This is the first ever guest contribution of the blog by Sagarkumar Jain which he also wrote as an answer on Quora – What are few tips for trading in Indian stock market? What are the trading secrets? Below is the post with some modifications to make it reader friendly.
The most important trading secret in Stock Market is not to go with the flow. What I mean to say is “don’t listen to any tips and get trapped”.
I started trading at the age of 22, and gradually I am still learning about it. When I just started trading, I read Economic Times to get tips on what to buy/sell every day.
Because at that time I was not aware of Balance sheets and quarterly results or any such terms like EPS, P/E, dividend yield etc. I used to simply read the news and get the tips from my broker or any news channel and bought the stock immediately.
Gradually I understood that it is only the small investors who lose money in the market just by following the tips. And I was contributing to some of the famous quotes of stock market like “70% of people lose money in stock market and only 30% people earn money in stock market”
Earlier I faced various losses, most of the times I invested in a stock whose price was lower irrespective of the sector or fundamentals of the company. Best example would be UCO Bank. I had bought UCO bank at 85 Rs in Nov 2014 just because I had read in Economic Times about the target of 95 Rs.
Phew! here’s the link for the same – ‘BUY’ or ‘SELL’ ideas from experts for Monday, 17 November 2014
I was never interested in stocks whose price was higher (+1000) even though the fundamentals of the company were quite strong.
For example, if I had 5000 Rs in my pocket then I would think of buying at least 50 to 100 shares of low priced company. I never thought of buying 1 share of Blue Chip company such as TCS, Lupin, Dr. Reddy because I thought – it’s a huge price.
Was I completely wrong? Probably, not.
But where I went wrong is I never allowed my horizon to cross the price to get the best bets in the market. I was happy to own 100 shares of a company with poor fundamentals than owning 5–10 shares of a company with strong fundamentals.
Then gradually I learned a lot about Stock market by Reading, Reading, Reading and got the solution for following questions.
Why does the stock fluctuate?
What are the effects of Quarterly/Yearly results on the stock?
How does the news related to the stock or the sector of the stock affect the Stocks?
How does the Economy affect the Stock?
And found out the possible ways which can cause the Stock to move up/down.
Most of the times, the company posts profits in its quarterly result and still the stock plunges. Obvious for a common investor is “if the company is in profit the stock should rise”.
But it’s not the case most of the times. And here the concept of “MARKET ESTIMATES” comes into the picture. Irrespective of the profit/loss posted by the company, if it has beaten the market estimates then it will rise else it will fall. (If 100Rs was the expected profit by the market for company X then if it posts profit greater than or equal to 100 Rs then it will rise else it will fall. Also if Rs 100 loss was expected by the market then if the company posts a loss of less than Rs 100 then it will rise else it will fall. Not true in each and every case though but it works most of the time)
(If market expects 100 Rs profit from the company X and if the company posts profit greater than or equal to 100 Rs then it will rise else it will fall. Also, if Rs 100 loss was expected by the market then if the company posts a loss of less than Rs 100 then it will rise else it will fall. Not true in each and every case though but it works most of the time)
And now I am in a much better position as compared to what I was when I was 22 years old.
Whenever I have to invest in stocks, I make a thorough analysis of the stock before investing.
My recent bets (9th August) were:
- Bought Cipla at 470 now it is 530
- Bought Castrol at 362 now it is 535
- Bought Lupin at 1300 now it is 1650
- Bought Sun Pharma at 750 now it is 850
- Bought REC at 160 now it is 215.
One more thing, GST is passed on 3rd August 2016 in Raj Sabha and after the passage of GST, Logistics stocks were going to benefit the most.
The news for the same flooded the internet from Dec 2015. Here are the links which say GATI and VRL Logistics will be benefited the most by GST.
So for a common investor these links are enough to understand that we should buy GATI and VRL Logistics.
Right? Wrong. This is where we go wrong. We follow market sentiments and get trapped quickly.
Today if you have look at these stocks, they have ended in negative:
If these were the stocks which were benefited the most by GST then they should have reached their circuit limits, right?
But most of the Intelligent Investors analyzed the situation and booked the profits by selling it off when the stock reached its 52 weeks high. On another side, we common small investors are still thinking to buy such stocks because everywhere we read about it.
And YES, I too got trapped in the news and made an intraday on GATI and lost few bucks. But as a wise man said, “learning is a continuous process” and I’m just taking these words seriously 😀
Also, you have to pay to learn every damn lesson in Stock market. So not afraid to lose money to learn the fundamental lessons.
I would also like to put forth the scenario that happened today (9th August 2016) with Lupin (Pharmaceutical Company)
The result of Lupin for Q1 is declared and it is as follows:
For a common investor who doesn’t understand the market behavior, the obvious thinking would be that the company has performed well with an increment of profits and the stock price will surely rise. So common investors will immediately buy Lupin shares for intraday (If you bought the stock for long term then you will be getting an applaud in the latter part of the answer) at around 1:30 pm and will wait till 2:30–3.00 pm so that he can trade off to balance the trade and earn profits.
This is where the common investor gets trapped and loses money. Now just have a look at the price at which Lupin is trading after the results have been declared.
The stock has plunged 5%.
Why? Because it has not beaten the MARKET ESTIMATES.
Strange? Ironical? Yes, it is. This is what happen in Stock Markets.
Now, I will tell you a scenario which might have happened in the market and which shows the real difference between Intelligent Investors & Common Investors.
Lupin is a child of his father F and Mother M. Lupin scored 95/100 marks in SSC exam but his parents are not satisfied with the results because they were expecting him to score 98/100 marks.
As a result of this, although Lupin scores good marks, his parents thought that he is not a bright student and lost the faith in him.
In stock market terms, the parents F and M are the common retail investors who sell off their stake in Lupin thinking that it is not a good company to invest.
Now on the other side, Lupin’s uncle U gets a call from Lupin telling him about his stellar performance in SSC exam. Uncle U congratulates Lupin on his achievement and starts believing that Lupin has a bright future and can reach to great heights.
Same as, here in the stock market, uncle U are the Intelligent Investors who will take the opportunity of the stock plunging by 5% and will buy the stake in Lupin.
From outside, it is too easy to decide that Lupin is a bright student and the expectations from him of scoring 98/100 marks were useless.
But most of the times, the retails investors behave like Lupin’s parents F & M and very few Intelligent Investors behave like his uncle U and reap huge profits. The wiseness being in the stock market is to decide when to behave like parents F & M and when to behave like Uncle U.
Before you invest, analyze the stock deeply and never get trapped by any TIP from any goddamn source. You’re not going to become rich by following what other common people are doing.
Happy investing 🙂
About the author of the guest post: Sagarkumar Jain has expertise in Stock Markets, Finance, and Investments. He is a regular investor in Stock Market, an Avid Reader, and a Cricket Fanatic. He is reachable on Quora.