• OUTLOOK ARENA
  • VIEWS ON NEWS
  • MAY 19, 2005

Buy companies, not stocks!

The Indian stock market regulator, Securities and Exchange Board of India (SEBI), recently cracked its whip against a foreign brokerage house recently, putting under scanner its conduct on the Black Monday - May 17, 2004. While the move is righteous, there are certain lessons you, the investor, can take home from this episode.

In any market, there are the big participants that really set the tone for that market and largely call the shots. And then there are the small participants (retail investors). While the number of small participants is higher, their collective value in the trade of that market is lesser than the big participants. So obviously, some big participants dominate the proceedings and work the system to their advantage.

So, what has this got to do with your investing decision and what does it tell you? For one, because of the systems under which any market operates, knowledge is critical. And obviously, big participants with stronger resource base and infrastructure have the knowledge edge.

In that case, is investing in stock markets not a losing proposition for the smaller investors? We think not, if certain discipline is followed. For one, it is the knowledge that gives the edge, and nobody has a copyright over it. You, the small investor, can build on your own knowledge by researching on the companies you buy and sell. And above all, take responsibility for your own decisions. By this, we mean that do not buy or sell or heresy or rumours, for it is not known whose hands you will be playing into.

Look at the management vision for the companies you wish to buy into. Please note, we have said 'companies' and not stocks to buy into. We are sure, even companies would want to have a larger, more loyal, retail investor base, as compared to the finicky Foreign Institutional Investors (FIIs) and institutions that sell the 'stock' the minute the EPS is short by even 10%.

Look at equity markets as partnership with India Inc. Take a long-term view, research and buy into the company you like. If your target price is achieved earlier, be disciplined and exit. Market shocks will keep streaming in as years go by. Make sure you are not caught on the wrong side by ensuring you buy fundamentally strong companies, who shake off May 17 like disasters and recover quickly, for their inherent value is strong.

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 (Research Analyst) bearing Registration No. INH000000537 (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, Canada or the European Union countries, 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 (Research Analyst)
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