PATIENCE – KEY TO WINNING IN STOCK MARKETS

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".