Blog meant for 18 April 2018 Wednesday
Dear friends,
A volatile day for markets but finally Nifty managed to close 20 points higher at 10548. Global cues are once again positive in Europe and US and hence our markets may be likely to go up tomorrow too.
But beware of profit booking any time in the coming days due to selling by investors.
Nifty is in Hold zone for short term.
The indications for individual stocks for short term only are –
DON’T BUY – VEDANTA, SBI, INFOSYS
HOLD – TITAN, MARUTI, M&M, ASIAN PAINT, HDFC BANK, AXIS BANK, RELIANCE INDUSTRIES, HINDALCO, TCS, HDFC, ITC
SELL – YES BANK (as mentioned in the blog yesterday, it was wise to wait for today’s movement to decide whether to buy Yes Bank or not. It fell today and once again is showing Sell signal and hence it was a good decision to wait instead of buying today. In case you bought inspite of us suggesting you to wait, then you may want to sell tomorrow depending on market movement)
Long term investors should invest regularly every month without worrying about the movement of stocks in short term.
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Just like we do jogging, physical exercise or go to the gym to improve physical fitness, we should read various articles or observe many things around us so that we develop ‘financial fitness’. In future, every now and then, we will be writing an article on investments or general approach to personal finance so that you learn new things and can improve your financial fitness.
Your feedback is welcome and appreciated so that we know how you feel after reading each article. Please email us on successdigest@gmail.com and share your feedback on the blog and the articles we write.
Rohan’s article –
Thinking of Stocks as pieces of Business
Day traders consider stocks as pieces of paper which must not be held for longer than a day or most times for not more than a few hours. This is consistent with the belief that in the short term, the stock market is a place affected by the whims, fancies, hypes and many other psychological factors of investors.
Speculating on the short term fluctuations of the stock markets is not an accurate science as it is highly affected by human emotions. Generally, human decisions are uncertain and specifically towards investments, it becomes very emotional and almost never rational.
However, in the long term, the stock prices are closely related to the business worth of the companies. Stocks must be considered as pieces of businesses and investors must consider themselves as part owners (partners) of the business. The value of their investment increases as the performance of the business improves in the long term.
For example, if you buy a shop for Rs.3,00,000 from a person, would you sell your business in a hurry to another person the next day for Rs.2,85,000 just because a temporary tax is introduced on shops and hence the value of your business has fallen? The answer is probably no. This is because you realize that a minor temporary tax will not hamper the long term potential of your business.
On the other hand, when we purchase a stock, we lose the conviction with which we bought a stock of that good company. We are easily swayed by the rumours, negative news about the company which are usually false and are based on no hard facts. Everybody knows that no business has a smooth ride throughout its lifetime especially in the early, high growth phase. Although, we may know that the business of the company’s shares bought is sound and having a promising future, we get worried about the stock price and are prepared to sell the stock at a loss.
Once we conduct thorough analysis of a company and decide to invest in the company’s stock, we must not doubt its long term prospects. Pretend that once you invest in that company, you will not be allowed to sell the stock for the next 8-10 years. This will ensure that you study the company’s business and convince yourself of its long term prospects.
We would also not be ready to sell our business purchased at Rs.3,00,000 on the previous day for Rs.3,30,000 today just because we are offered a good 10% profit on the transaction. We understand that we would like to enjoy the benefits of a consistently growing long term business rather than make small short term profits. This rationale must be used for stocks as they are pieces of business.
Majority of successful investors prefer the benefits of long term investing due to its many advantages over short term trading. When you invest for the long term, you benefit from the power of compounding, lower taxes, lesser transaction costs, less time to monitor investments and relatively less stress.
The growth of the business and the growth of the economy both contribute to the growth of the stock price appreciation in the long term. On the other hand, when we enter and exit from stocks in a matter of days, we face the problem of finding other avenues to put our money into. Considerable time and effort are required to look for the right alternative opportunities.
Hence, stocks should be considered as pieces of businesses. The decisions taken regarding this investment must be rational, long term, based on facts and not emotional decisions based on rumours, hearsay and short term outlook.
If you are a long term investor in a business, short term fluctuations must not bother you and affect your decision to stay invested in the business.
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