Friday, June 13, 2008


Through most of 2007, when Infosys fell from a high of Rs.2300 to a low of Rs.1300, many investors panicked, thinking that it was the end of an era of one of India' greatest companies or even the entire industry. True to form Infosys not only rebounded back to 1900 levels as on date, but has done so in style, underscoring yet again the fact that panicking is injurious to one' financial health.

We have seen many a times, investors sitting on the sidelines in a bull market, waiting for a correction to invest and then investing at the peak , only to see markets come crashing down in a fall. At this point, they sell expecting the markets to fall further. And even if markets do actually fall more, the noise of pessimism all around makes them wait for still lower levels to invest and the cycle repeats itself.

The point I am trying to make is that if you have waited long enough for a correction, never ever enter until the markets have corrected. However long it may take and however painful it may be to see markets rise relentlessly, it will be far more painful to see your capital being swiftly eroded.

The key to success in the markets is not brainpower, but stomachpower or the guts to hold your nerve when others are losing theirs, both on the upside and down. Have faith in the universal law of nature " What goes up must come down and vice versa".

So even if you have invested at higher levels, be mindful that you do not panic after a severe fall. If you do want to panic, the right time to do so when the markets are at all time highs. Hold on to your stock in the hope that the India story still continues. Remember, this is why you bought, in the first place. The caveat to this is that your investment should be in fundamentally sound companies which hold the potential to rebound higher even if they suffer a sharp fall. If you have bought a weak stock, you should have sold when stop losses were triggered. Even after a significant fall, it is not too late to sell such stocks. Investors who have bought into basically solid companies at higher levels should try to average their costs on the way down, buying equally at every 10 % fall in the stock. Remember, time is on your side when you buy superior businesses led by capable managements. They have weathered many storms in the past and shall do so again in future.

If you have the stomach for the volatility which is the inherent nature of stock markets, but not the time or the inclination to study them, it would be a good idea to invest in diversified equity mutual funds, again spreading your investments across fund houses and market caps.

In conclusion I would like to draw your attention to the words of Jesse Livermore, one of Wall Street' famous speculators who said " The big money is not to be made in the buying or the selling but in the waiting".





Uma said...

Oh, beautiful! "The big money is not to be made in the buying or the selling but in the waiting"
Enduring the wait, while staying consistent with your beliefs, is the hardest thing in the world, and thats why it spells the difference between success and failure. The beauty of my trading is that I can change my mind thrice a second ;)

Mahendra Naik said...

Yeah, you are right, its damn difficult, but it pays. Anyways I am not against trading and do some of it myself (not day trading though). I am trying to argue that one should be clear whether a call is for investment or trading. Investors tend to convert trading calls to investment grade once a stock goes down, only to see it slide further. Remember the Pentamedias, the DSQs and the HFCLs of 1999-2000?

Anonymous said...

My friend u r absolutely wrong in saying a company's stock price will go back up and touch its high. You cant take past and predict future. As far as infosys, its still overpriced and there are reasons why it will never reach its previous highs. Investment is not buying blindly however good a company is and hoping it will recover. That is utter foolishness. Ya u r right in saying patience is the key but not in buyin high and hoping it will recover but waiting for the right price to buy.

Mahendra Naik said...


Your comment reflects a typical case of selective reading. Please re-read my post. I have said, if you have bought a good co at higher levels, do not panic now. Instead average your purchase. Whether Infy will regain its new highs, only time will tell. But for someone who had bought Infy at 2300 and averaged at 1300, would still be sitting on handsome profits. I have also said that for dud stocks no price is too low to get out. Hiding behind the cloak of annonimity and posting stupid comments is a sign of cowardice.

Sanjeev said...

We can collect some good points about making wealth in above mentioned comments.
For me, its not the investment in any area is risky, its the person who is investing makes a investment decision risky or not.
Good companies like infosys, really a one of the key fundamental requirement but the price also does matter. We must see the price of the stock before making investment.
Also if we buy any stock of a company, we should not forget the fundamental rule of stock investment, we are becoming the part of the company, and we should wait for the company to perform and we must give time to the company to perform, only then we can differentiate it from gammbling.


Patience is in short supply with investors.