Thursday, October 26, 2006
Learning from previous crashes
Last year, when the market was jumping in July and August, I got ambitious and invested in a lot of highly speculative shares, shares that are operator driven and in which a retail investor like me does not have much of a chance. So, for example, I bought shares such as Pentagon Global, Maxima Systems, Vishal Exports, and so on. And kept on waiting and waiting. If I had to give advice to a friend, the above is exactly what I would have told to avoid.
However, the inevitable had to happen. in the crash of last September (2005), all these shares hit low values and with low volumes. After a few days of hardening my heart, I sold all these at a loss. My only consolation was that the short term loss will be set-off against my short term gain in some other stocks for tax purposes, hence helping in reclaiming something from all the loss. So over a period of time, volume in the stock permitting, I disposed off all these stocks.
Maybe the lesson learnt from all this carnage was well worth it; if you have to deal in operator stocks, you have to be monitoring and set stop-loss and profit targets and execute on those without much emotion clouding judgement. Most important, don't let greed get you down. However, if you want to invest fundamentally, select companies who have a good potential and whose shares are not already sky-high. So over a period of time, I have moved my holdings onto such shares, they do not offer 100% return in a week, but give a steady return over a period of time. In addition, I have also moved onto mutual funds as a proportion of overall investments. So i monitor tips, identify people/magazines who give strong fundamental tips and change the mindset to more of a medium and long term investor. I don't say that this will make everything perfect, but is a good start.
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