What type of a strategic investor are you? Best wishes for 2019

KS Badri Narayanan Chennai | Updated on December 28, 2018 Published on December 28, 2018

Ace investor Rakesh Jhunjhunwala

Stock selection is a tricky business

Stock selection is a tricky business. When experts struggle to pick the right stocks that can beat the market and post healthy returns, many retail investors take their own shortcuts to navigate the markets. We spoke to a few to find out their strategies.

A common strategy used by many small investors is buying a stock when the share price of the company hits its 52-week low. Many investors see big value in these companies’ stocks and expect a sharp turnaround. They feel that even if the stock bounces back by 25-30 per cent, that’s a good enough return. However, there’s nothing that prevents such stocks from making further lows. So, some investors admit to being stuck with such bets at a loss of almost 50-75 per cent. Some do not mind betting further money on the stock even if it falls further, aiming to average the buying cost. This cost-averaging strategy eventually stops only when the investor exhauststhe investible funds or the stock falls beyond his/her conviction levels.

Jhunjhunwala fans

Others ape the investment patterns of big investors in the market in the hope of copying their successful bets. A favourite here is Rakesh Jhunjhunwala. Fans and followers of some of these ace investors have dedicated websites, social media pages and blogs that track and analyse their guru’s stock picks and portfolios.

Foreign institutional investors’ buying and selling also sways some investors’ investment decisions. If FIIs/FPIs holding increases in a stock, they accumulate it, and vice-versa, believing that big investors always know something the small ones don’t.

However, this ‘follow-the-leader and invest’ strategy may not always work, as one does not know the real whole gameplan of the star investors or FPIs. At times, this model results in painful losses, if the big investors decide to dump the stock.

For some, astrology/numerology are the key factors for investment while a few others blindly invest in stocks on the first day of new listing. Others see insider information as the most crucial factor. If a promoter increases stake in his/her company, some investors see that as an important clue and signal to the fair value of the company.

Cues from result dates

A section of investors says that the date of the company’s result announcement is a deciding factor. If the company advances its board meeting to consider results within the first few days of the quarter end, they see that as a big positive. A few investors believe that the share price tends to behave positively in the successive quarters, if the company advances its board meeting from its routine dates. If the company delays or postpones its result from the routine practice, they turn cautious.

For many, the love for penny stocks is unabated even though they are aware that these are highly speculative bets and the odds of losing your entire investment in penny stocks are greater. They feel that even a small positive news flow could trigger a multifold rise in the share price and would provide an exit opportunity with huge gains.

Some people believe in doing the opposite of what an expert says on business news channels.

These strategies might have worked for some, but most often small investors fall prey to trying to outsmart the market. There are really no short cuts to making money in stocks. It is better to stick to the basics and invest in fundamentally strong companies, where the returns may come by only over the long term.

Happy investing in 2019.

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Published on December 28, 2018
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