2017 will be remembered as a year when most of us had boarded the Small & Midcap train. Why? To travel the runway as far as possible with a fire of sentiments and emotions. Ignoring the fundamentals, I had never even bothered to analyze the business prospects of a company. Neither its corporate structure nor the governance model. Not even the cash flows and debt levels, let alone the credentials of its promoters.
The stocks which were unheard of in the past started showing huge upward movements in the stock prices. With a lot of liquidity available in the domestic market (thanks to the demonetization event) and a positive global outlook, things started looking promising and encouraging all of a sudden. I kept myself glued to the TV screens and started buying what went up.
Since the whole category was riding on an upward trajectory, my portfolio was getting greener and greener with huge profits. Cheap stocks (don’t confuse it with the stocks that were available cheap) were being added to the account and the portfolios were shining like a pot of gold. As a consequence of my over-confidence, my greediness was not going to be amused with just reasonable rates of returns. In fact, I had aimed to make a lot of money. That too quickly.
The whole market was riding the big bull. The majority of the cheap-cap stocks in my portfolio touched new 52-weeks high. And I started believing it to be my stock-picking skills. During this time, I convinced myself that I was the new investment expert in the town. I had started my own Whatsapp group where I shared the hot picks every minute. Every minute.
Meanwhile, I had forgotten the basic principle: What goes up must come down.
After a sparkling period of supreme returns, came the year 2018. That’s when everything started rolling down like a falling knife. I started hating the stocks that looked too dear to me and gave me plum profits in the past year. Suddenly, they started turning out to be the bitter apple of my own eyes. I was no more comfortable in buying those stocks as the sentiments had taken a different route altogether.
Now in 2018, I have become a lot more cautious. The emotions, that are being reflected now, were not in place in 2017 when the things were a lot riskier. A stock going up always attracted my attention whereas I get scared now when it goes down. I took decisions based on how I felt, not what I knew.
Lately, I have realized that the markets are driven by the mood swings and the predictions of the people who are engaged in it. Unfortunately, none of these parameters is announced on NSE or BSE website
I had kicked my common sense and perseverance out of the window while ignoring the fact that above-average rates of returns would not stay forever. In fact, when one of my friends warned me about the sky-high valuations, I bashed him saying that things were really different this time.
With a much shorter investment horizon in my mind, I didn’t pay heed to the long-term investment principle. I was looking to make quick profits as the NIFTY and SENSEX were hitting new highs. I wanted huge gains, that too really fast. I never admired the underlying risks that could pose a threat to my portfolio returns in the near future.
After having paid my tuition fees to the market, I have come to the conclusion that just because a stock has fallen down by 20-30% doesn’t mean that it won’t fall further. However, the odds of recovery for a quality company are higher than the cheap stocks.
The bloodbath on Dalal Street in recent times have taught me that one should always stick to the quality, no matter what. The need of the hour is to:
Look for the businesses that have the potential to grow their earnings with a steady and consistent track record
Find out the credentials of the management of the company. Make sure that the company’s and promoter’s interests are inclined in the same direction of scalable growth
Never ever believe a hot tip which has been offered by a colleague, friend or a news channel. It may turn out to be the worst investment idea of your journey. Always believe in your own research
It’s really not important to know what happens in the market every day. Our nervousness makes us buy when the stock moves up. Thinking that we might miss the huge gains, we just jump into the wagon. And sell when it goes down believing that we might end up accumulating huge losses. The anxious nature can make us really poor.
Stay with the quality. Dump the junk.
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PS: This post is purely based on my observations of investor’s behavior in the market.
PPS: The cover image has been taken from GuoGuiyan
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