Why this many people lose in market? One obvious reason for that is people seems to be more comfortable in investing in business they are entirely ignorant about. Decision of investing in a particular industry should not be based upon speculation or some ones’ recommendation as long as one can’t see which business company is in.
An individual, who decides to invest on his own, should not listen to the professionals or hot tips, pick of the week etc from the brokerage firms. He should rather invest in the companies whose business he could understand. There is no more scarcity of information about the financial strength and business opportunities for the companies. A personal visit to the factory outlet of Arvind mills – “MegaMart” could give an idea of the business model of the outlets. A further observation and basic calculation about the contribution of the revenue from MegaMart to the Arvind mills can suggest if the recent decision of Arvind mills to come with another 1500 outlets will be a success or not. Another example could be Future Group. Anyone who has visited Big Bazaar and Food Bazaar can experience the operation of the firm and decide whether to invest in such a firm or not. For such an open industry one does not need to seek suggestion of a broker. You know it before the market gets to know it. But how about financial institutions like IFCI, Reliance Capital, India Bulls etc.? These are all public companies and the balance sheets as well as income statements for different periods are publicly available. In a country like India, which has got maximum number of news channels with 3-4 channels dedicated solely to business, it is no more a challenge to get the up-to-date news about any happening in the economy and market.
Before starting investment, the individual should analyse ones’ trust on the economy, the growth, the future prospect and the rampant impact of economic changes on behaviour of market. For example, before investing in infrastructure industry, one will have to understand that the infrastructure industry is closely coupled with the growth trend of the country. One will also have to do self analysis to see how much of risk he is comfortable with, whether he is a short term investor or a long term investor, and how will he react to the sudden, unexpected and severe drops in the prices. The potential market victims are those who invest everything out available with them when market is at its all time high and abandons all hope & reason when market is down and sells out at loss. Almost all of us read the same news paper, listen to the same channels and economists, it is personal preparation as well as knowledge & research that distinguish the successful investors from the chronic losers. Investor should only invest what you could afford to lose without that loss having any effect on daily life in the foreseeable future.
No one can predict market and anticipate recession; hence it is prudent to look for profitable companies with strong fundamentals available at attractive price.
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4 comments:
Really Interesting blog!
I love articles about novice investors!
Cheers
Banjo
www.BanjoSmyth.com
Allow me to suggest another simple way of picking stocks to supplement the method mentioned in the article. i've been following this method with good success for investing in a short term period..
1. Check out the stocks which are trading at around their 52 week low or hovering around 10% near 52 week low.
2. Once you have the list ready check their business success and fundamentals as mentioned in the article. Checking out PE values would be an added bonus.Single digit PE values would be the attractive ones
3. Now you have narrowed down your choices and it'll be easier to pick.
Eg: I used this methodology to pick "Balaji Telefilms" about a month ago at Rs 173 and sold it recently at Rs 210...I have done the same with popular stocks like Infosys too, but this is strictly for short term
Hey Giri,
Congrats for your pick!!
Such technical analysis helps in many cases and more when market is volatile. But, the increase in the stock price of Balaji Telefilms was more because of the impressive profit it reported recently.
Regarding PE value-
PE is nothing but the ratio of price of the stock to the earning per share. It gives us fair idea to see if the company is highly price or not. But, keeping in mind that PE value varies industry to industry and hence can not be compared across the industries. A FMCG company might have a single digit PE but a technology company will have high PE, this does not mean that FMCG is more attractive than Technology.
When market is down then it is easy to find stocks which is at its' 52 weeks low, but if we take the data from last year, all the stocks were at its 52 weeks high and then it becomes more important to look for the fundamental and have the basic understanding of the business of the company so that you can foresee the impact of economical changes on the industry as a whole and company.
At the end, stock gives us the part of ownership of the company, and as an owner it becomes very important to see what company is doing.
Technical analysis is done by looking at the charts of comapny, thier 200 and 50 DMA's. From these things we find the support and resistance levels of the stock and also look for the signals whcih way the stock is moving.
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