ADVANTAGES OF TRADING IN THE
DIVIDEND-PAYING STOCKS
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YOU WOULD HAVE UNDERSTOOD BY NOW THAT, FOR TRADING, I ADVISE CHOOSING SUCH LARGE CAP STOCKS FROM NIFTY 50 OR SENSEX 30 THAT ARE TRADING NEAR THEIR 52-WEEKS HIGHS. BUT, WHY IS IT LIKE THAT? YOU WOULD HAVE CERTAINLY GO THIS QUESTION IN YOUR MIND - 'WHY SHOULDN'T I TRADE IN SUCH SMALL CAP OR MID CAP STOCKS, SUGGESTED BY YOU OR ANY OTHER ANALYSTS, THAT I MAY GIVE A RETURN OF 200 % - 300 % IN ONE OT TWO YEARS?'.
WELL, THE ANSWER IS THAT YOU MUST, FIRST OF ALL, HAVE THE CAPACITY TO HOLD FUNDAMENTAL STOCKS, THAT IS NORMALLY NOT FOUND IN SMALL INVESTORS AS EXPLAINED BY ME IN PREVIOUS TIPS WITH AN EXAMPLE OF EICHER MOTORS.
SECONDLY, YOU MUST HAVE HEARD THE STORY OF ONE SETHJI, IF NOT, LET ME TELL YOU THE SAME. THERE WAS A SETHJI WHO WAS A TYPICAL MISER. HE WOULD USUALLY EAT STALE ROTIS WITH SALT AND CHILLI ONLY AND NO VEGETABLES, JUST T SAVE MONEY ON VEGETABLES, BUT IN ORDER TO SATIATE HIS DESIRE FOR VEGETABLES AND OTHER DELICACIES, HE WOULD KEEP HIS EYES CLOSED FOR 10 MINUTES AFTER HIS MEAL AND GO INTO MEDITATION IMAGINING THAT HE WAS ENJOYING A SUMPTUOUS MEAL WITH DAAL AND CARRY.
SUCH MEDIATATIONS USED TO SATISFY HIS DESIRES, ONCE, WHEN HE WAS IN A STATE OF SIMILAR MEDITATION, HE FELT THE CURRY TO BE TOO SPICY AND HE STARTED MAKING A SOUND LIKE "CEE-CEE".
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WHEN A PASSER-BY HEARD THAT SOUND, HE ASKED HIM, 'SETHJI, WHAT HAPPENED?', SETHJI TOLD HIM THE FULL STORY HOW HE WAS EATING FOOD IN HIS IMAGINATION AND HOW HE LEFT HIS MOUTH TO BE BURNING BECAUSE OF VERY SPICY CURRY, RESULTING IN THAT SOUND. THAT PERSON SAID, "YOU FOOL SETH, IF YOU HAVE TO ENJOY FOOD IN YOUR IMAGINATION ONLY, WHY DO YOU EAT ONLY DAAL-CURRY? EAT SWEETS, DRY FRUITS, KAJU-KATLI AND FRESH FRUITS, AND IF YOU HAVE TO EAT DAAL-CURRY ONLY IN YOUR IMAGINATION, YOU SHOULD EAT THE SAME COOKED BY A GOOD CHEF WITH PERFECT SPICES THAT WOULD NOT BURN YOUR MOUTH'.
ANY FUNDAMENTAL STOCK THAT HAS THE POTENTIAL TO GIVE MULTIPLE RETURNS IN FUTURE IS EQUALLY RISKY TOO. IT IS NATURAL ALSO, AS SUCH A STOCK WOULD BE RECOMMENDED ONLY WHEN THE SAME CAN BE INCLUDED IN THE CATEGORY OF "VALUE BUY". WHEN THE MARKET PRICE OF A STOCK IS LOWER THAN ITS "NET SALE PER SHARE" AND ITS BOOK VALUE, THE STOCK IS RECOMMENDED BY ANY RESEARCH ANALYSTS, TREATING THE SAME AS A "VALUE STOCK".
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HOWEVER, THERE IS ALSO A RISK HERE. IF SOME NEWS RELATING TO ANY PROBLEM THAT A COMPANY IS GOING TO FACE IN FUTURE IS LEAKED IN THE MAKET BEFORE THE SAME IS KNOWN TO THE PUBLIC IN GENERAL, THE MARKET PRICE OF THAT STOCK MAY COME DOWN TO THE EXTENT THAT WE MAY BUY THE SAME ASSUMING IT TO BE A VALUE BUY.
SUCH LEAKED NEWS ABOUT COMPANY PROBLEMS IS CALLED "RUMOUR". THE SAME THING HAPPENED WITH THE STOCKS OF KINGFISHER, TANTIA CONSTRUCTION, PRATIBHA INDUSTRIES, SATYAM COMPUTERS AND DHFL, ETC. WHEN THEIR MARKET PRICES WENT BELOW THEIR 'NET SALE PER SHARE' FIGURES AND THEIR BOOK VALUES AND THEY WERE TREATED AS FUNDAMENTAL VALUE BUYS. BUT, LATER, AS THE NEWS ABOUT THESE COMPANIES STARTED COMING OUT IN THE OPEN, THE STOCKS CRASHED BY 60% TO 90%.
HENCE, IF YOU WANT TO EARN 200 % - 500 % RETURN WITH LONG-TERM HOLDING, THEN, AS YOU HAVE READ IN MY CHAPTER, YOU MAY INVEST UP TO A MAXIMUM OF 10 % OF YOUR MONTHLY INCOME IN SUCH STOCKS COMING IN THE CATEGORY OF FUNDAMENTAL VALUE BUY AND EXPECT MULTIPLE RETURNS BY HOLDING THEM FOR 2-3 YEARS. BUT, IF YOU ARE PLANNING TO USE SWING TRADE TO EARN 4.5 % TO 0.5 % RETURNS WITHIN A PERIOD OF ONE DAY TO ONE MONTH, WHY SHOULD YOU TAKE RISK FOR THE SAME? WHY NOT TO INVEST ONLY IN SUCH STOCKS OF NIFTY / SENSEX THAT ARE TRADING NEAR THEIR YEAR-HIGHS? SUCH STOCKS ARE NORMALLY LESS RISKY. THEY ALSO HAVE GOOD VOLUMES AND BOUNCE BACKS FOR 4.5 % TO 0.5 % PROFIT CAN BE FOUND IN A SHORT-TIME, AND WHEN THEY ARE HELD, THEY ALSO THEY ALSO BRING BONUS AND DIVIDENDS.
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CHOOSE NIFTY STOCKS FOR TRADING AS
WELL AS SWING TRADING
ALL THE 50 STOCKS OF NIFTY 50 ARE ALSO TRADED IN FUTURES AND OPTIONS SEGMENT OF THE STOCK MARKET. DOMESTIC MUTUAL FUNDS AND FOREIGN INSTITUTIONAL INVESTORS (FILLS) ALSO TRADE IN THE SAME STOCKS. ALMOST 80 % TO 90 % OF TRADES IN THE MARKET ARE DONE IN THOSE VERY STOCKS AND, HENCE, THEY ENJOY SUFFICIENT LIQUIDITY WHILE THEY ALSO GO THROUGH GOOD ENOUGH FLUCTUATIONS. HENCE, IN MY OPINION, STOCKS FROM NIFTY 50 SHOULD BE SELECTED FOR INTRADAY TRADING OR SWING TRADING (EVEN AMONG THEM, WHICH ONES SHOULD BE CHOSEN - THIS WOULD BE EXPLAINED LATER).
SECONDLY, STOCKS INCLUDED IN INDEXES LIKE NIFTY, SENSEX, ETC., ARE SELECTED BY EXCHANGE COMMITTEES AFTER TESTING THEM ON THE CRITERIA OF VOLUME, PROFITS, DIVIDEND LIABILITY, ETC.
STOCKS INLUDED IN INDEXES ARE APPRAISED PERIODICALLY AND SUCH STOCKS THAT DO NOT MEET THE CRITERIA OF MARKET CAP, VOLUME, DIVIDEND, ETC., ARE REMOVED AND REPLACED BY NEW STOCKS.
ACCORDINGLY, YOU MAY USE THE METHOD EXPLAINED IN SUBSEQUENT CHAPTERS TO EXIT FROM STOCKS BEING REMOVED FROM NIFTY WITHOUT BOOKING ANY LOSS AND INVEST IN FRESH STOCKS GETTING INLUDED THERE. THIS WILL BE DISCUSSED IN DETAIL IN THE NEXT TIP.
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