Dear @mylu Ji,
Many thanks for your encouraging comments. I’m truly appreciative of your gesture.
Shrey, Well written, it takes guts to write something too emotional.
Dear all,
I’d like to share expressly at the beginning of this post that my intention isn’t to swamp this thread with my posts. I was going to group the content in this post with my previous post. But, the resultant post was painfully long and that would have made the reading laborious, arduous thereby preventing effective communication.
Hence, I’m composing this post.
What I’m sharing today is very close to my heart. It’s the description of the life of a person dear to me- My grandfather.
And, from his life, there definitely is an important lesson relevant to investing that can be learned.
My grandfather’s life is such that it truly inspires me.
He was born almost 8 decades ago in a family that wasn’t endowed with resources. He was the eldest child.
They had only enough money to live hand to mouth.
All they could afford was food and a roof over their heads. But, it was a closely knit family.
My grandfather was ambitious. He had a desire to alleviate the troubles of his family and provide them with a better standard of living.
He had the gift of the gab. A powerful speaker. He had a stentorian voice and a firm command over various languages.
Since childhood has was charmed by law.
He would read Perry Mason books ever since he became a teenager. He borrowed books from friends since he didn’t have the wherewithal to buy it.
After attaining a graduate degree in science , he resolved to study law. Those days education wasn’t very expensive.
But, to his misfortune, the apprenticeship he secured post law didn’t pay enough to ensure survival. Circumstances were dire.
He then applied for the position of a clerk at a private bank. The pay wasn’t much but it was enough to survive. The private bank was later nationalised. It was the Bank of India.
Through sheer dint of hard work he rose through the ranks.
He had a smile on his face- Despite not being able to pursue his passion of law he had done well for himself and his family. It was the satisfaction that hard work, dedication provides.
He retired from the bank in 1997, when he was 60.
Despite saving most of his income the amount accumulated wasn’t substantial. There was the threat of savings exhaustion.
Hence, at the age of 60 he applied for a job at another private bank. He had attained extensive experience in handling NPA cases which ensured quick absorption in the industry. It was a skill that was in demand.
He had decided to not only save but also invest his income to ensure a better life in the future.
He commenced investing in stocks- It was passive investing funded by his job at the private bank post retirement.
Bank of India had an initial public offering in 1997.
My grandfather, thanks to his unflinching loyalty to his former employer invested consistently in the stock.
His acquisition cost was around Rs.35.
2 decades back Bank of India was a sterling performer.
In 2008, the stock surpassed all previous highs. Several family members tried to convince him to book his gains. The returns were decent. But, he let his loyalty come in the way of decisions. He stay put.
2 years hence, the stock crossed Rs. 500. It was unprecedented. Yet again, he didn’t sell.
It has been on a downward slide since then. It has been almost 8 years now since the peak.
He has held the shares of Bank of India for 18 years now. The returns have been a paltry 7% CAGR.
Fortunately, he had invested in some other stocks which did well.
Does my grandfather regret the decision?
Not in the least. He refuses to sell even today. He won’t ever sell it. I respect and admire loyalty. If only I can imbibe some of his traits I’d be a much better person.
Was it a good decision to hold?
No. My grandfather got attached to the stock. The outcome was, as expected, bad.
Lesson:
- Never get attached to any stock
- Introducing emotions in investing is almost always a bad decision
- Avoid considering a 10-15-20 year duration. The economy is in a constant state of flux. Periodically review investments. Replace underperformers. Today’s star performer may be tomorrow’s laggard.
- Expect the unexpected.
21 Likes
Only invest that amount which you don’t need for next 5-7 years
This I would say is my biggest mistake / failure till now apart from many other common mistakes discussed frequently in this thread. Same thing I saw in my immediate and extended family. This is about that time when asset allocation, balancing, capital allocation framework, Peter Lynch, etc. were alien terms to me.
Now when anyone talks about that, it clicks and I know what and why something is being talked about.
I used to invest my entire surplus earlier. Even if I needed that amount in near future (1 year or so). What it does is it forces you to sell your entire holding being a small retail investor. Bought the following but still could not profit
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Ashok Leyland @ 10 Rs.
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Yes bank @ 50 Rs.
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Escorts @ 30 Rs.
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Page @ 900 Rs.
I would not call it a hindsight bias, but all these were definitely good stories. Somewhere you know that your capital would not be wiped out even if it does not appreciate much.
These all became 10-20 baggers.
How I corrected this
This is still work in progress but I have worked on it a lot.
Even if I have a surplus of “X” amount which is required in next 2-3 years, I invest only 5% of that “X” amount. That is almost negligible amount and I let it run its course for next 5-7 years.
In this case, my initial “X” is preserved and if I get a decent compounder, I might be having 30-40% of that “X” amount on top of the existing “X”.
This way, I don’t feel bad that:
- There was a success story.
- I invested in that success story with considerable amount.
- I could not hold it for longer not because of fear / greed, but due to some external factors (incorrect portfolio balancing, lack of surplus cash, etc.)
- That story created huge wealth and I could not participate at all.
So the bottom line is, have a minimal allocation and forget for longer duration rather than completely exiting from that position. This would not ensure that I would become wealthy, but this would most probably ensure that I am better off than previous situation.
4 Likes
Just yesterday, I came across an article on an uber-popular stock market blog discussing the investment of a celebrated investor in a distillery company. The investor being referred to is believed to possess the Midas Touch. When I read the price at which the stock was trading, I was flabbergasted. It was a shock to me.
The Reason-
Off late, I’ve reduced my exposure to capital markets. Thanks to my inability to devote enough time to evaluate stock ideas and scout for new ones. However, a couple of years ago I was able to dedicate a substantial portion of my schedule to studying stocks. This facilitated discovery of some stocks in their pre rally phase. But, as much as I hate to admit, the finding didn’t lead to wealth creation for me. Low PE investing was fundamental to my investing strategy. Today I realise that I was lazy to perform a detailed assessment. Hence, restricted my analysis to price earnings multiple. But, in most cases it has served me well. So, no complaints.
One such stock that created massive wealth over the past few years is the aforecited distilleries company. Exactly 2 years ago I came across the stock on a popular stock application. The stock traded at around 10 times earnings. And, the company was growing faster than the earnings multiple. The lazy me was lured. Profit margins were low but the valuation was difficult to resist.
I succumbed to the temptation and invested in the stock. The amount I had saved to invest wasn’t substantial. But, it gave me a feeling of pride, happiness.
Now, it was time to be patient for the market to accord a better valuation. However, I was suffering from a predicament- A moral quagmire.
I kept asking myself whether I should stay invested or not?
Reason- I feared that it would be unethical to stay invested in a distilleries company. I was scared of retribution. I was an immature youngster.
After contemplating a couple of days I decided to sell the small holding I had. Over a week the stock had appreciated by around 5%. The transaction fees were around 2%. Hence, the profit was around 3%. The gain wasn’t much. But, I experienced a relief. In the meanwhile the stock continued to surge. I stopped tracking it after a couple of weeks.
When it finally came to my attention recently, the stock price devastated me. It had appreciated by an enormous 400% in just 2 years. I was on the verge of an emotional outburst.
I then thought about my reasons for selling out.
Why exactly, 2 years ago, did I sell with hardly a 4% gain? Fundamentals were intact. Business was good. Still I sold. Why?
Fear. Fear of retribution. Since childhood I had heard people say that alcohol was bad, unethical, immoral. I expanded that notion of mine to investing. And, in hindsight, took the unwise decision of selling the stock of a good business.
The potential profit could have been spent on many welfare activities.
2 years back, I wouldn’t have been able to explain my decision. I was morally dumbfounded. But, today, I realise, regardless of the stock price appreciation, that it was indeed an imprudent step. Different people have different moral standards. I’m nobody to discuss what’s right and what’s wrong.
But, I intend to share the message that something that I had been taught during my childhood, years and years ago, influenced my investing decisions. Our biases, teachings subliminally affect our decisions greatly.
I lost my profits but learned a lesson.
I don’t know if I’ll succeed at my endeavour but now onwards, I’ll try to take steps to minimise the effect of my biases, prejudices on my actions. I must try to base my decisions on reason, rationale. Easier said than done. But, I’ll try.
And honestly, it’s a gut wrenching experience to miss out on the stock appreciation despite being a fairly early entrant.
My tuition fee to Mr. Market. The learning continues.
I’m aware that I post too often on this thread. The sole reason being that in the past few years I’ve made too many follies to ignore. Posting here helps me to learn. Please excuse me if the posts are not upto the mark.
9 Likes
Hello @shreys,
I am compelled to reply after reading your previous post.
If you are in doubts of posting too often to this thread, don’t be.
Your posts send a clear message, is personal and articulate, captures the plight of new investors (or should I say even experienced investors?) - something to learn from it and it will help new investors immensely.
I could also relate to a lot of things you mentioned. I am also guilty of some of those.
At the onset, investing might seem easy but is very hard to practice.
Keep writing and contributing. It will at least make some people aware that they are not alone.
5 Likes
sir
this is story of every new naive investor noy u only , i myself buy maricokaya at 300 and did not sold at 2100 after just 8 months and was holding 6000 shares
On that fateful day, not too long ago, the cell phone beeped. I checked the phone and to my utter surprise there was an unsolicited stock recommendation. The message elucidated the massive impending expansion which would provide a tremendous boost to the top line.
It was a company in the textile sector- A yarn manufacturer to be precise. It was characterised by wafer thin margins, inconsistent performance.
It seemed implausible that the company would be able to fund the expansion.
What else did the message say?
It said that the stock would undergo an impressive rerating. As a consequence, the stock price would appreciate healthily in less than 3 weeks. It seemed like a winning proposition.
I was truly impressed by the ’ magnanimity’ of the message sender. A stock recommendation was being provided for free. In hindsight, it should’ve rung a bell. But, that time, it didn’t.
Honestly, I was ecstatic that the path to riches had been discovered.
The naive me blindly trusted the message. Invested a portion of the portfolio in the yarn company. The stock had been touching upper circuits for the past few days. I considered myself incredibly fortunate to be able to participate in the ‘growth story’. The stock continued to rise. In the meanwhile, I kept wondering when the expansion plans would be released. A few days passed, somehow, I was uncomfortable with the rise. I don’t know how to describe it. It was probably my gut feeling. The see saw of upper and lower circuits was unnerving. I couldn’t take it anymore. I booked my gains of 15% after 12 days. Did the stock rise end? It didn’t. The stock notched impressive gains of around 80% in 4 months. And, then began the catastrophic fall. Lower circuit after lower circuit after lower circuit.
No expansion plans were released. There was no growth story. It was a facade. A manipulation. A dirty process of grabbing money from the gullible. A standard pump and dump. Just a couple of days back I checked the share price. It trades at 5% of the high it touched 3 years back.
Instead of assessing the outcome it’s important to examine the process. Investing on the basis of a message is one of the worst decisions one could take. As is often said- There’s never a free lunch. Why would anyone care to share their stock picks with us? Because it’s in their interest to do so. They’ll gain at our expense. I exited the trade with a profit. But, was my process right?
An unequivocal no. Even now I do receive messages recommending the next multibagger. It’s prudent to disregard such suggestions.
Preservation of capital is more important than its appreciation. I don’t know much but I’ve learned the lessons of a pump and dump procedure the hard way.
6 Likes
The me today is very different from the person I was some months ago. Passage of time has blessed me with exposure to events in capital markets that have had a bearing on my personality. Subjection to these monumental events facilitated my growth as a person.
Just 6-7 months ago, earning money in the stock market was no feat. It was easy- peasy. All one had to do was place a buy order in a scrip of one’s choice. In a week or so, there would be appreciation of, at the very least, a few percentage points. The returns were delicious. For a beginner like me, it was unprecedented. It was easy money. I did realise later that there really is nothing like easy money. We earn when our activities are value additive. But, here, in the stock market, I was earning doing nothing. That should’ve rung a bell. What made me think I was smart enough to earn such magnificent returns?
But, I chose to abandon those questions of self doubt. After all, who, in the history of humankind has been able to resist the charisma of money?
Not many, I reckon.
I couldn’t keep my success to myself. I shared it with everyone. Seeing my effervescence, my father thought I could accelerate return generation of his portfolio.
My father is a simple man who has never performed an activity even remotely linked to capital markets. His investments are restricted to fixed deposits and other vanilla investment opportunities. He placed faith in me to handle a relatively small amount. The amount may be small but it was my father’s faith in me that moved me totally. It ignited in me a desire to excel. In hindsight, it was not to be.
I allocated the amount to some stocks. In frenzy, they appreciated by 30% in 3 months. I didn’t book profits. And, then, Budget 2018 struck.
In the meltdown, not only did the gains get eroded the principal amount also suffered decline by 5%. 3 months have elapsed since the Budget. I kept hoping that I would recover the invested amount. That didn’t happen. Only the loss worsened.
Finally, more than a week ago, I booked the loss and resolved to return my father’s money. I was dejected. He was dejected to see me dejected. This experience left me feeling hollow. It’s a painful place to be in to fail miserably at something you were confident of succeeding at. Its dark and sad. It pierces my heart when I ponder how I caused harm to my father’s nest egg. By God’s grace, hehe amount he had allotted to me was a small slice. I’ve had to revive my habit of meditation to help me cope with this feeling of hopelessness.
I now understand why people say it’s important to experience a bear run before deciding to become a full time investor. Investing is not just assessing financial statements. It’s also the ability to survive the deluge of ferocious emotions during turbulent times. I’m not prepared for this turbulent journey in the slightest degree.
I return a defeated, dejected person. The market did vanquish me. This ugly encounter has left me feeling empty.
The market is neither my friend nor my foe. It’s just someone I do business with. There will be good times and there will be bad ones.
I am sad. But, heart of hearts I know that I’ve definitely learned something. I learned that I need to learn more. And, hopefully will emerge a stronger investor.
26 Likes
In my previous piece I had expressed my remorse and pain at incurring losses in the stock portfolio. I booked my losses. In hindsight, it was a highly rewarding decision. Most stocks I held have fallen by not less than 40% in the recent meltdown. I got away with relatively minor losses. It stings, it hurts but there are some redeeming aspects.
It’s been a little more than a month since I booked losses on an amount of money I tried to manage for my father. The outcome was disastrous. However, the recent drawdown made a lot of micro and small caps seem attractively priced.
I was allied by the apparent bargain offered by the market. I expressed my desire to my father to reinvest funds in the market. Now, I must explicitly mention that my father has no formal training in finance. But, he has a reasonable understanding of auction driven markets. He’s driven by reason, logic.
I’d like to elucidate:
I had been charmed by a chemical company with a market capitalisation of around Rs. 1000 crores around 3 months ago. In the recent correction, the stock saw a deep slip in its valuations. It’s now available at a valuation of around Rs. 500 crores. I was delighted to see the company available at such reasonable valuations.
When I shared with my father my desire to invest in the stock I presented some convoluted reasoning why the stock was undervalued. He said not many words to me.
He advised me to have a brief look at the company’s financial position 3 years ago and today. In the cursory look, it emerged that sales were up a paltry 7% and profits were the same.
Despite mediocrity in most metrics, the market capitalisation had jumped by 4 times in less than 3 years. On a 5 year comparison, the divergence in financial performance and stock performance was even starker.
When I shared this with my parent, he gave me a smile. I understood my mistake.
My mind was anchored to the valuation accorded 3 months ago. Since, there was a correction of 50% I thought the stock was a value buy. How utterly wrong I was.
I was a victim of the recency bias
Unless the company’s business is improving or is expected to improve, the stock has no business appreciating to skyrocketing valuations.
My father prevented me from committing a grave mistake. He provided some simple advice to me- Most markets oscillate between being buyer’s markets and seller’s markets.
If we want to be buyers in a seller’s market, it’s crucial to bargain well with the market. Else, we’ll end up paying ridiculous valuations which could possibly erode wealth.
In investing we often like to adopt complicated investment strategies. But, often it’s a good idea to adopt the method of elimination. Most companies will succumb to simple evaluation screeners. And, there’s one more thing I learned-
There’s wisdom everywhere around us. Every person has something to offer in our journey of learning.
I’d like to end with a quote by Charles Mingus-
Making the simple complicated is commonplace; making the complicated simple, awesomely simple, that’s creativity.
15 Likes
Hi.
Thanks for sharing your experiences. I am a new participant here but I have been fascinated by the amount of knowledge being shared, especially with detailed reasoning and explanations. This kind of sharing is invaluable for a person like me, who dabbles in the stock market, being blown hither and thither by contrasting opinions and “free advice” and “stock tips”. It has been a blessing that my exposure has been low and my luck has been good!
I would like to thank everyone here for the generous sharing of knowledge and experiences. I would also like to convey my appreciation to everyone for keeping the discussions at a mature level and not indulging in hyperbole.
I hope to continue learning so that one day I can also post a reasoned write up about a company for your review!
Thanks again
Sandokan
(Sandeep)
1 Like
the stock looks like was Metalyst forging 
2 Likes
Dear all,
It’s rightly said that life is too short to learn only from our mistakes. We’d be doing ourselves are great disservice by doing so. More often than not, it’s in our interest to pay attention to erroneous decisions made by those around us.
We can, at the very least, try to avoid those mistakes and improve our performance.
Today, I’d like to share briefly a blunder committed by a dear friend of mine. Rather than a friend, he’s like a brother to me. It’s only after his consent that I’m sharing the anecdote on the forum.
Since childhood he has been remarkable at academics. He graduated with the highest praise from the dean. Since childhood he had been exposed to the world of finance since his parent was a practitioner and teacher of complex investing strategies. In his early teens, my friend took a liking to investing. He was enthused by Peter Lynch’s investing strategies.
I’d like to be honest, his contribution to my growth as an investor hasn’t been insignificant.
At the young age of 18, he started travelling to various companies that interested him. A lot of companies would disregard him. He persisted. It often involved travelling extensively. But, as is often said- Where there’s a will there’s a way.
In his pursuit for undervalued gems, he came across a company that manufactured plastic products. The company had a sterling reputation. But, it was ignored by the market. He had found a hidden gem.
He urged his father to lend him money. He invested substantially in the company and stayed patient. In the meanwhile he pursued his studies. Occupied in academics he didn’t pay much heed to market movements.
5 years elapsed, the company delivered a mind numbing 400% returns. My friend sure was a pleased man. Now, it was time to act. Handsome unrealised gains awaited him. He initiated a fresh evaluation of the company. Per his assessment, the company had far outrun the intrinsic value. It seemed to him to be obscenely expensive. He took the obvious step -Booked his profits.
And, we must note that the stock continued to stay in an upward trend.
But, now instead of scouring for other opportunities, he was fixated on the overvaluation of the company. It seemed ludicrous to him that such valuations could be accorded. Hence, he decided to short the stock. I must mention explicitly that shorting stocks wasn’t his forte.
Now, I won’t delve into the process by which he shorted it since I don’t have a fair understanding.
But, the outcome wasn’t pleasant. The stock had appreciated by another 50% in a matter of 3 months. Since his profits were substantial he didn’t feel the pinch of this loss. But, any sensible trader/investor would understand the gravity of such deep erosion of wealth. He terminated his endeavour of shorting the stock.
3 months later the stock price melted by 40%. But, that’s irrelevant to the lesson he learned.
The learning was straightforward-
Lesson 1- Don’t indulge in activities without a firm understanding
There was no reason why he should’ve gotten involved in activities outside his circle of competence.
Learning 2- Don’t go against market trend
And, most importantly- Markets can remain irrational longer than we can remain solvent
My friend emerged a wiser investor and has resolved to not preempt market movement in the short term.
13 Likes
Beauty of the beast … In hindsight it can give deceptive indication and in long run only you know what the company deserves. Being patient is a virtue if the company is TCS and a bane if it is a company like unitech, Unfortunately most of the companies are wealth destroyer a very few compounders and rare multi bagers … Do you have what it takes to find the jewel is the Question
My guess is you are talking about Fineotex chemicals
Good to see various experiences and lessons learnt by fellow investors. Valuepickr has been a wonderful platform to retail investors like us.
(I may sound a bit boring with lengthy writings, sorry about that).
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I started investing in equities directly in 2013, after a mutual fund broker tried selling MF SIP products whose 5 years track-records were not impressive. Being, an amateur investor I picked stocks based on the recommendations provided in money-control. My first investments were LIC Housing finance at 165/, Voltas at 65/ and Aurobindo at 200 odd levels (before split). I did no research about company like what products company sells, market opportunity, their competitors, financials, reading annual reports. These stocks started appreciating, as I made excellent returns, increased my greed. In the meantime I was introduced with a word called “multi-bagger” and I started googling the word and that in-introduced me with a few bloggers claiming that they have a multi bagger idea getting released next day just before market hours and blah. They wrote rosy pics about company using a good articulation. I bought some of those ideas. As it was a bull market and every tom dick and harry stocks were hitting circuits, it gave me an impression these bloggers were right. Also, I had read a quote from Buffet that “holding period of his stocks are forever”. I applied this rule on the stocks suggested by bloggers (;)). I started averaging at peaks. After they fell significantly, I booked losses. But the same bloggers were giving new idea every week/months and not uttering a word about the earlier ideas. As the initial capital was small the losses did not impact me much. This experience is wonderful taught me some good lessons. The bloggers might have an ecosystem of 100 to 1000 or more people and each buying a few hundred shares of an equity can cause demand-supply issue, giving an illusion that their idea is really a genuine. Keep away from such tips.
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While going through above experience, an introspection had already kicked-in in my mind. I started reading some books fortunately. I came up with a frame-work of selecting stocks (like reading 3-4 years ARs, management interviews, scuttle-butt method, balance sheets, size of opportunity, threats to business, competition etc). Diversified my portfolio with 15-20 stocks. This approach worked well for me, I had good 40% CAGR in 2016 and 71% CAGR in 2017 and portfolio is down by 25% from the peak. But the businesses have been reporting good numbers and become cheaper. When the core portfolio is appreciating, I was sceptical of averaging when stocks were at 52-week high, which lead me to find other cheaper ideas. During the market peak in 2017 year-end, I invested in these cheap stocks which got hammered to a point that they lost value by 50%. My temptation to stay invested 100% costed me badly. Again these 5 cheap stocks were like 10% of my portfolio impact was not high. In the recent steep correction sold these 5 companies and bought more of my core-portfolio stocks which also fell but by lesser %. Lesson I learnt: When not finding great ideas, keep the cash in debt instruments like FD and during correction use it to average core portfolio. Staying 100% invested is a myth per me.
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Diversify: Instead of investing 100% in equity, diversifying across asset-classes where keeping allocation for direct-equity HIGH. I diversified into following: direct-equity, one reputed non-hyped value-investing mutual-fund, a few real-estate(luckily bought really early) and some debt-instrument like FD. No leveraging. It depends on age as many famous authors suggest, early in career take more risk, as portfolio becomes sizeable start diversifying into other asset-classes.
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Give time for investments to ripe: I invested in a company called Excel-Industries in 2014 June at around 150-odd. Their products related to chemicals, sanitisation, veterinary APIs had really caught my eyes but due to frustration of a few bad quarters I sold at 280ish levels but now it turned around and CMP is 1400ish. Had I kept quiet with patience reminding myself of initial conviction I had developed, story would have been different.
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Dont trust the news items blindly. I had invested in a stock called Associated Alcohol at around 80 Rs/Share. Conviction was high on the contract-manufacturing, capacity-expansion and branding of own-products. One news daily reported that promoters on the run due to ED notice/ride related to black-money. Google-alert popped the news and I exited at 175/ share. In few weeks stock hit 400 levels & Dolly-Khanna had bought 1% odd-stake.
NOTE: Not invested in any stock-names mentioned above.
Any reflections, appreciated.
11 Likes
Dear all,
The past few months have been difficult to endure. There’s no denying that times are tough. Unrealised gains have eroded. For some there has been a drawdown in the principal. Such turbulent periods without a doubt take a toll on one’s stability. There’s a healthy possibility that quite a few stocks won’t reach their pre-meltdown levels anytime soon. But, even in this chaos there’s no dearth of lessons to be grasped.
I’d like to share the problems faced by a friend of mine, who, lured by the quick returns offered by the market in the past few years made some catastrophic decisions.
Just a quick background of the victim of market’s unforgiving nature - He’s a 26 year old person employed in a leading consulting firm. He is decently remunerated. But, not too long ago, entranced by some megabaggers he decided to make a foray in investing. Now, I must mention that he commenced his journey in capital markets with no understanding whatsoever of either trading or investing. He would select stocks in an arbitrary fashion. However, he applied one filter- The stock should be priced lower than Rs 100
Stocks, that are cheap in price, were in his opinion capable of delivering exemplary gains. In market exuberance he did quite well. A stock he selected belonged to the food space. It appreciated by more than 200% in the past 1 year. He was then preyed upon by the illusion of skill
His stock selection strategy was flawed. I’d often try to elucidate that his investing strategy was atrocious for his portfolio. However, he’d turn a deaf ear. Now, to make matters worse, to enhance his returns he dabbled in intra day trading. He had embarked on a path of self obliteration. Yet again, numerically cheap stocks and random selection.
How he laments his decisions today shatters me.
Then, come the nail in the coffin- Leverage
He had secured 40% gains by a combination of Trading and investing. Ecstatic, he was.
To multiply his money he resorted to loans. He was in a position to borrow money from any financial institution he desired thanks to his high paying job.
Now, I’m fairly certain most have an idea of what followed. I’ll be brief- He borrowed money equivalent to his salary of 50 days. And, in less than 4 months he has lost 70% of his portfolio. And, add to that the burden of repaying the loan.
Astoundingly, he is unfazed. He probably hasn’t been able to embrace the reality. But, I’m optimistic hell overcome it and become a smarter investor. He has an abundance of time to grow from here
. There is a straightforward lesson to learn - Leverage for most investors could be devilish. Avoid it like the plague. And, don’t invest in a stock just because it’s available at a 2 digit price or a 3 digit price. Price, in isolation is meaningless. Do exercise caution. Best wishes.
9 Likes
- Too much fascination about Small Cap stocks in the quest of earning big money in small time.
- Doing less research by myself than to depend on the market guru’s.
- Not following the AR’s and Concall’s very well.
- Unable to make a proper judgement of a business strategy from the management discussion. [like franchise led growth for D-Mart or Patanjali franchise setup for JHS Svendgaard]
- Not understanding the valuation of a loss making company with a quality management and high growth prospect. [e.g. Future Consumer Ltd]
- Fall for cyclical instead of going for secular.
- Dilemma of going or not going for past stories.
- Failed to judge that Market gives at-lest 1.5 times valuation to a management.
- Secular and visible growth business will always trade in high valuation since withing 1-2 quarter the current valuation will look cheap.
- Fluctuating growth rate is not sustainable.
- Failed to understand High ROE business will always have steep valuation since liquidation risk is very low.
- Failed to understand Business having better network and established brand will have good moat.
- Failed to understand brand building is a capital intensive and time intensive strategy.
- Major capex cycle should be avoided and at least wait for 1-2 quarter to see how the capacity utilization is taking place in case the management is not very reputed or venturing into new business.
- Failed to understand that missing out 25-30% in a high quality high growth stock is not a big deal.
- Failed to judge the potential market, growth rate, market penetration % [high or low], business moat, business model.
- Failed to stick to the basic and go for some extra earning with a concept of trying out luck with unknown business since stock market is not gambling but of pure study and effort you made help will always be there if you put your effort.
17 Likes