Are you learning to win the game ?

US market is closed on  Monday, May 29, 2023 owing  to Memorial day.  We are still in interesting time now as some stock reported great results and few more will post better results. Yesterday. Splunk posted top estimates as cost cuts boost earnings and cash flow. Nvdia as reported earlier has also posted great results and is trading at very expensive valuations. 

In India, some stocks witnessed profit booking yesterday. As per the official data both FII and DII remained as net buyers in Indian markets. Towards the closing bell,  market witnessed renewed buying. Today, it’s going to be an interesting day.

 

Let’s learn to win the game: 

Winning the market requires entirely a different set of skill set.  In the world of distraction, undoubtedly emotional control is one of the key factor to create massive wealth. Distraction caused by Media, YouTube, smartphones, social media, business news, stock prices etc is too difficult to avoid in this creepy world. 

Most investors are distracted by stock quotes  and they lose their confidence and patience when the stock goes down sharply.  Recent data released by SEBI shows that over 50% of mutual fund units of regular plans were sold or redeemed within one year, 73% of mutual fund units were redeemed within 2 years of investment. Only  3% of the units continued for more than 5 years. If that’s the case in mutual fund, think of direct equity investments. The investors are fooled by the price and they have to improve their own thinking about investment. 

Most investors concentrate on price which often leads to lots of confusion. Today if a stock trades at ₹100, tomorrow if the same stock trades at ₹90 and day after tomorrow if it’s quoted at ₹80, it could totally baffle the common investors. But the same company could trade at ₹300 after 1-2 years and that time most value investors may think of booking their profits. However,  the retail investors would come and buy the stock at ₹300 owing to bullish market sentiment. I have not taken a random example, and it pertains to NVDA. There is a clear trap laid out for investors and they very often fall prey to the market’s  bullish outlook. Investors should prefer companies in the range of 10- 20 or at the maximum 30 price earning ratio but keep away from investing at 50-100-200 price earning ratio. Please keep it in mind whenever you buy impulsively do check the valuation and see it it’s  right for your money. Having a process will always help you to protect your money. 

Mastering our emotions is easier than you think. Retail investors should learn how to invest with confidence. Best investors are those who look at investments for the long term, understand risk well and invest accordingly. One way is to avoid distractions that often come in the way of disciplined investing. For example Craftsman Automation Ltd was a newly listed company, it got listed at around ₹1200+ in April 2021. We discussed about it during the IPO period. The stock got listed in the market little below the offer price and traded well below it for some time. Many investors were worried about it and probably they discarded the stock like a toilet paper just after it reached it’s IPO price. Some of my close associates accumulated the stock well below ₹2000 and their average price was around ₹1500. Today in less than 2 years time the stock has given a decent return and is appears to do well in the near future. 

Let’s keep learning but today’s lesson is clear. Write down the reasons  for buying a stock and check it’s valuation. Even if you are buying it on  momentum, write down the reasons. This would help you to understand more about yourself and the stock.