about to take place in india. a little speculative and risky. worth 5-10% of your portfolio
from time to time i will be updating this profile. if you have any queries please leave a comment, i will try to reply to the best of my knowledge and abilities.
and yes, thanks for stopping by ! leave a comment so that i know you were here :)
Subscribe to:
Posts (Atom)
