Should one trade or invest?

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Buffet, Lynch and other legends - Investing Strategies
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Topic: Should one trade or invest?

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paragdesai
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Posted: 23/Dec/2008 at 1:23pm

That's why WB is not interested in India story ???

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investor
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Posted: 23/Dec/2008 at 1:45pm

I disagree completely. If you're not getting a good night's sleep, change the mattress!! Dont blame your porrtfolio for it! :-)

I had none of these stocks in my portfolio in the last 4 years and still slept very well, and also had many multibaggers as well! But then as Basant, that
was a golden period in the Indian markets, so could be more the exception than the rule. (Of course, RJ seems to think otherwise - he feels mother of all bull markets is coming up in a few years...)

Originally posted by hallmark

In India, unless you are in companies like Reliance, Larsen and Toubro, Sesa-Goa, Pantaloon Retail, Educomp Solutions and so on. You cannot get a good night's sleep.You have to flip them in the bull market. There's no other option.

The market is a place where people with money meet people with experience.
The people with experience get the money while people with money get experience!

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kulman
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Posted: 23/Dec/2008 at 6:01pm

Originally posted by investor

If you're not getting a good night's sleep, change the mattress!! Dont blame your porrtfolio for it! :-)

...though it appears in jest, there is a great message in those words. Clap

Heard a nice song recently:

How do we know when the risk is right?
We make a lot of money, and sleep well at night.

Edited by kulman - 23/Dec/2008 at 6:30pm

Life can only be understood backwards—but it must be lived forwards

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hallmark
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Posted: 25/Dec/2008 at 4:07pm

The essential question that a trader or investor who start out in the market have to ask themselves these questions:

1) Have the markets become more efficient?

2) Are stocks with good fundamentals headed by better managements trading at a higher PE compared to companies with good fundamentals and headed by managements with poor execution capabilities?

3) Is there potential for arbitrage? If yes, where

4) Are you spending time anticipating what B is doing who in turn is reduced to thinking what C is doing? This is the essential difference between speculators and investors. An investor keeps an eye on the fundamentals, While a speculator tries to guage and predict the future six to 1 year down the road.

The market universe and the quality of stocks in the Indian marketplace is smaller than the US. One can do a better job here. Remember, stocks are like kids, smaller number will do for an investor. Unlike in the olden days one cannot keep an eye on 20 or 30 kids.

Benjamin Graham used to buy companies which were fallen angels. The thing is this- Even he could not predict whether these stocks will rise or when?

If for example, a stock was trading at 15 he anticipated 30 to be the intrinsic price. If the price used to rise to 30 in a year, the return will be 100%, if it rose in 2 years, the return would be 40%. The longer the years the lower the return.

What is a chance that Benji would have stumbled onto GEICO-a company with superior fundamentals- low chance. But it made him rich, he was a millionaire. At the time of his death, this company went into bankruptcy, before Buffett began to buy.

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Vivek Sukhani
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Posted: 25/Dec/2008 at 4:46pm

Its like driving actually.....if you are behind( means your porrtfolio is in red), you have got to make rapid changes in gears( means trade out) to race ahead( to come in profits/break-even)....if you are leading, you can afford to keep driving steady( means, just investing and letting your profits run).

Mentality of a market participant depends upon his circumstances. Also, if you think about it, even if a person is down 60 p.c., all he needs is to produce a 2.5 bagger to break-even. Rather than remaining saddled with losses, its better to think out, and make an effort to get back to break-even.

Jai Guru!!!

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Shikari_Shambu
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Posted: 26/Dec/2008 at 1:29pm

I myself faced this dilemma (trade or invest) a lot of times. Let me summarize what goes on in my mind.

You read a lot about multibaggers,etc how you could have made 30-40 times your money in 3-4 years if you dint sell after making 30-40% profit(investing)

Then you have a stock which you bought at 100 that went to 150 but you wanted to be an investor so you held on but it goes back to 50. You feel like kicking yourself for not selling at 150.

I read all rules like :-

1) Sell when price-value gap is narrowed

2) Sell when growth stocks are quoting at ridiculous PEs

The rules look fine very very difficult to implement.

What I am doing is below :-

1) Have 2 SEPARATE accounts for investing and trading.

2) Unless really bad things happen to a company or PE is ridiculous ( not just high but really ridiculous), dont sell stock from investment portfolio for atleast 1 year. This brings in some self-imposed discipline. This portfolio is where I expect a few multibaggers somewhere down the line.

3) My trading portfolio.

Never trade the stocks that are in investment portfolio

I had a pre-determined amount in my trading portfolio.I have no intention to ADD anything to it

Periodically, whenever there is some good amount of profit, I use HALF of the profits to add to my investment portfolio. This is how I try to fund my investment portfolio.

Now trading does not mean I do anything on margin or follow technicals. Generally I play for only bouncebacks or ranges. If any frontline stock (not penny stocks) is beaten down say 20-30 % based on rumour/news, I buy some. If it falls 10-15% more, I buy more. Then I sit tight. Usually I end up with a profit of 15-20% in a few days/weeks and I take it home.

My process seems to be working ok for me since the last year or so. If anybody has any similar process, then it will interesting for others to hear about that.

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Chetan Panchal
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Posted: 27/Dec/2008 at 4:05pm

It is more safe & fruitfull to trade at present time than one year ago when sensex was around 18000 & going towards 21000

Now sensex is ranging between 8300 to 9800 in last one month.Even if u buy some stock around 9000 u can easily get 10-15% return.

Those whoever are down by anything it is good chance to make money by trading as market dont seem to go beyond 10000 atleast in 2-3 months.

I do hold scrips from more than one & half months & approx.down by 40-45% I do short term trading also.

I do buy small amt of shares & sale it after getting 10-15% profit.The amt invested & profit are small but it is less risky as even it price falls say 10-15% from here I know it will recover & will come to my purchase price.I buys good fundamental co.I traded in IDFC,Last time I bought at 55 & sold at 68,23% profit.again will buy if it will available at 55.I also have IDFC in my longterm portfolio which I kept untouched.

Edited by Chetan Panchal - 27/Dec/2008 at 4:06pm

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hallmark
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Posted: 01/Jan/2009 at 10:25am

I have always wondered at people telling that the stock market is the barometer of the economy. Ok! we need a thermometer to tell our temperature.

But who are the people who set prices?

On any given day there are people who are investors, and a small amount of people who trade. How do they trade! These are the people who face problems in their house, and get these problems into the market. It can be likened to an auction system, where prices are set based on egos. The person who wins is faced with " the Winner's Curse"- that of having bought at high prices. Just like you have an auction, you also have a fire sale!

That's all I need to know.

People tell us to buy gold, oil,etc. But nothing can beat stocks because they represent a claim on the real assets of the company.Your approach may differ- but stocks is where you want to be.

However I must say it is depressing to see RD come and say markets are in a bear phase and one should invest in FD. Timing- That's not my speciality.

However, Udayan seems to be improving in his thinking. That's news for me.

Edited by hallmark - 07/Jan/2009 at 5:59pm

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