Friday, October 22, 2010

Investing in Value

As an investor, equity shares offer the possibility of outperformance over a long term horizon. But the entry price is critical to achieve this target. When stocks are purchased during bubble periods, the investor can be confronted with many years of underperformance even when the broad market remains upbeat and the nation's economy is doing well.

Therefore, the best way to invest in stocks is to buy on a significant correction or buy stocks that offer value even in bubble like periods.

The trading approach is different. The day trader, swing trader or even the position trader who is looking to buy for days to weeks should be more interested in the trend and momentum, rather than in value.

What actually works out is a mixture of investing and trading. Investors buy overvalued 'hot' stocks for the long term, but actually expect these stocks to perform in the short term. (Okay, this is what a trader does sometimes, but traders look at a number of technical methods to enter which includes a clearcut exit strategy.)  Later, when some of these 'hot' stocks underperform, as they will, the investor is left holding the stocks, with the funds locked in for many years, and, also a sense of frustration.

The sensible way to investing is to buy only when you should, not to go with the herd. But in the market, it is often difficult to follow the easy way. What do readers say?


men said...

Follow a mechanical system, buying at s1 or s2 and exiting at r1 r2 on a regular basis. This method has its own + and - so take ur call.

Anuj said...

Thank you Sudarshan ji :)

Nirav said...

Dear Sir,

As we know that in Trading three things are most important. 1st Method, 2nd Money Management and 3rd Mind. Here I want to ask you about a Money Management techniques or Risk Management methods which can be used in the market to remain in a market for a long term as a trader. Please explain money management for a trader and if possible could you tell us that what method you follow for the same? Kindly also suggest some books on money management for traders if possible.

Nirav Kansariwala

Anuj said...

Hi Sudarshan Ji
You said "buy stocks that offer value even in bubble like periods"

Can you elaborate on this point.How do we find "value" in a stock.I can understand that value can be ascertained using fundamental analysis PE,PB etc.Can we use Technical analysis to find value as well?If yes,can you tell how.As I am familiar with Technical analysis and not that much comfortable with Fundamental analysis
Thank you.

Shazia said...

Hi Sir,
There is no easy way in anything.. an investor shouldn't go with the herd but a trader usually has to be with the trend (herd). no?


Sir it is realy embrassing to see other stock perform but u stck with your value buy but when value unlocking happens it is a pleasing experiance and at that time chart also presents nice projections as such u yourself has with rallis or niittech

ilan kaalai said...

dear sir,
explain VIX practically

ilan kaalai said...

and 1 more
role of technical analysis in investment

andy said...

good evening sir,
waiting for you commemnt ....
what is algo(software) trading.
is this useful for a retail trader?

pucchhu said...


rocky said...

Sirjee Long time no seee...

waiting for you to blog.


rajiv malik said...

namaskar sukhani ji,

it seems bloomsberg have kidnapped you. that way cnbc was better at least you were blogging regularly.

missing your views a lot !

warm regards
rajiv malik