Investing: Lessons that matter - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Investing: Lessons that matter

Jan 2, 2009

A lesson is learnt once one experiences a problem. 2008 was a year where we experienced a variety of problems, thus, learning a variety of lessons. While lessons may be easy to understand, it is even easier to forget them, especially when blinded by good times. However, once the bad times come, they smack you right in the face.Speculation and greed are bad
Greed is considered to be the mother of all sins. It is a sin of excess. An excessive desire to acquire more than one deserves or needs. Many are attracted to the lure of making money. When markets were flying high at the beginning of the year, stocks were very much overvalued. Many investors now repent not following the basic rules of investing - 'Buy when low, sell when high'.

It even pushes them to do things they don't understand. Take speculating in F&Os for example. But the possibility of the money that can be made, along with experiencing someone else making a fast buck in the same (out of pure luck) is convincing enough for most people to try their own hand at it. The crux of the matter here is that people can become willing to put in their own money into something that they don't fully understand, just by getting influenced with what people around them are doing.

Stocks become overvalued
Stocks may get overvalued from time to time. Isn't that stating the obvious? 2008 taught us that it is not. Around the last bubble, the tech-boom, Warren Buffett had said, "A pin lies in wait for every bubble. And when the two eventually meet, a new wave of investors learns some very old lessons: First, many in Wall Street - a community in which quality control is not prized- will sell investors anything they will buy. Second, speculation is most dangerous when it looks easiest." 2008 was the year the pin met the bubble in one asset class after the other.

IPOs are 'imaginary profits only'
'Subscribe and selloff on listing day' is what many people believe in, expecting stocks to double on the listing day. After the much created IPO hype in 2007, the early part of 2008 probably witnessed the most over hyped IPO of all time. We all know what the result of the same was.

As Benjamin Graham writes in his 'The Intelligent Investor', "In every case, investors have burned themselves on IPOs, have stayed away for at least two years, but have always returned for another scalding. For as long as stock markets have existed, investors have gone through this manic-depressive cycle."

Weighing the evidences objectively, intelligent investors should conclude that IPO does not stand only for 'initial public offering'. More accurately, it is also a shorthand for - It's Probably Overpriced, or Imaginary Profits Only, or even Insiders' Private Opportunity.

Management is key
While picking stocks, how much weight age you give to the management of the company? If you don't give any weight age to management then think again. It was always a well known fact that management quality was one of the most important requisites to look into while investing in companies and their stocks. But somewhere along the way this was forgotten. The importance of management quality has now made its presence felt.

The recent management goof up at Satyam is an eye opener for all the investors. Satyam is a leading software company and its financials are strong. The company has been able to grow its revenue at a CAGR of more than 30% in last three years. But instead of looking at only its numbers and standing, investors should have looked at its management quality and composition as well. After all, a leader is a person who keeps people's interest first (in this case, investors). A leader who is blind in relationship is not a good leader.

Investor activism works
When it comes to corporate actions and decisions on the same, non-promoter investors have not been know for raising their voices in India. But not anymore! The way Satyam's management has been criticized in recent times is a proof.

Investor activism has been seen as a way to lessen managerial or boardroom complacency. However, history is a living proof that such activism works wonders in improving corporate performances over the long term.

The problem with whistle-blower policies in India is that those with the whistles do not blow them often. And when some of them blow, they do not blow it hard enough. This needs to change if the bridge between minority and promoter shareholders has to strengthen.

Equitymaster requests your view! Post a comment on "Investing: Lessons that matter". Click here!

  

More Views on News

The Top 6 Artificial Intelligence Plays in India (Views On News)

Dec 6, 2021

Investors looking to tap into AI theme need to keep an eye on tech firm leveraging the power of AI are making things possible.

6 Penny Stocks that Rallied 1,000%+ in One Year (Views On News)

Dec 6, 2021

These penny stocks shed their penny status by surging 1,000% or more in the last one year.

6 Popular Stocks that Turned into Penny Stocks (Views On News)

Nov 27, 2021

A look at popular stocks that crashed big time and never recovered, i.e. which went from 'Multibaggers to Multibeggers'.

All You Need to Know about the Newly Launched Bharat Bond ETF 2032 (Outside View)

Dec 7, 2021

Bharat Bond ETF - 2032 is a new fund offer that will follow a buy-and-hold investment strategy tracking the constituents of Nifty Bharat Bond - April 2032 index.

Stocks You Should Buy, Even if the Market Falls (Profit Hunter)

Dec 7, 2021

Here is how to approach smallcap investing as markets get nervous.

More Views on News

Most Popular

A Complete Guide for Beginners on How to Invest in IPOs

As an investor, you must have endeavoured to find a suitable opportunity for investing in IPOs. But do you know what is an IP...

Infosys vs TCS: Which is Better? (Views On News)

Nov 26, 2021

In the post pandemic era, the top two IT companies in India are fighting to capture the growing demand for IT.

This Multibagger Stock Zooms 20% After Dolly Khanna Buys Stake (Views On News)

Nov 24, 2021

Shares of this edible oil company zoomed over 50% in three days after ace investor bought around 1% stake.

6 Popular Stocks that Turned into Penny Stocks (Views On News)

Nov 27, 2021

A look at popular stocks that crashed big time and never recovered, i.e. which went from 'Multibaggers to Multibeggers'.

India's Top 5 Monopoly Stocks to Watch Out for (Views On News)

Nov 30, 2021

These 5 companies dominate their sectors with a huge piece of the pie.

More

Become A Smarter Investor
In Just 5 Minutes

Multibagger Stock Guide 2022
Get our special report Multibagger Stocks Guide (2022 Edition) Now!
We will never sell or rent your email id.
Please read our Terms

S&P BSE SENSEX


Dec 7, 2021 01:35 PM

MARKET STATS