X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Choose your 'loss'... - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Sep 26, 2005

    Choose your 'loss'...

    Last week saw investors' (particularly retail) so-called 'best friends' in this bullrun, especially since May 2005 when the current leg of the rally began (at about BSE-Sensex levels of 6,000), have turned out to be their biggest betrayers this week. However, this is not something strange or anything new, as these friends have only displayed their true characteristics. And kudos to the regulator, Securities and Exchange Board of India (SEBI), who made investors realise by its action last week, that the mid-cap and small-cap has to end, before it was too late. While some may argue that the regulator should have already taken the necessary steps earlier, which we do agree too, but then why blame the regulator alone. Investors, who invested in these penny stocks, with most of them, now unable to get an exit from these stocks, are equally at fault, or probably more.

    Last week, the Indian stock market regulator, SEBI, which had been watching the action from the sidelines (along with the Finance Ministry), warning investors along the way to invest in fundamentally sound stocks only, decided to finally put its foot down. The regulator not only brought certain mid-cap and small-cap stocks, especially the penny stocks, under its scanner, but also levied rules pertaining to additional margins on scrips in the 'T', 'TS' and the 'Z' groups. Further, in order to reduce the volatility in these and curtail their inexplicable rise, it reduced the circuit filters in these to 5%. Adding fuel to the fire was the news in the media of Income Tax raids on few brokers in Ahmedabad, which was later revealed by the IT department to be a mere coincidenceof taking place in conjunction with SEBI's new rules and had nothing to do with SEBI's diktat.

    Further, though SEBI's actions were not aimed at spoiling the stockmarket party and were rather designed to put an end to the small-cap and penny-stock mania, bring the culprits (if any) to the books and protect the retail investor, it seemingly inadvertently managed to hurt the retail investor class the most. This is because, most domestic mutual funds (MFs) and Foreign Institutional Investors (FIIs) take very little or no exposure in the 'T', 'TS' and 'Z' category of stocks and these are rather largely held by retail investors.

    It must be noted that even today, a large part of retail investors follow what their brokers or friends advice them to invest in rather than reading themselves about the company and its fundamentals or relying on expert advice. Further, with penny stocks showing astounding 3 and 4-digit returns, another reason for small investors is the lure to make a 'quick buck'. But, they do not realise that when the tide turns, there is nothing that would save them. Even the brokers and friends that gave them the advice to invest in such non-fundamental scrips turn a cold shoulder and snap back, "I had told you that these are high risk investments".

    But, at the end of all this, who is the ultimate loser? It is, not surprisingly, as always, the retail investor. Today the scenario is such that there is no exit route left in these penny stocks. There are numerous stocks that have gone up by 10 times on 10 times their average historic traded volume, which could run into millions of shares. But today, these shares are not finding any buyers (zero traded volume) and are hitting the lower circuit every day since the last 3 to 5 trading sessions. In such a scenario, while the fundamental investor can be assured of his returns in the long-term, the 'punter' can only 'hope' of a revival in trading sentiments. Until then, the latter will have to sit on his 'forced long-term investments'.

    To conclude, while it is easy to point out in hindsight (when the damage has been done) that 'I told you so', the only way an investor can prevent himself/herself from getting hurt the second time is by strictly investing on the basis of fundamentals. Even on the basis of fundamentals, valuations are the most important determinant of investing in a particular stock. This is because, investing in good but expensive scrips could put the investors investment at risk.

    Moreover, do not invest just because the markets are headed higher or because we are in a bull run or because FIIs are positive on India. This is because one may think that if he/she does not invest at the current levels, he/she could potentially miss the upside and thus miss the chance of making money, which in other terms would be a 'notional loss'. However, investment in a wrong stock or a good but expensive stock could lead to an 'actual loss'. Thus, an investor has to decide what 'loss' suits him/her best.

     

     

    Equitymaster requests your view! Post a comment on "Choose your 'loss'...". Click here!

      
     

    More Views on News

    How to Ride Alongside India's Best Fund Managers (The 5 Minute Wrapup)

    Jun 10, 2017

    Forty Indian investing gurus, as worthy of imitation as the legendary Peter Lynch, can help you get rich in the stock market.

    How To Read Your Mutual Fund Account Statement Correctly (Outside View)

    Aug 17, 2017

    PersonalFN simplifies the mutual fund account statement for you.

    This Small Cap Can Drive Chinese Players Out of India (and Make a Fortune in the Process) (The 5 Minute Wrapup)

    Aug 17, 2017

    A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.

    Which Gods Will Bring Down the US Empire? (Vivek Kaul's Diary)

    Aug 17, 2017

    Mr Trump is in the White House and the gods are in their heavens; what's not to like?

    Will They Haul Off Trump's Statue, Too? (Vivek Kaul's Diary)

    Aug 16, 2017

    All across the country, the old gods become devils. New, gluten-free gods take their places...

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    Proxy Plays: A Smart Way to Bet on 'Off Limits' Companies(The 5 Minute Wrapup)

    Aug 4, 2017

    The small-cap space is full of small players that are clear proxies to great growth stories and Indian megatrends.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    S&P BSE SENSEX


    Aug 17, 2017 03:37 PM

    MARKET STATS