Sunday, June 20, 2010

An Article by Yamal Vyas of -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
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.

1 comment :

  1. Dear Valuepick,

    I am much glad that apart from great analysis you are providing, you gave this wonderful link which contains rich lessons to learn. And i would be great full if you provide such types of links because your are backed by rich experience and you know which is worth reading and which is not.

    For retails investors i have one more link for them : An Anatomy of the Stock Market! - Bull And Bear Market Cycles



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