It is commonly perceived by ordinary investors that Money making in the equity market is a "Matter of
Luck" but some intelligent investors think that investing in the market is all about a combination of “Art &
Science”. Enough evidence has been seen in the last century that making money in the equity market is
also more likely a combination of "Sentiments & Disciplines" of Individual investors than a collective
wisdom of overall market sentiments.
It's pertinent to understand here, that it's not right to conclude in all cases that a multibagger stock is only found by an influential investor or by an inside trader. If we consider IPO’s mystery of last couple of years, plenty number of IPO’s are trading 5x -10x to their issued/listing price but how many these IPOs are still being hold by retail investors who got IPO allotment.
Generating better return than market is a matter of "Compounding, Disciplines & Sentiments" of individual investors but still it’s unfortunate that retail investors tend to make less return compared to the market but equal opportunity exists for all. So some of mistakes to be avoided as mentioned below
It's pertinent to understand here, that it's not right to conclude in all cases that a multibagger stock is only found by an influential investor or by an inside trader. If we consider IPO’s mystery of last couple of years, plenty number of IPO’s are trading 5x -10x to their issued/listing price but how many these IPOs are still being hold by retail investors who got IPO allotment.
Generating better return than market is a matter of "Compounding, Disciplines & Sentiments" of individual investors but still it’s unfortunate that retail investors tend to make less return compared to the market but equal opportunity exists for all. So some of mistakes to be avoided as mentioned below
1) Early Entry in Bear Phase
It's a very tough job to identify a bear phase in
stock market or in real economic.Market
sentiments prevails change in behavior of
individual investors that leads to entry in a stock at
very early stage of stock’s bear phase. Due to
this, the holding period of a particular stock is
extended so long, during holding time the stock is
in notional loss mostly investor loses his patience
and book losses. On the other hand the market
provides opportunity in other stocks or sectors but
unfortunately investors have no money to buy
other well performing stock.
Learning:- Never put all the money in a single
stock at a time,keep segregating buying in small
phases so the chance of getting caught reduces.
Simultaneously do research on falling prices or
get help from experts.
2) Early Exit in Bull Market
There are many companies in each sector but few
of them become multibagger. It requires a complete
set of continuous study & research to track
company performance. A retail investor does buy a
good stock but fails to hold that stock in the long
term till stock reaches to its full potential due to
nature of his behavior & the same stock raises 10 to
100 times in a few years but the investors that
existed earlier only have regret.
Learning:- As well said “exiting a stock is more
difficult task than entering into a stock”. Investors
have to judge that a company has reached its full
earning potential, but it requires a different set of
skills & knowledge to research about the company
and it's not a cake walk for individual investors.. So
an investor should never exit a good performing
stock in a single short, existing from a stock ought to
be done in a gradual manner.
3) Buying stock at 52 weeks or all time low
Retail investors perceive that the "price of stock
which has fallen more likely to rise faster than
market" but the logical reason behind such huge
fall may be some institutional- HNI investor exiting
due to performance related reasons of the
company and retail investors fail to extract actual
reason (Best Example is Yes Bank).
Learning:- When the overall equity market is in a
good up-mood and at the same time If a particular
share hits an all time low or 52 week low with huge
volume that's an indication of some serious issue.
Even if the stock was bought earlier before the fall
started in such circumstances investors should
avoid averaging out that stock at every fall. "A Good
Capital Should never chase to Bad Capital"
4) Avoiding stock at 52 or all time high
Retail investors tend to avoid stock trading at 52
high or all time high and investors quote the reason
for avoiding stock is that Price of stock may "fall
faster in the time of downside in market or no upside
is left". Investors assume that the story of stock is
over. On the other hand the same stock being
bought by Institutional investors at all time high
clearly signals soundness in the company.
Learning:- All time high of stock means simply that
company growth in most of the parameters will be
better, this could be due to many reasons but a few
of them like new product launch, margin
expansion, debt repayment etc. Instead of
avoiding these types of stock investors should look
into gradual buying opportunities keeping
valuation in mind.
5) Looking for Hot Tip & Insider information
Trading is very exciting and people are tempted to
trade and in contrast real investing is very boring.
Retail investors are so excited for “Hot Trading Tip”
to make quick profit. As the old saying says,
“Traders do loses money frequently or eventually”.
Insider information is never trustable & reliable
source and it hardly helps to generate long term
wealth. If a company passes any kind of insider
information is not a sign of good governance of a
company. Genuine Information is considered only
when it's published through the stock Exchange
platform by a listed company.
Learning:- An investor never gets to know the
source of any tip or insider information. Many
times complete scams are being run to offload
stock and trap retail investors by giving falls a
huge target price. An investor should seek
genuine research reports with the help from an
expert to invest money rather than seek any tip or
insider information.
6) Searching new opportunities every time
There are more companies who have destroyed
wealth in the equity market than generated wealth,
every stock or sector is neither a trading nor an
investing opportunity. If a company has a great
story it will be a wealth compounder for many years.
The compounding story is not only for weeks,
months or years but it may be for a decade. So
investors do not keep switching portfolios every
week or month to chase better opportunities but to
remain invested with sound fundamental
companies or portfolios.
Learning:- The most valued companies are today,
they used to be Mid-Small companies a few
decades back. If a Stock is doing good and has
institutional interest in it, so instead of booking
profit and re-enter in the same stock at the
downside, investors should continue holding it.
But if an investor exits the stock, and the same
stock does not fall in the near future and keeps
raising, then it's very difficult for the same investor
to buy the same stock at a higher price which was
sold earlier. Thus never look for new investing
opportunities at every new day in the market.
7) Preferred penny or low price price stock
Lower prices attract attention of buyers, investor
psychology pushes towards small prices of stock
because those stocks can be bought in huge
quantities,Stock has a chance to become double or
triple in a short period of time that is what an investor
thinks of. But this logic and psychology hardly works
in the stock market. An investor must understand
that lower price does never mean its cheap price,
stock is always driven by its valuation
Learning:- It's wrong to predict that a 10 rupees
stock has a great chance to become Rs 100, then
the stock of 100 Rs has a chance to become 1000.
An investor should count his return of investment
in percentage term ( CAGR- Compounded Annual
Growth Rate) rather than absolute number. An
investor should purchase a stock by analysing
valuation rather than penny/ low price stock.
8) Market Capitalization v/s Stock price of Company
Trading is very exciting and people are tempted to
trade and in contrast real investing is very boring.
Retail investors are so excited for “Hot Trading Tip”
to make quick profit. As the old saying says,
"Traders do loses money frequently or eventually".
Insider information is never trustable & reliable
source and it hardly helps to generate long term
wealth. If a company passes any kind of insider
information is not a sign of good governance of a
company. Genuine Information is considered only
when it's published through the stock Exchange
platform by a listed company.
Learning:- An investor never gets to know the
source of any tip or insider information. Many
times complete scams are being run to offload
stock and trap retail investors by giving falls a
huge target price. An investor should seek
genuine research reports with the help from an
expert to invest money rather than seek any tip or
insider information.
9) To much analysis on current condition
A search says that “Too much analysis never
leads to quality decisions”. Ups & downs are part
of life so in the equity market too. An investor
should have faith in the growth of the country that
will help to generate return in the longer term.
Patience & discipline help in compounding
through diversified portfolio/ mutual fund
investment.
"Time in the market beats timing the market"
"Time in the market beats timing the market"
Learning:- Having access to Information is not a
monopoly in today’s time. Market is flooded with
plenty of knowledge & resources. But plenty of
information has not helped investors to beat the
return of the actual market. Excessive information
creates more confusion rather than assisting in the
right direction. Investor should take help from
experts to design & manage his portfolio.
10) Failure to learn from own/ others mistakes
Most investors know that “Trading in the Equity
market is a risky task and rarely helps to make
money” but trading temptation never lets them
focus on the disadvantages of trading. In a few
instances investors try to cover up losses but most
of the time rarely succeed to do that. Sometime
trader do leverage his position that is what becomes
a nightmare once market goes other direction and
erodes most of capital
Learning:- "Derivatives are financial weapons for
mass destruction: said by warren buffett. Traders
use futures & options as trading tools, but these
tools were created for hedging purposes. Market
functions in such a way that all are bound to make
mistakes in it, but we as investors or traders must
learn from our own as well as others' mistakes. Try
never to repeat the same mistakes.
Summary:-
Investing is not a one time exercise, it is a process and an average investor can easily beat the return of
a smart trader in the longer term with discipline. If investing is done in a diversified portfolio or well
managed mutual fund on a regular basis.It is an exercise of skilled professionals. Simultaneously an asset allocation protects the portfolio from major fluctuations in the equity market. We fundspru help to develop good investment strategies that help investors to focus on his/her financial goal over making quick profit. We educate & nurture our investors and allocate their money in potential themes or sectors that help in alpha generation
Why Fundspru
Our alpha generation strategy has served thousands of investors and assisted them for more than a
decade period. Investing in financial market requires personalised attention to portfolio, at Fundspru has
complete team of experts who interact with its investors on regular basis and work on 3R “ Review-
Redesign-Reshape
Whether its “Health or Wealth” , having a second opinion is always advisable. So consult with
fundspru about your existing or new portfolio to check that “it's on right path or not”
