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Lessons from a smart investor
Thu, 11 Aug Pre-Open

The world stock markets saw its worst fall since 2008 after Standard and Poor (S&P) downgraded United States credit rating by one notch to AA+. This sent shockwaves across world markets and ignited fears of a double dip recession. The debt situation in Europe also added spark to the fire. Indian markets also followed the world markets and saw a sharp downfall.

But in the middle of all the panic selling, there were few smart investors who saw this as an opportunity to buy heavily and make money.

One such smart investor was Life India Corporation (LIC). LIC, the country's biggest investor has often been used by the government to stabilize the stock markets whenever it gets wobbly. LIC bought heavily when the markets crashed in the last three days. LIC had bought stocks worth Rs 1.2 bn over the first four months of this fiscal but raised it to Rs 3.3 bn in the last three days alone when markets crashed and valuations became more attractive.

So is there any lesson one should learn from LIC? If one were to go by history and bought into the Indian stock market in September 2001 just after the 9/11 attacks, one would have made 84% over the next three years and 316% in five years. And if one was bold enough to buy Indian stocks during the collapse of the Lehman Brothers in September 2008; one would have made 61% in three years. There is no rocket science to buying when everyone around you is selling. One should always remember good returns will materialize over time on investments made at cheap valuations.

While investing, remember always that the stock price is not real. It is what other people perceive to be real. When investing, understand the company and the industry it is in. You can always grab a bargain when the stock price falls. The long term fundamentals are still the same but you are getting it at a cheaper rate. But if you put your money without knowing company's financials or even the type of industry, then you might as well put your money on a casino table, because the odds of your winning are just about the same.

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1 Responses to "Lessons from a smart investor"


Aug 12, 2011

Even with your recommendations , it looks like putting money on casino table.

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