Should one trade or invest?
Printed From: The Equity Desk
Category: Market Strategies
Forum Name: Buffet, Lynch and other legends - Investing Strategies
Forum Discription: DIscuss about the strategies followed by the great investors. Share an idea which would have impressed the masters. Try and bring their International experience into the Indian Markets.
URL: http://www.theequitydesk.com/forum/forum_posts.asp?TID=1988
Printed Date: 07/May/2025 at 4:40am
Topic: Should one trade or invest?
Posted By: hallmark
Subject: Should one trade or invest?
Date Posted: 22/Dec/2008 at 12:50pm
|
This is the eternal question that one has to answer more so in the case of the Unemployed like me. This is a topic started to impart tools for one to go about asking these questions. Every strategy succeeds or fails………..as long as it does. Warren Buffett- the investor and Rakesh JhunJhunwala- the trader cum investor. I have failed to mention here Jesse Livermore the legendary tape-reader who listened to a tip in the end from his friend and lost it all, only to commit suicide. Let’s start with trading. There are various traders- like trend followers, trend buckers like George Soros who has made a fortune in commodities, currencies and stocks?. Wasn’t Unitech and Reliance Entertainment his last investments. Traders can use various tools- like RSI, Bollinger,etc. Some swear by them. However, the successful traders emerge bankrupt in the beginning of their strategy. Despite the tools they use, they have devised a rigorous trading plan and money-management. These successful traders have developed intuition which aids them no matter whatever metrics they use. It’s like glasses of pink, yellow or whatever colour they use to see the world, but they use intuition. No technical indicator can help than intuition. Whether it is a value stock behaving like growth stock, intuition helps in assessing the fact. The brokerage industry has an inherent advantage in proclaiming the importance of activity (As opposed to inactivity), promoting gunslinging (It happens in the Wild Wild West, but it also happens in the market). However, you have to ask yourself one important question- Are you here to play or keep count? What is your personality suited to? If you have it like RJ then you are proclaimed a trader and you will be sent to play. However, remember a player has to know the rules, the weather and all other details. Fortune will smile upon you if you are like RJ- the man whom we see one in a generation. If you think you are the one, go out and play, for you shall succeed if you have the persistence, the willingness to fail, the willingness to book a loss by instituting a stop loss and a penchant for focusing on trade, willingness to shoot in the dark (This is not to be worried upon as we feel S*x is better performed in night than day, which is the reason I gave a lot of thought and rejected BPO jobs) and hard work. Going to investors, people have it in their heads that they need to be a crorepati to invest. This is farther from the truth. Whatever money you have, you should be in a position to deploy it properly to ensure that the investments you make give you a return in excess of the inflation. Inflation and turnover are the enemies of any person in the stock market. If you are a person who likes to research and likes to keep count then you shall be proclaimed an investor regardless of the money you have. It means reading a lot, investing in a few stocks (remember the quote- a little bit of this and a little bit of that and you shall have a zoo). Reduce your stocks to 3-5 companies, let time be on your side, pay attention to the fundamentals, not be a gunslinger and listen to tips. For tips are free, and lunch is free. How will the world run?. Remember the dumbest thing that anybody could do is buy a stock that is rising in a bull market?. We shall continue to revisit the topic, with our own Basantji hopefully being able to shed light on the topic. |
Replies:
Posted By: basant
Date Posted: 22/Dec/2008 at 1:46pm
|
Generally it is very difficult not to trade when you do not have enough money and that is why it is all the more important not to trade.
I have made some money onbly by sitting back and watching my investments grow but one can argue that I was enjoying the best period of our country's history but in hindsight all periods are good and bad depending on what we do in that period.
------------- 'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in |
Posted By: hallmark
Date Posted: 22/Dec/2008 at 6:28pm
|
It's true! whatever research you look, most of the people who think they are too clever sell their winners and keep the losers. They underperform the DowJones or the Sensex by 3-4 percentage points. In compounding over a 20 year time frame, that can add up to add a lot of dollars or rupees. The stocks which they sell give stellar returns, the stocks they buy underperform.
|
Posted By: hallmark
Date Posted: 22/Dec/2008 at 6:40am
|
Remember John Keynes exhortation- The markets can remain irrational longer than you can remain solvent. Since the days of Rakesh JhunJhunwala where he could operate in BSE and where electronic based trading was non existent, there was a timelag between the time investors could get and react to the information. With demat this is no longer the case. One could argue rumuors, facts are difussed. It does not matter any longer that you are not operating from the BSE. Does it mean that the markets are efficient more than ever? We have no way of knowing that. One can be certain that RJ fortune cannot be ascribed to a buy and hold strategy. He sold off ACC before it crashed. Infosys was the greatest wealth creator during the 90’s where 1 lakh invested would be 1 crore and above. The market’s noise in the short term is completely different from the value creation takes place in the long term. RJ now is in a similar predicament as the others as information flows through the internet. |
Posted By: Vivek Sukhani
Date Posted: 22/Dec/2008 at 9:07am
|
Are the 2 things very separate at the first place???
how can I invest if I dont trade. However, like with any other business, you need to have that animal instinct to be successful.
Also, i dont understand this 5-7 stocks thing. I have seen more people losing their head and heart, who tried to do this 3-5 stock stunt than those who have kept a very well-broad based holding.
All you need is original thinking, free thinking, and fearless thinking. Thats all........ ------------- Jai Guru!!! |
Posted By: basant
Date Posted: 22/Dec/2008 at 9:31am
|
I have made more money then I could with a 3 stock portfolio and it has worked out well for me but as they say "Caveat Emptor".
------------- 'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in |
Posted By: absolut
Date Posted: 22/Dec/2008 at 11:57am
I quite agree with vivek here . I have a different way of thinking when it comes to trading and investing . I am not a trader nor an investor ...what i want is returns ..however they come . I have a couple of points to make here -
1. We all agree taht we need to invest in companies with definite future , healthy balance sheets , great management etc . Which means that we cannot invest in every company that`s listed ? However , we can trade in every company that`s listed . I have regards for PRIL , but i don`t hate Bindal Agro which gave me around 20% return in two days or a abhishek industry for that matter .
2 . we all agree that investing is less riskier than trading . But there is a flip side to it . Lets assume a stock X : 100 ( week 1 ) , 105 ( week 2 ) , 100 ( week 3 ) , 98 ( week 4 ) , 126 ( week 5 ) ............................ ????( week n ) ... now all the investots will invest from week - week n to get the returns ...... however a trader might go from week1 to week 5 .. get the 20% return and enjoy . The investor in turn takes the risk of holding it till week n to get to ???? , which might not happen ( it would go down to 75) ,,, true the investor believes in the fundamentals ... but isint he taking a bigger risk compared to the trader who has already seen a 20% jump and is done with it ???
|
Posted By: hallmark
Date Posted: 23/Dec/2008 at 1:09pm
|
As I must say- there are lack of good quality companies in the marketplace. the kind of companies we can buy and go to sleep at night. In case you are in the wrong stocks, it doesn't help to buy and hold forever. Buy and hold forever operates only in companies with good economic characteristics. In that case, the only company you get is the commodities,cyclical- you have to flip them after a period of time.
Let me give you an example. A solicitor who handles the estates of dead people who were rich found that people had Coco-Cola in their portfolio. 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.
What companies do you have is crux of the issue- deteriorating economics, no economics, or good economics. May Ben Graham's soul rest in peace for telling us that!
|
Posted By: paragdesai
Date Posted: 23/Dec/2008 at 1:23pm
| That's why WB is not interested in India story ??? |
Posted By: investor
Date 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...)
------------- 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! |
Posted By: kulman
Date Posted: 23/Dec/2008 at 6:01pm
 ...though it appears in jest, there is a great message in those words.  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. ------------- Life can only be understood backwards—but it must be lived forwards |
Posted By: hallmark
Date 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 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. |
Posted By: Vivek Sukhani
Date 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!!! |
Posted By: Shikari_Shambu
Date 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.
|
Posted By: Chetan Panchal
Date 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.
|
Posted By: hallmark
Date 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.
|