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.
Does your money matter? - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Dec 13, 2010

    Does your money matter?

    Do you pick up a 'hot stock' just because people around you have been talking a lot about it lately? Your friends and colleagues tell you about the amazing profits they made on the stock in a short period of time. Greed then gets the better of you. Do you immediately jump on the bandwagon and buy the stock, without any research on the company?

    Well, such stocks could entice you for a short while. They may be among the top gainers in your portfolio for a few days. But sooner or later investors realize the damage that they have done to their portfolio by having such spoilt eggs. An example of this type of stock is 'Money Matters' - a company which played the lead role in a recent bribery scam. The stock price kept increasing with rising speculation amongst investors. A brief study of the company's financial history could have warned them of the volatility in revenues and profits. But unfortunately no one seemed to be interested in that.

    Source: BSE, Standalone company results

    Well, according to the basic law of gravity, what goes up, must come down. Especially if the meteoric rise in asset prices is not backed by fundamental reasons. The stock of Money Matters touched its highest level in mid- November. Post which it corrected by almost 70% in just a few weeks. Investing based on speculation thus has the potential to not just wipe out your returns but also your capital.

    Source: CMIE Prowess

    Let's put this in another perspective.

    Suppose you were recruiting someone for a position in your company. Would you hire people just because they had a nice sounding name? Or if someone just told you to hire them. Or, just because you saw them walk on the street outside your office. Ideally you would not.

    You would first look at the person's resume. Only if you like what you see would you call the person for an interview. You would also like to compare him with other suitable candidates. In fact, you at a may interview a couple of more candidates before finalising someone. Once you shortlist the candidate you would then negotiate on salary, performance expectations, etc. You would also see if they would fit in well with the rest of your team. Before providing a final offer you would do a reference check to see if your analysis was correct on the candidate. One important reminder to yourself during the entire process would be to select a candidate who would stick with you for the long term. But, when you invest your hard earned salary in a stock do you follow these steps?

    Do you look at the company's resume, i.e. financial history? Do you look at a number of potential stocks before zeroing on what to invest in? Once you like the stock do you try and decide what your expectations are from the stock. This would include the returns you expect based on the future performance of the company. This would also include any dividends that the stock would pay. Also in terms of your outflows - you need decide whether the stock price is justified, before committing to buying it. Analyse the company specific and industry risk factors.

    Would you then try and see if the stock is a good fit for your portfolio? This would include not concentrating too much of your capital in a single sector. Or putting all your eggs in one basket. Do you also corroborate your analysis with a reference check? Check if the CEO and the top management is ethical. Invest in sectors you understand. This reference check could include very simple things. Suppose you are investing in auto stocks, look around you while driving to see what cars people own. And which ones look new. See what is flying off the shelves at your local supermarket for FMCG stocks. When your friends complain about their telecom provider, listen to what their concerns are.

    A final tip would be to invest for the long term. Recruit a stock in your portfolio, versus just investing based on tips or rumours. Since this process of investing does take some time, it doesn't make any sense to shortlist a good company and sell it before it gives you any returns.

    Remember these tips next time before putting your money in a stock. Your money does matter!

     

     

    Equitymaster requests your view! Post a comment on "Does your money matter?". 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.

    Dear PM Modi, India is Already Land of Self-Employed, and It Ain't Working (Vivek Kaul's Diary)

    Aug 21, 2017

    Most Indians who cannot find jobs, look at becoming self-employed.

    Here's What Driving Gold Prices Up These Days (Outside View)

    Aug 21, 2017

    PersonalFN explains the chief factor pushing gold prices up of late.

    How Unique Are the Companies You Invest In? (The 5 Minute Wrapup)

    Aug 21, 2017

    One of the hallmarks of successful investing is to look out for companies that have a unique and enduring moat.

    You've Heard of Timeless Books... Ever Heard of Timeless Stocks? (The 5 Minute Wrapup)

    Aug 19, 2017

    Ever heard of Lindy Effect? Find out how you can use it to pick timeless stocks.

    More Views on News

    Most Popular

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    The Most Profitable Investment in the History of the World(Vivek Kaul's Diary)

    Aug 8, 2017

    'Yes, it looks like a bubble. And, yes, it's like buying a lottery ticket. But there's something happening that has never happened before. It's an evolutionary leap in money itself.'

    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.

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    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 21, 2017 03:37 PM

    MARKET STATS