The Hindu Business Line : ‘You are part of the herd if you act on market rumours’

“Invest in the human soul. Who knows, it might be a diamond in the rough,” exhorts Mary McLeod Bethune, but her plea is sure to fall on deaf ears, especially when bulls move faster than usual on Dalal Street these days, rough-riding the bears, and allowing the Doppler effect to play out on any cautionary suggestions.

For the few who may like to take time off for heeding to counsel, here is Ranjit Kapadia, a Mumbai-based investment expert, who shares his insights with Business Line over the e-mail.

He heads the Private Client Group (PCG) Research in Prabhudas Lilladher Pvt Ltd, one of the top broking houses for institutional clients, both Indian and global, with a history of more than six decades.

A post-graduate in science and financial management from Bombay University, Ranjit has worked for over 20 years in the pharmaceutical industry and for over 11 years in the capital markets.

His areas of specialisation are pharma, FMCG and mid-cap companies.

Excerpts.

Is there a right time to invest? Any auspicious hours, I mean? Does astrology have a role to play in markets?

Yes, the right time to invest is when you have money in your account and when the markets are low.

The auspicious hour is when you are in a position to buy the scrip of your choice at the right price and the right time.

I don’t think astrology has any role to play in the stock market. Else, all astrologers would have become millionaires by now.

Astronomy, though, has some role to play with the market, as the stock exchanges make changes in working hours due to sun outage.

When I make great profits in my investment, should I keep it a secret?

In case you make a great profit on your investments, at least share the moments of joy with your family and friends. This may give you a lot of satisfaction.

Things cannot remain secret, please note. Your broker is aware of your transactions; also, the tax authorities know your transactions, based on the security transaction tax (STT) you pay.

Big losses throw me off gear. What should I do when it is all red on my screen?

If there is a big loss, refrain yourself from the stock market till you become mentally stable and the market volatility is also reduced.

When the loss is huge, one should accept his/her failure and take steps to prevent any recurrence.

The best strategy would be to do a root cause analysis.

Tell me, is there a way to know that I am on the right track of investing?

Yes. As an investor, you have to monitor your investments constantly; do this at periodic intervals, at least once a week.

It is advisable to assess the book profit/loss on a weekly basis to determine the status of the investments in stocks.

This will also help you in taking timely steps to sell/switch from a particular scrip.

Can investing turn into gambling? How?

Investment can turn into gambling if the investor has developed unjustifiable faith and confidence in a scrip/promoter/sector; also, if, despite incurring losses, he invests more and more in a particular scrip and averages it to reap the benefit when it rises.

Does greed show? Or, is it too subtle to be visible to others?

Greed is visible in the investor’s action and behaviour. It can be noticed through facial expressions! (On the e-mail, however, that would be difficult.)

How can I relax and take the mind totally off stocks and markets?

Engage in activities like music, reading, games, family outings, visiting friends or relatives, social work, pilgrimage and so on.

This may relax your mind enough to facilitate right decisions in future.

I have heard that we should not follow the herd. But how do I know if I am already part of the herd?

You are following the herd if you are acting on rumours. Instead, make a detailed study and understand the company and its business model.

Only after being convinced, you should make an investment in a scrip.

Who is winning: the F-wallahs or the Ts? Fundamentals or technicals?

There is no winner or loser. Both are independent techniques, which complement each other.

My gut-feel keeps telling me one company name or the other. Can I trust it and follow its suggestions?

Gut feel should be confirmed and backed by adequate research, be it fundamental or technical.

Never invest on gut feelings!

Make investments based on in-depth research (either own or derived) and the right timing.

Never ‘marry’ the stock. Divest at the right time to reap the profits.

Should I ensure a safety net when engaging in stock market investments?

Be very careful and selective while making investments in stock markets.

Do not take undue risk in the investments in stocks. For every winner there is a loser, so the consequences of any bad investments may ruin the investor and his family.

How much proportion of my money can I put in stocks?

An intelligent investor should divide the risk.

He/she should not invest more than 20-25 per cent of the surplus money in the stock market.

The investment in stocks is a high risk, high return game similar to R&D (research and development) in a pharma company, where the success rate is 1:10,000.

In the stock exchange, the success rate is higher than in the pharma R&D.

The intelligent investor should, therefore, invest in a mix: of real estate (only if the corpus is high), gold, fixed yield instruments such as bonds, PPF (Public Provident Fund), fixed deposits of banks and so on.

BasicBaatein@gmail.com