Almost everyone who has invested in stock markets would have lost money some time or the other. Rarely would you find someone who would have actually made money by trading actively. Still the lure of easy and quick money drives millions of people from all strata of life to this field. Many say Stocks Markets are a Zero Sum Game. Someone has to lose money for someone else to make it. And the likelihood of the uninitiated and first timers or casual investors to lose money is much higher. While this may not be entirely wrong but there lies a big difference there too. Those who trade frequently need to be correct consistently to make money. Secondly most people have lost money in stocks. Hence at the first signs of the investment going right and making some returns, one tends to get defensive and tries to harvest prematurely whatever gains that they see on table when the fundamentals of the stocks they are holding might have changed for the better and the Stocks might have much better potential. In a nutshell, in such cases, the investors tend to cash out at comparatively much lesser profit margin. Now look at the other side when the bets go wrong which eventually happens more often than not. With initial limited losses, one tends to hold on since the power of conviction of the correctness of the decision is still strong and the relatively small drop in prices still gives that often false sense of belief that the decision was right to invest in that. Hence people wait out the small drop. Now if it rises a little from there, their often non-convincing shallow and unscientific belief in their investment decision becomes ever stronger than before and they also end up falling in deep love with them. At this stage if the prices fall even if sharply, most investors tend to wait, refusing to read the writing on the wall even if its in capital letters. As a result, even when such stocks start falling down, one keeps getting restless and frustrated but still never are able to manage the courage to sell them out and cut their losses. As the prices keep falling, frustration gives way to despair and then to apathy and total hatred for the markets. “ Stock markets are nothing but a Gamble”. You would often hear this from some people. Trust me most of them would have seen their investment shrunk to may be one tenth of even lower than what it was when they invested.
Now why am I saying all this? Because knowledge is power and the wisest are those who learn from others’ mistakes and don’t commit the same ones themselves. Hence every such write up should be a lesson which the smarter ones amongst us would never fail to imbibe. Some of the Stocks that would fall in the category mentioned above which have shrunk not to one tenth but in many cases to one fiftieth of their value in the last 2-3 years. Some of these are Moser Baer, Hindustan Construction Company or HCC, Gujarat NRE Coke, Suzlon, TV 18, NDTV, most construction and infrastructure companies, Reliance Power, Reliance Communications, to name a few.
SO what are the lessons to be learnt? Well that’s for later. The above story should perhaps teach you a thing or two about When to Sell and When to Buy Stocks? No doubt stock markets are a fantastic platform to make profits and gains but only for those who have the stomach for risk, and immense capacity for discipline and self control. So till I write again about How To Make Money in Stock Markets, wish you a happy reading.