My lessons in equity….
Reader: Sir is Hindalco a good company?
Subramoney: Yes, of course.
R: Good i bought it at Rs. 240.
S: Hmm good. What is the price of the share now?
R: Such a good company sir, I thought you would know the price! It is Rs. 174 now…(not sure about the date – a few days ago)
S: Oh! so you are at a loss….
R: No sir I further averaged at Rs.180…so my cost has gone down…and this time I bought 200 shares.
S: What is the price now?
R: Sir the price is Rs. 147, I bought another 200 out of my last 2 months salary and by selling some Reliance Industries shares..I have bought some more at 124…now my average cost has come down quite dramatically.
S: so you at least made money on Reliance?
R: Sir you must be joking. I bought Reliance Industries at 1243…and sold it now at 834 Rs.
S: OMG….why did you sell Reliance?
R: Sir it is not increasing at all.
S: what is your time frame for Hindalco?
R: Sir long term sir…I will be invested for 2 years sir. My first purchase I am already holding for one year. I am sure in 3 more years at least, I will be able to sell on a no profit no loss basis.
R: Sir I listened to all that you said – a) bought a good company with good management.
b) As you have been recommending averaging (SIP) I have averaged also.
c) I do have a long term horizon – more than one year. (My CA and my broker told me that < 1 year is short term and > 1year is long term).
Still I am losing money……………what to do sir?
Readers willing to answer are welcome….I will share my reply after a few days..
Dheeraj
I always suggest never to average shares.
And ppl should strictly follow stop loss.
This is what I feel to make money in shares.
Akram Chotu
Averaging the cost price is a psychological trap. May be it is a sunk-cost fallacy and endorsing on your ego.
My opinion. Even though the stock is fundamentally good and the stock is further declining then do not invest further in it and you better invest the money in some other good stock for long term and in that way stock portfolio diversification helps to reduce the risk.
Abhisek Bhowmik
Long Term >10 yrs…otherwise trade in a sideways market – buy at a discount sell in euphoria.
Jayant
Incorrect definition of Long term.
Abhishek
a very typical conversation.. Mr R needs to get the long term definition rite.. and stop watching Business Channels 🙂
Barun Chowdhury
I have the following observations in the above scenario.
1. If Mr Reader analyzes that Hindalco is a good company and it is attractive at Rs. 240, he can add more shares at lower prices provided no long term fundamental change for the company.
2. Mr. Reader sales RIL only because it has not gone up for 2 years is childish. He can only sale when he was sure that based on the fundamentals the RIL share prices are too high. My assumption is that when he baught RIL, it was cheap at his analysis.
3. Switching money among stocks is a not an easy job and requires a lot of experties & experience. Hence, should require professional touch.
4. For long term investment I understand, more than 3 years.
5. According to me for new investors, large portion of the investable money should go in reputed MF using SIP route . Rest will go for a large companies with strong fundamentals, having really attractive price. Otherwise just do a FD/RD and wait.
Thanks
Barun
Srinivas Muthadi
Simply close the trading account and sleep happily. :). Stocks are not for everyone.
Milind N
Long term by Tax angle may be correct .For Traders and Punters its correct.For investors grossly incorrect defination of long term. (Guru Warren Purchases in Panic and Holds till life ,well almost)Few companies with Good Management,Consistent Leaders who practise what they preach(“Promise is Promise…Guess the company)is enough and as a Hobby at best…..For Meeting lifes goals and serious wealth creation …Let Prashants ,Sandeeps,Approvas,Chirags,Maheshs who are full timers in equty with Greatest Skills and Phenomenal talents ,Research Teams,Understandings decide companies ,we can focuss on Our Lifes Goal and Our Professions.We are Parttimers in equity . Lets Salute Fulltimers
krish
Let me Quote some of the Warren Buffet Quotes which are perhaps answers to the above case.
1.Unless you can watch your stock holding decline by 50% without becoming panic-stricken, you should not be in the stock market.
2.Investors making purchases in an overheated market need to recognize that it may often take an extended period for the value of even an outstanding company to catch up with the price they paid.’
anon
Long term is 5 plus years.
Move to MFs. And look at your portfolio/ NAV only on your birthday.
Balaji
1. Quality metal stocks with top class management should be accumulated when the prices are low.So the reader should not have bought Hindalco @ 240 when the aluminium prices were high.
2. Averaging should not be done at every level as it is a difficult thing to do.
3. Long term is > 7 or more (as you said in a TV program).Should stay invested for atleast 2 business cycles.
4. Regarding buying and selling reliance, I really do not know what kind of time frame he had in mind when he bought that.If reliance was bought for long term, it should not have been sold.
MKJ
Understanding our own level of ‘understanding’ of the fiancial markets, instruments, plans, decisions etc — all these are critical, but we make certain rough assumptions (after all human race is the best ‘know all’ genious amongst all the species!!). So we merrily leave the tough part of thorough analysis.
When times are lucky we feel we are in command (after all we are genious), but when life takes u turn, we try to look for answers elsewhere (we are still genious, so can not blame ourselves!!).
So my lesson is — we must take our basic lessons in financial decision making first — invest afterwards.
Raja
Grrr.. at most of the answers 🙂 except may be Srinivas Muthadi
My answer…
Sir, please stop investing directly sir. Sir, you have a looong way to go in understanding equities,companies,finance,investing, behavioral finance… bla bla…there is a complete list of topics available on subramoney. Please try to spend more time on understanding few of those topics else please trust your money and intelligence about averaging with mutual fund SIPs.
Regards
Raja
shinu
Welcome to the club. He will close the trading a/c in a year maximum, learning the basics of “market” in the “hard way”.
He had no targets for either RIL nor Hindalco and just satisfying the Ego by “acting smart”/ averaging…
Start SIP in mutual fund and check the only on bithdays.. 🙂 as Anon suggest…
C.J.GOPINATH
Averaging works in a portfolio. Not in individual stocks.
Madhu
Burnt my money in similar fashion long time back… now I invest only in Mutual Funds… I feel trusting the fund manager is far better then trusitng my own judgement about good companies 🙂
S Mandewalkar
….Value Investing Principles
1) Select a Company with good economic fundamentals and good management.
2) Buy when the price is below Intrinsic Value (Growth should be discounted)
3) Hold it as long as the fundamentals and management are good.
Buy more even if the price goes below your entry price.
4) Sell when it is over priced (Growth has been fully priced).
Think and Act like a Business Man.
DO NOT BE GREEDY.
Have Patience..you will get the results.
Nakul Bajaj
Long term has to be defined by your need requirements in the future also. 1 year or 5 years depends on the way you look at the business you are investing in. Wealth creation in the long term cannot be quantified as per a number of years. At the end of it you are still assuming
Akram Chotu
Subra –
You said you’ll give your replies after few of this post. Awaiting your suggestions 🙂