Tuesday, June 17, 2008

When to buy stocks to make profit - Buying is more important than Selling!

When to buy stocks to make profit - Buying is more important than Selling!

Most investors tend to crib when the market is going down. I find this very strange, because most of the money that I make is made when the markets go down and I buy.

When I buy a stock cheap, I am keeping my downside limited and am leaving more room for the upside. One of the most important things about getting substantial returns on your investments is not really selling but buying.

Several people pay undue importance on selling at the right time, but fail to give importance to buying. For example let us say you invested in Unitech in 2002. Would that decision have more value or would the decision to sell in 2007 or 2008 have more value? Yes, there might be some minor differences in the stock price between 2007 and 2008, but most of the money would have been made when you bought into Unitech after finding out about their huge land bank which was relatively unknown at that time. Every Rs 10,000 put at that time would be worth over Rs 1 crore today.

If you have done your buying wisely, selling would not really be something to think about. Warren Buffett had once said that investing is simple but not easy. No matter how much people are told about buying when markets are going down, they still will continue to panic. No matter how much people are told to stay balanced and not rejoice because markets are going up, they will still continue to rejoice unnecessarily.

For example a few days ago when the markets were going down, I bought more into a small company which will benefit from India's huge infrastructure demand. It is much cheaper than what it was say two weeks ago and that is why I bought into it more. I bought into it simply because of fundamentals and the huge business opportunity available. Now the irony is that when such companies are available at cheap prices, very few people will look at them. But when after a few years they quote at prices several times of today, people will rush behind them and say things like Rakesh Jhunjhunwala holds it, let us buy into it. They forget that Rakesh Jhunjhunwala bought the stock much cheaper than what they are buying it at. Once again does it mean that since I bought it today, it won't go down tomorrow? Of course not,it can certainly go down or go up in terms of its stock price, but what we can do is try to make sure that we are investing in a company whose fundamentals we understand.

Over the years after making mistakes I have learnt a few basic principles which even though might sound simple are not always easy. One of them is that it is best to buy when every analyst and reporter is talking about doom.

We do have challenging time with crude oil moving up as well as inflation all across the world charging ahead. The Indian rupee has depreciated quite fast and lots of our foreign exchange is being used to fund the rising oil bill. But the world has been through more difficult phases and this too shall pass.

A few sectors will surely be affected by this, however there are several sectors which don't have a lot to do with all this. Why not look at such sectors? Domestic consumption is rising and I personally like companies which can benefit from domestic growth.

Happy buying and wealth creation!

Warm Regards

Aditya NADIG :)


posted by: Adi   


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