Skip to main content

Simplest way to make money in stocks

June 16, 2007 11:33 IST

Though his salary may run into six digits, the average young executive would wait for that annual discount sale to buy his favourite brand of clothes, shoes and accessories.

A well-heeled housewife would probably squeeze the last paise out of the corner vegetable vendor, before deciding to buy her daily quota. You will proba

June 16, 2007 11:33 IST

Though his salary may run into six digits, the average young executive would wait for that annual discount sale to buy his favourite brand of clothes, shoes and accessories.

A well-heeled housewife would probably squeeze the last paise out of the corner vegetable vendor, before deciding to buy her daily quota. You will probably haggle for those ten rupees with the porter before handing over your luggage , even if you are traveling first-class by Rajdhani.

But when it comes to stocks, we prefer to buy the ones that are rising and shun those that are falling. A slight fall in value of stock reduces the number of investors who would want to invest.

We are not discussing the professional trader or a pock-marked technical analyst, who is seasoned enough to know when to run and when to bail out. We are discussing the common investor, who sells when a stock falls and buys when it rises. We are not discussing the trader who has no capital to take delivery and must square up in case stocks plummet.

Those who sit in front of the screen get carried away by the wild swings of the markets. Those who are glued to their TV sets and mobiles will also commit these mistakes.

The main reason for this behaviour is the lack of conviction in the stock, which stems from the fact that the stock has probably been bought in a jiffy on some hot flying tip.

A factor helping this phenomenon is the ease with you can buy and sell stocks. When have you seen someone booking a loss in his house, if the price falls from the levels which he has bought? But an investor will sell Rs 1 crore (Rs 10 million) worth of stocks at a loss if he sees the prices stumbling.

As investors, we should see market sell offs and corrections as an opportunity to buy rather than panic and sell. It is akin to a sale. When the stock is available at a massive discount to the recent prices, there are no takers.

Going back to our example of garment sale, the clothes in the sale may be export rejects, seconds or with other manufacturing defects, whereas in the stock sale, the stocks are the same class-1 shares. In fact, lower prices means locking of a higher dividend yield also.

If we have fundamentally liked the stock at a particular level, when the price drops 20 per cent lower, we should like the stock even more, if there has been no adverse fundamental change meanwhile. But investors tend to sell on weakness.

In order to see whether this theory holds true, I backtracked the Sensex for the last 17 years and studied its movements since January 1, 1990. In these 17.5 years there have been 43 instances when the Sensex has dipped 10 per cent or more, in terms of swings.

If an investor were to invest after all the 43 falls, he would have got positive returns in 34 of the instances, within three months. In nine instances there would have been negative returns.

On average, counting for the losses, his returns would have been 11 per cent in three months, non-annualised. And if you hold on for another three months in eight of those nine loss-making cases, the losses turn into profits.

But you don't have to wait for the Sensex to lose 10 per cent to start investing. Sometimes, individual stocks correct with in a broader market up-move. Unless there are fundamental reasons to believe that you should avoid the stock, dips are good opportunities to enter the stock.

Then there are other opportunities that come your way. When an analyst recommends a particular stock on television, you may find the stock doing an Indian Rope Trick. If you like the argument, do not run after the stock concerned. Give it some cooling time and it will be back at the same or even lower levels in a few weeks. That is the time when you close in on your prey.

The easiest and the simplest way to make money in the markets is to buy low and sell high. Keep that in mind for a sound sleep and a fatter wallet.

Powered by


 
 

Popular posts from this blog

Bio-fuel has top investors powered up

23RD ,JUNE India's fortune-hunters believe their new-found love for biofuel will pay off. India's well-known investors who are known for their Midas touch have spotted an opportunity in bio-fuel, betting big on ethanol, bio-mass and even bio-fuel equipment makers in India and other parts of the globe. Billionaires Rakesh Jhunjhunwala, C Sivasankaran, Vinod Khosla, founder of Sun Microsystems, and Nemish Shah, the media-shy joint partner of Enam Financial Services, are investing in bio-fuel makers quietly, expecting that bio-fuel will have a big play in the coming years as the world looks for a viable alternative to the fast depleting oil reserves. Jhunjhunwala, who is known for his ability to spot a multi-bagger at a very early stage, recently invested in Hyderabad-based bio-fuel firm Nandan Biometrics.He is also a 10 per cent stakeholder in Praj Industries, which is a bio-fuel technology provider…

up to 8,500% return in 5 years! Investors made a killing in these 30 smallcap stocks

U By Rahul Oberoi, ETMarkets.com | Updated: Dec 01, 2017, 04.06 PM IST Post a Comment
Efficiency pays in the long run. Among the top smallcap plays on Dalal Street, 30 companies with stable return on equity (RoE) and return on capital employed (RoCE) have surged up to 8,500 per cent over the past five years.

All these companies had a debt-to-equity ratio of less than 1 and have been maintaining RoE and RoCE of over 20 per cent since 2012-13.

Avanti Feeds emerged the chart topper, with an 8,527 per cent gain to Rs 2,596.60 as of November 28 from Rs 30.10 ..


ovember 28 from Rs 30.10 on November 27, 2012. The company’s return on equity for FY17, FY16, FY15, FY14 and FY13 stood at 42.65 per cent, 46.21 per cent, 52.41 per cent, 45.79 per cent and 27.60 per cent, respectively. Avanti also managed to achieve a return on capital employed of over 50 per cent in last four years. Its RoCE stood at 28.59 per cent inRoE measures net income earned for every rupee of shareholder funds, while…

5 dark-horse picks

Kwadrat/shutterstock.com Kwadrat/shutterstock.com
If you are a conservative investor, using the mutual fund route is the best way to invest in stocks. But if you are game for some excitement, you might want to dabble directly in stocks, especially small-cap stocks. Stocks that are smaller in size, in terms of market capitalisation, carry higher risk. The reasons are — one, lower traded volume increases price volatility, two, information is usually scarce on these companies, three, business risk is higher since many of these companies are dependent on a single product and four, governance risk is also higher in these stocks. That said, small-cap stocks have the capacity to deliver far greater returns when compared to large-cap stocks. Sample this: there were 16 stocks with market cap more than ₹50,000 crore in January 2009. These stocks delivered an average return of 138 per cent in the last eight years but 4 out of every 10 stocks in this group delivered negative returns. On the ot…