The twelve most silliest things people say about stock prices
As I have mentioned earlier in my blog post, I have been reading ‘One up on Wall Street’ ~ Peter Lynch. The book is a classic and a must read for people interested in value investing.This Part II is in continuation to Part I (first 4 points) which you can read here
Thank you Peter Lynch for your witty points… Enjoy (points 5 through 8)….
5. Eventually they will come back
Peter Lynch gives examples of RCA which never came back even after 65 years. Companies which belonged to Health Maintenance organizations, floppy disks, double knots, digital watches, mobile homes etc could never come back.
In today’s fast paced world of technological changes, there is even a higher chance of companies fading away much faster. Intelligent investing is all about recognizing the changes happening in the industry and then exiting from the stocks, if the fundamentals no longer justify a stake in the business.
As John Keynes has so very rightly said: “When the facts change, I change my mind: What do you do? Sir”
Many investors in this category are stuck with Indian Stocks reeling in High Debt, slowing economy & pressures from Bank are unlikely to come back anytime soon. (Rcom, Rpower, Suzlon, DLF etc.) Many of these companies will have to restructure (or sell off non-operating assets, non core businesses in order to breath freely)…
Suzlon Chart (languishing at all time lows below Rs 20):
6. It’s always darkest before the dawn
There’s a very human tendency to believe that things that have gotten a little bad can’t get worse.
Near home, people who are holding on to Moser Baer have not seen the stock price appreciate a zilch over the past decade.
Moser Baer Chart over the past few years :
Similarly the oil marketing companies have given no returns to the investors over the past decade. (Of course, part of this is due to the policies of the government of regulated oil prices in India).
Sometimes, it is darkest before the dawn, but then again other times is always darkest before pitch black.
7. When it rebounds to Rs 100, I’ll sell
In my experience, no downtrodden stock ever returns to the price at which you decide to exit.
When the stock of Suzlon was falling freely in early 2009 onwards, many investors got sucked into the stock at various levels above Rs 100. Subsequently, the stock kept on going South.
In the equity markets, the investors in general are always in a hurry to take the profits off the table. However when, it comes to taking out the losses, they rely on HOPE.
Again, here when we talk about taking out the losses, it is of the companies which are weak on fundamentals. In case of Suzlon, currently trading at Rs 18, unless a miraculous turnaround happens, it might not see the 3 digit mark for a fairly long time to come. The whole painful process may take a couple of years, maybe a decade. And all along you have to tolerate an investment you don’t even like.
Relying on luck way too often in the markets is a sure way to lose money in the long run. If you are less confident on the company, you ought to be selling the stock.
8. The ‘I knew it, If only I could have bought the stock, I could made so much money’ statement
So many investors make this classic mistake.
‘ I knew it…. Colgate, Pidilite, Hawkins, Jubilant Foodworks, HDFC, Titan, Tata Motors etc would rise….If only I could have bought the stock, I could made so much money’ statement’
They torture themselves every day by perusing the ‘Ten biggest winners on the markets’ and imagining how much money they’ve lost by not having owned them.
However the funny thing, the money is still in the bank . They have not lost a penny. This may seem ridiculous thing to mention. But it is notional. Regarding somebody’s else’s gain as your losses is definitely not a productive way to investing in the markets.
In fact, it can lead to blunders, trying to catch up buying stocks which they shouldn’t be buying, and buying the stocks at higher prices in order to get over the guilt. And guess what, this results in real losses.
Part I is here, Part III is here