I usually don’t write posts, but couldn’t resist myself from writing this.
“Dekha, maine bola tha na” (Didn’t i tell you), “Long term value buy tha. Bought it a couple of days back and aaj mera target price aa gaya” (It was a long term value buy. I bought it a couple of days back and it has reached my target price today). Few of the statements one gets to hear so very often these days. Bull market this sure is, going by the momentum around mid/micro caps over the last few months.
(image courtesy: wallstcheatsheet.com)
Every genre of stocks keep zooming – unheard of names, shady promoters, unreliable biz..well almost about everything. If not on the day of purchase/ recommendation, the stock rockets in a day or two making the investor believe that he/she has actually become an ace stock picker! And who doesn’t want to be a part of that elite club? A couple of more such stock moves (over a few days) eventually reaffirms his/her conviction about their ‘stock picking’ abilities. This self attainment often results in overconfidence & lack of patience. A sideways move for a couple of days, leave alone an intermittent correction, would make the investor rethink about his strategy. And why not? In all likelihood, he’s a part of several social media investor groups (Whatsapp, Twitter, Linked In etc) in which virtually everyone keeps thumping their chest on crazy moves of the stocks they picked. And the thought of so many people around making so much of money makes him disillusioned with the stock he owns that may not have participated over the last few days/weeks. This leads him to believe that he’s losing out on opportunity cost by holding onto a sideways/losing position. Result – he dumps the stock and starts hunting for the next big move in another stock. In most cases, the next big move is ‘spotted’ in a stock which everyone keeps ranting about. After all, who wants to do hard work to actually know what next to buy? Especially when it’s readily available and recommended by everyone (ace stock pickers ;-)). And then, where’s the time to do hard work? By the time one starts to study a stock, it moves up by 30%,40% (or whatever) leading him to believe that he should actually have bought the stock ‘coz he ‘knew’ it was a good one and it would move. Investors don’t even care to check the track record of the promoter or of the company they buy into. The trend is in spotting stocks having a good ‘story’ which is palpable to other investors. I am perplexed at the quantum of stocks recommended on my twitter TL, several of them as ‘multibeggars’!!! You read it right. Multibeggars . I’m not sure if it’s an intended spelling error or if the investor recommending actually meant that the particular stock had no merit at all. Return expectations have also stretched..and how. A stock with a 50%+ kind of return, over the next year or two, doesn’t find appeal with the masses. It should at least return 3X4 times & the faster the better. The ‘story’ could take 2-3 yrs to play out, but the return should play out in the next few days/weeks/months. Notice the disconnect??
Stock retracements are fast and painful. Some recent examples (Kaveri seeds, Dr Reddy, Eros, Amtek, Treehouse etc) are some recent such examples which proves this. Dr Reddy took 12 months to move from Rs.3100 to Rs.4300 (Sep ’14 – Aug ’15) and retraced this move in just 3 weeks. Kaveri Seeds took 15 months to move from Rs. 400 to Rs.1000 and retraced all these gains in mere 4 months. And if this is the case with well tracked institutional stocks, imagine the pounding that is possible in illiquid stocks not widely tracked or owned at all. Gullible investors may find themselves stuck in their positions, unable to exit. Psychologically, its difficult to sell a losing position than booking profits.
Isn’t this today’s reality? Think about it. The sensible investor is actually having a hard time finding investment worthy stocks in the wake of discomforting valuations. And gullible investors find several stocks every day to invest!
My simple advise:
“Be aware of the pitfalls before investing. KNOW what you are doing and where you are investing your hard earned money”.
The momentum may long, much longer than what I or anyone else thinks of. Who knows? Suit yourselves and put your money to work the way you feel most comfortable with. Whether it’s a short term momentum play, pure punt or long term value pick, its up to you to decide what works best for you. But do so only after knowing what you are doing.
After all, its ONLY you who’s responsible for the risk n return that you will end up making. No one else.
Cheers!!! Happy investing