Investing: Are you playing catch-up? - Views on News from Equitymaster

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

  • MyStocks


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

Investing: Are you playing catch-up?

Jul 4, 2006

Question: If you had bought Zee Tele at its peak of Rs 1,550 (adjust for bonus/splits) in February 2000, and still held it on June 2006 (when it closed at Rs 241), how long would you it take you to get back to your purchase price at various annual rates of return? Answer: Even at a decent 10% annual rate of return, it would take you just under 20 years to break even in this overpriced purchase!

In this context of paying more than what a stock deserves, the legendary investor, Ben Graham, stated that risk lies not in our stocks, but within us. If you overestimate how well you really understand an investment, or overstate your ability to ride out a temporary plunge in prices, it does not matter what you own or how the market performs.

Here is another example of how an overpriced investment can 'forcibly' make a 'long-term' investor out of you! Imagine that you find a stock that you believe can grow at 20% a year even if the market only grows by 10% annually. Unfortunately, you are so enthusiastic that you pay too high a price, and the stock loses 50% of its value in the first year itself. Now, even if the stock generates double the market's return during the future years, it will take you 12 years to overtake the market, simply because you paid too much, and lost too much! (See adjacent chart)

We believe that more of such examples, and less of 'investing tutorials' can help you, the investor take a better judgmental call on your risk taking abilities. Investing in equities need to be undertaken to meet your long term financial goals, and not for playing an 'averaging' game only to lower your earlier 'too higher' a cost for a stock.

Well, losing some money is an inevitable part of investing, and there is nothing in the world that you can do to prevent it. However, it would be intelligent of you to take responsibility for ensuring that you never lose most of all of your money. Happy investing!

Equitymaster requests your view! Post a comment on "Investing: Are you playing catch-up?". Click here!


More Views on News

How Much Money Should an Investor Set Aside for Trading? (Fast Profits Daily)

Sep 21, 2020

In this video, I'll give you a simple equation which you can use to decide how much money you can set aside for trading.

Kotak Standard Multicap Fund: Strategizing Growth with Focused Approach (Outside View)

Sep 21, 2020

PersonalFN's analysis on the features and performance of Kotak Standard Multicap Fund.

Sensex Can Go to 25,000 Before it Goes to 60,000. Are You Prepared? (Profit Hunter)

Sep 21, 2020

Am I expecting a big crack in the Sensex and what next?

What Do the Charts Say About Buying Smallcaps Now? (Fast Profits Daily)

Sep 18, 2020

Everyone seems to be excited about buying smallcaps now...but is it the right thing to do? What do the charts tell us? Find out in this video...

Sundaram Bluechip Fund: Will Hold the Stable Horses (Outside View)

Sep 18, 2020

PersonalFn briefly outlines the newly launched NFO note HSBC Corporate Bond Fund.

More Views on News

Most Popular

How the 8-Year Cycle Can Help Identify Multibaggers (Fast Profits Daily)

Sep 11, 2020

This is how you can apply the greed and fear cycle in the market to pick stocks.

Why am I Recommending Caution? (Fast Profits Daily)

Sep 9, 2020

This is why I have changed my short-term view on the market.

Why We Picked This Small-cap Stock for Our Hidden Treasure Subscribers (Profit Hunter)

Sep 17, 2020

This leading household brand will profit big time in a post covid world.

This Could Be the Best September for Auto Stocks (Profit Hunter)

Sep 11, 2020

Here's why I think this month could be a great for auto stocks.


Covid-19 Proof
Multibagger Stocks

Covid19 Proof Multibaggers
Get this special report, authored by Equitymaster's top analysts now!
We will never sell or rent your email id.
Please read our Terms


Sep 22, 2020 11:03 AM