Very few of us are not tempted to enter the share market. The majority (or the losing majority) is forever itching to try its hand at the hustings. In some unfortunate cases this “hand” soon becomes a leg, followed by the shirt, the pant, the house and thus it goes the litany of woes. In spite of the very few big bulls like Harshad Mehta, Jhunjhunwalla, Sucheta and other Dalals, Ketan Parekh actually seemed to have made money and then come to grief. It is much like buying a lottery ticket – once bought, return to buy.
What lures people to the stock market, aka shock market? To be sure the lure of lucre. Moolah is what some people are after and the sooner they can accumulate it the better. What they don’t realise is that, as any operator at the Reno, Las Vegas and Goa casinos knows fully well, you can never win against the house, the odds are always stacked against the individual. Once I played the over 7/ under 7, I won the first two rounds, accumulated a decent three figure amount, and then continued. Sure enough the green changed hands and I was left with an empty hand. One should know when to stop. My suspicion was that the croupier allowed me to win and then turned the tables. This is where the dilemma is. The one who knows when to stop also decides never to start!
After the demat system kicked off in India the operators became far more circumspect in trying their antics. With SEBI also coming down hard, it is now very difficult to do the many things that used to happen routinely in stock markets. The demat system has made many punters turn to the share market to “have a go at it”. Only, they realise too late, they will be the ones to go.
For those who wish to stay the long run the stock market is a hospitable place. While no one has found out the secrets of why the markets operate the way they do, there are some smart people, like Warren Buffet, who seem to have learnt the ropes, and kept it out of their necks. Buffet has consistently beaten the market, but I don’t think he has shared his secret, if he has figured it out.There are some important points about the way the markets move. For one, when there is a serious political or economic event the market moves down, and this movement is agnostic.
When there is a boom even a donkey starts running fast. Dud shares start doing well and sections of punters start getting into these. This is a potentially wrong move. Some punters stick to the BSE 30 or the NSE 50. This is a sure shot policy for long time gains, but such punters, also known as investors are rare. Take, for example, scrips like Maruti, HUL, MRF, Eicher, Hero, Grasim, Ultratech – some of the stars in the market for many years, and the Birla companies that came in later.
So what is the secret of negotiating the stock markets without getting shocked? Some tips. Buy into “good” investment grade shares. In a booming market, sell and shift to new scrips which are on the upswing. In such markets one will have to sense the short term peaks and sell out at these, and then come back to buy these scrips once again . In short, in a booming market, maximise your profit by scrips hopping and profit skimming. Profit skimming is a method to pull out some part of your profits which you constantly make by scrip hunting and salt it away on a fixed type of investment like a mutual fund or FD or debenture. This way when the downturn arrives – what goes up must come down – you can lose out on the existing exposure but your salted away kitty will be untroubled. This could be your saviour in times of recession.
The investor will neither buy nor sell at any point – he will buy IPO’s from the company through applications etc and as soon as the shares are allotted, put it into demat and forget about it . Much like what Hero Honda used to advertise – fill it, shut it, forget it. He will live off the market returns – capital appreciation through stock splits, bonus shares, rights issues etc, and regular returns through the dividend route. The usual long term yield for such investors is about 5 to 6 % in the long term and a bit more in the longer term.
The Good to Great companies returned 17 per cent compounded on their share prices over 35 years, between 1965 and 2000. If you had owned shares in any of these 11 companies, and CASHED OUT at the end of 2000, then you would have received 471 USD per dollar you invested in 1965. Dream Big, but invest wisely, all the best.