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Rain Industries Sinks Rapidly. Jump the Ship or Stay Put? - Views on News from Equitymaster

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  • May 21, 2018 - Rain Industries Sinks Rapidly. Jump the Ship or Stay Put?

Rain Industries Sinks Rapidly. Jump the Ship or Stay Put?
May 21, 2018

Rain Industries, one of our most recent recommendations, is down more than 30% from its recommended price.

It is the hardest hit amongst the three stocks that we recommended in the May 10 issue of Profit Velocity.

Turns out, BNP Paribas, a large institutional player, dumped close to 2 m shares of the company recently and there weren't too many takers for such a large block of shares, resulting in the steep correction of the stock price.

Not to mention the general pessimism towards mid and small cap stocks that's also doing its bit in the share price decline.

Now, we have a strict rule in place in Profit Velocity that we don't allow a loss of more than 15%-20% in any one stock.

In other words, we have a 20% stop loss in place.

So, the moment the stocks falls 15%-20% from its recommended price, we recommend an exit, no question asked.

However, we seemed to have overlooked this rule in the case of Rain Industries.

Not a Case of Omission

Please note this isn't an act of omission on our part. We have been tracking the share price closely and are aware the stock is well beyond our mandatory 20% stop loss rule.

The only reason we are staying put is because we are putting to use whatever little discretion we have in this strictly rule based service.

You see, the broader markets are still in an uptrend and therefore, this calls for the allocation between cash and stocks to be in the ratio of 25:75 i.e. 25% in cash and 75% in stocks.

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