When you buy, why does someone sell?
In this issue:
» Indian banks to face the music for flouting regulations
» George Soros shares some pearls of wisdom
» Developers enter a debt trap
» Will Saudi Arabia boost oil capacity?
» ...and more!
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Have you ever had this feeling about your investment decisions? Doesn't it seem like what you often do turns out to be a perfect loss-making strategy? Some will surely agree.
Let us reconsider a few simple facts. Everybody herds into stock markets with an intention to make money. Nothing wrong with that. We all think we are smart. Nothing wrong with that as well. We also think that we can outsmart all others all the time. Well, that is something we should reconsider. Because the fact is that everyone cannot be right at the same time.
Remember that every time you buy a stock, there is someone selling at the other end. Now, this is such a ridiculously simple fact. Yet, we so often and so easily ignore it. Do you sit back and consider why the person at the other end is willing to do the opposite of what you're doing?
Next time you are about to invest in a stock, do this little exercise. Ask yourself, "How about doing exactly the opposite?" In case you are planning to buy a stock, think from the seller's point of view and vice-versa.
This exercise will force you to look objectively at both the sides of the investment. If you are able to honestly ask the right questions, you will come out wiser and wealthier. Because as we said, both the parties cannot be right. Either of the two parties is acting out of greed, fear or mere ignorance. Are you the one doing that? If yes, then you know that the guy at the other end is smarter and doing the opposite transaction for a good reason. In the process, you will also realise the reasons for your previous losses.
With this knowledge, you can rid yourself from the loss-making exercise. And needless to say, you can march ahead on your way to becoming a millionaire.
Have you ever felt that you would have been richer if only you would have done the opposite? Share your comments with us or post your views on our facebook page.
01:23 |
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01:33 |
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The RBI has now pulled up 7 banks including some foreign entities, charging them of misleading customers. The regulator may also end up heavily penalising some of them for their past acts. The 7 banks are part of the 22 that had submitted the details of their derivative deals to the RBI. One can estimate that the size of penalties could also be meaningful. This is given the size of forex losses that some corporates have endured thanks to their banks' derivative offerings until 2008. We believe that when it comes to taking prudential regulatory action it is 'better late than never'.
02:08 |
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However, the 'big picture' expert did have some good things to say about India. Soros believes that India may not be growing as fast as China but is also not as exposed to overheating as the Asian dragon. Hence, India is actually relatively very well situated as per him.
02:52 |
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However, it seems that they have found a way to get out of this vicious debt trap. And that is by taking more debt! It is interesting to note that in order to solve the current debt repayment crisis, developers are taking more expensive loans from NBFCs. They are also raising structured debt from PE firms. So, basically low cost debt is replaced with high cost debt.
Apart from this, developers are also selling land parcels in order to repay the existing debt. However, we believe that the strategy to take on expensive debt and/or to sell land parcels to repay the existing debt will further worsen the situation. The most prudent alternative in order to get out of the existing debt trap is to reduce the prices. However, developers still don't seem to budge on that front.
03:36 |
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However, we don't think that the statement should be taken on face value. Going by latest statistics, the actual supply from the country was down by 9% in March on a month on month basis. Why will Saudi Arabia wait to release supply some time in future when there are chances of demand destruction by high prices and not do so now when both prices and demand are hard to resist? The real reason could be actual production constraints. If that is the case, it puts a big question mark on the spare capacity it claims to own and expand. What supports our concerns are some desperate measures that Saudi Arabia is taking to boost its capacity. Hopefully, we will get a better clue on actual scenario when OPEC holds its next meeting in June. Till then, we would prefer to believe statistics rather than Saudi Arabia's statements to increase supply in the near term.
04:04 |
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04:30 |
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04:50 |
Today's investing mantra |
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11 Responses to "When you buy, why does someone sell?"
Sonny Jacob
Apr 25, 2011Intra day traders basically do a speculative business and the "bigger fool" theory is pertinent on both the occasions.
J Johnson
Apr 25, 2011I agree with Shankar when he says that the subject cannot be simplified - and generalised. The matter is subjective. It was Peter Lynch who wrote : "There could be a 101 reasons to Sell... But only One reason to Buy" It is quite possible that one person could be selling a stock for Rs. 100.- at a profit of 100% (having bought it for Rs. 50).. and another..who could be selling the same stock also for Rs. 100.- but at a loss of 20% (having bought the stock at 125). Who is more right or more wrong here.
mahadevan
Apr 25, 2011Yes, I sold 160 shares of Unitech in 2002 for want of funds, also not actively traded at that time. Had i held it now u can calculate the growth my investment now. 13:1 bonus, stock split, 1:1 bonus etc. Long term pays provided it is a growth oriented company.
Digambar Kulkarni
Apr 25, 2011Remember, you are selling it now because you bought it some time back when it was cheap!
He is buyng it now to sell at a later date when it will be costly!
Both are right because both are making a profit because both make a right choice about the movement of the price of a stock!
The converse will be also true!
Anupam Garg
Apr 25, 2011this is a question which i ask everytime b4 i trade. i just can't find the answer as to y tht person is always doing the opposite. We hav the same level of info +/- lil bit...so y? Unfortunately, noone else tells me the answers either. Thr's no way out of this.
I just hav 2 tell myself tht i m the smartest person on planet when i go ahead with a move & tht the other person is really stupid for going for something which i ain't buying.
Rasik Kamdar
Apr 25, 2011It may be that the sellers had already earned,and are now need money to buy other opportunities. It so happens that we tend to buy because the script has shown some momentum. Most of the time these momentums are artificially created by someone who wants to sell of his burden.
Shankar
Apr 25, 2011I am not 100% sure about this, though I am not a punter. People sell and buy for thier financial needs as well. Some times I am happy for what I got, so I quit the race. I purchased a stock at 200 and now it is trading at 260. When I see its last 52 week's performance the high is 255. I will quit and make money. Why should i wait!!.
The other guy who is buying would have listened to advice from professionals like you(based on research)Note: I always respect your advice. and buy the stock as the new high indicated is 380 in next 6 months time.
In principal I agree with your prentation of your point, but I feel, it can not be simplified to this level.
With Regards,
Shankar L
Nandkishore
Apr 25, 2011Often, the "greed, fear or mere ignorance" are not the only drivers; maintaining or generating liquidity could also be valid reason for one to consider selling. Sudden influx of money eg from tax refunds or arrears could incentivise one to buy shares.
It would appear that at least 70% investors in India are those with severely limited or erratic liquidity which often forces them to take take adverse decisions.
Do give your feedback on the above comment.
Ganesh K
Apr 25, 2011Simple reason why when one buys stock other sells it. Because stock market is nothing but perseption. I feel the price is low so I buy, man at other end thinks it is high enough so he sells. Otherwise if both think rationally and consider the Yield per year it will be less than 1% in most of the blue chip stock. And if they go by the yield figures, the American or Japanese bonds will look like gold mine and all stock exchangaes will close down.
S.K.DAMANI
Apr 26, 2011If you find any person, who says contrary to your question, please take his photgraph and paste it on the your site. He would also deserve a special award as the best investor.
Most of the investor very easily turn into traders and than they always loose.
BUT YOUR QUESTIONS IS VERY V V IMPORTANT and hopefully I am definetly going to apply it.
Many many thanks.
Damani