GREED IS A CURSE IN STOCK MARKET
GREED IS A CURSE IN THE STOCK MARKET. WHEN YOU STUDIED IN SCHOOL IN YOUR CHILDHOOD, YOU WOULD HAVE CERTAINLY READ THIS SAYING MANY TIME THAT 'GREED IS A CURSE', BUT WHEN YOU TRADE IN STOCKS, YOU FORGET THIS SAYING. MOST OF THE PEOPLE IN STOCK MARKET KEEP LOOKING FOR TIPS THAT COULD TURN THEM MULTIMILLIONAIRES OVERNIGHT. BELIEVE ME, THIS IS AN ENDLESS SEARCH, AS FUTURE OF ANY BUSINESS IS ALWAYS UNCERTAIN AND IT TAKES YEARS FOR A BUSINESS IS ALWAYS UNCERTAIN AND IT TAKES YEARS FOR A BUSINESS TO GROW. WHEN YOU INVEST IN STOCKS, YOU NEED YEARS FOR A SUBSTANTIAL GROWTH. HENCE, HOWSOVER PERFECT A TIP MAY BE AND WHATEVER BE THE PERIOD OF YOUR INVESTMENT, YOU SHOULD NEVER INVEST A HUGE CAPITAL IN STOCKS IN ONE GO.
SUPPOSE, YOU FEEL COMPANY 'A' IS GOING TO PERFORM VERY WELL IN FUTURE AND THAT STOCK MAY GET DOUBLED IN FUTURE AND PROVIDE UP TO 100% RETURN. YOU GET GREEDY AND INVEST ONE TO TWO LAKHS RUPEES IN THE COMPANY. LATER, IF THE PRICE DOES NOT GO UP FOR THE NEXT ONE-TWO MONTHS OR, ON THE CONTRARY, IT STARTS FALLING, YOU START GETTING OVERWHELMED BY STRESS, FRUSTRATION AND IRRITATION.
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INSTEAD, YOU SHOULD DO THIS- START WITH AN INVESTMENT OF ONLY 25% OF YOUR CAPITAL KEEP THINKING THAT IF THE COMPANY REALLY HAS THE GUTS, LET IT SHOW A GAIN OF AT LEAST 5% AND THEN ONLY I WOULD INVEST ANOTHER 25% OF MY FUND. IF THE STOCK OF THE COMPANY SHOWS AGAIN OF 10% OVER ITS CURRENT PRICE. I WOULD INVEST ANOTHER 25% AND I WOULD INVEST THE REST OF 25% ALSO IF THE PRICE GOES UP BY 15%. THIS KIND OF STRATEGY MAY SAVE YOU FROM BAD INVESTMENTS.
IN THIS REGARD, I HAVE ONE MORE STRATEGY FOR INCREASING - DECREASING LARGE INVESTMENTS BASED ON 200 DMA, YOU MAY READ ABOUT THE SAME IN DETAIL IN MY OTHER BOOK - 'HOW CHANDRU EARNED AND CHINKI LOST IN THE STOCK MARKET' .
DON'T BOTHER ABOUT BONUS
IN A STOCK MARKET, IGNORANCE, ABOUT BONUS IS THE REASON FOR MAXIMUM LOSS TO THE INVESTORS. IN FACT, ALL SUCH INVESTORS HAVE HEARD MANY STORIES RELATING TO WELL-KNOWN IT COMPANIES, FOR EXAMPLE, SOMEBODY WAS HOLDING 100 STOCKS OF SO-AND-COMPANY IN 1991 AND THE COMPANY KEPT ON PAYING BONUS REGULARLY TO THE EXTENT THAT 100 STOCKS INCREASED TO 200 STOCKS, WENT UP TO 400,400 WENT UP TO 800 AND 800 ALSO WENT UP TO 1,600 STOCKS. THE STOCK HOLDING HAS GONE UP TO 50,000 TODAY, AFTER MANY SUCH BONUSES AND DIVISIONS OF FACE VALUE OF THE STOCK. THE STOCK PRICE IS $500 TODAY AND, THUS, THE VALUATION OF HIS HOLDING HAS GONE UP TO $2.5 CRORES.
A PERSON GETS SWAYED BY GREED AFTER LISTENING TO SUCH STORIES, WHENEVER ANY COMPANY DECLARES BONUS, HE BUYS AND HOLDS ITS STOCKS. TAKING ADVANTAGE OF THIS KIND OF MENTALITY OF COMMON INVESTORS, EVEN COMPANIE WITH WEAK FUNDAMENTALS DECLARE BONUS, RESULTING IN A JUMP IN ITS STOCK PRICE, AND COMPANY PROMOTERS EXPLOIT THAT OPPORTUNITY AND EXIT.
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A PERFECT EXAMPLE FOR THE SAME IS THE STOCK OF UNITECH THAT JUMPED FROM $156.65 TO THE HIGHEST LEVEL OF $14,798.55 IN 2006 AFTER DECLARATION OF 12 BONUS STOCKS ON ONE EXISTING STOCK. UNITECH AGAIN DECLARED 1:1 BONUS SHARE IN THE YEAR 2007 AND THE STOCK GOT A FRESH JUMP. HOWEVER, THE STOCK LATER WENT ON A DECLINE AND SLOWLY CAME DOWN TO THE LEVEL OF $1.05 IN THE YEAR 2019.
A BONUS ISSUE RESULTS IN REDUCTION IN THE PRICE OF THAT STOCK IN THE SAME PROPORTION. HAD THESE FAMOUS IT COMPANIES LIKE WIPRO AND INFOSYS NOT ISSUED ANY BONUS, THEIR SINGLE STOCK WOULD HAVE BEEN PRICED IN CRORES TODAY AND IT WOULD HAVE BEEN QUITE DIFFICULT FOR NORMAL INVESTORS TO BUY THE SAME. THAT'S THE REASON PERIODICAL ISSUE OF BONUS IS NECESSARY TO KEEP MARKET PRICE OF STOCKS IN THE RANGE OF INVESTORS.
AS THE INCOME AND PROSPECTS OF A COMPANY GO UP, ITS MARKET PRICE ALSO INCREASE IN PROPORTION OF ITS INCOME AND PROFIT, IN THE SITUATION, ISSUE OF BONUS STOCKS REDUCES INCOME PER STOCK AND , HENCE, MARKET PRICE OF THE STOCK ALSO GOES DOWN PROPORTIONATELY.
HENCE, MAKE SURE YOU DO NOT INVEST IN STOCKS BASED ON THE DECLARION OF BONUS ISSUE. INVEST IN STOCKS BASED ON THE INCOME AND PROFIT OF THE COMPANY.
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