An Article by Yamal Vyas of Indiainvestment.com -Worth Reading

 This Article is taken from the latest issue of 'Dalal Street' magazine . I think an average Indian retail investor should read this before investing in mid-small cap stocks .

Times Of Turbulence

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The volatility continues. After a

period of relative calm in April,

the month of May was quite

eventful. And the high volatility con-

tinues with full force in June. This can

be seen from the daily price movements

which have been very high in May and

June. The measure that we took is

simple. If the difference between high

and low levels of Nifty on a trading

day was more than 100 points, the day

was considered to have high volatility.

In April, such days were only four. In

May, the number of volatile days rose

almost threefold to 11, and in the first

ten days of June, there have been four

volatile days already.

As a result of this, the small day

traders have been at the receiving end.

Such volatility would generally provide

a good chance for day traders in theory,

but in practice, the reverse is true. The

big players are always one step ahead of

the smaller players and this fact shows

up more clearly in volatile times. Even

for short-term traders, the times have

been trying. The prices of a few ran-

domly selected stocks such as Gujarat

Ambuja, Ashok Leyland and Gujarat

State Petronet reveal that the prices on

May 3 and Jun 10 do not seem to have

changed. There may be a few other

stocks which would have moved up,

but overall the volatility has not been

good for the retail investors.

The lesson to be learnt from this

is that for the retail investors, the best

time is when there is one way move-

ment in the market. For example,

between October 2007 and January

2008, the market was moving only

one way i.e. up and the retail inves-

tors across the board must be having a

good memory of that period. A simi-

lar situation prevailed between March

2009 and July 2009, but the number

of beneficiaries of this straight rise in

stock prices was much lower because

that period was the turnaround of the

market after a 14month bear phase.

So what does the retail investor do

in the intervening period? Well, he has

only one better option than wait for 2-

3 years before the last phase of any bull

market. He or she should invest for tak-

ing delivery. Period. That could be very

difficult for the brigade who has grown

up only on a daily diet of futures and

options. But let me assure you that it is

the way to go for the retail investors in

the future. There are many advantages

of buy and hold. The longer you hold,

the better are your chances of decreas-

ing any loss. Conversely, the possibility

of coming out with profit goes up.

Further, the most important thing is

that in the long run, the fundamental

always catch up. If you buy and hold a

particular company's stock and if the

company performs well consistently,

there is no way the stock will not rise.

One only needs patience to benefit

from this fact. Many recent entrants

to the market have never got around

being comfortable with the policy of

buy and hold. One of the reasons is

the spread of the electronic media and

internet. These two are so dominant

in our thought process that if we are

a close follower of either of these, the

news and data overkill will lead you to

buy and sell rather than buy and hold.

There are reasons why everyone

from your broker to your TV chan-

nel will recommend a hundred stocks

within a short time. The brokers stand

to earn their brokerage and the chan-

nels their viewership. How many peo-

ple will watch a TV channel which rec-

ommends a few stocks day in and day

out? And any investment grade stock

will remain good every day. The only

thing is, you will not like it if the TV

channel recommends the same stock

every day for a month. You would like

to have some variety.