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How many of you have been in a situation whereby all major benchmark indices (both local & global), be it NASDAQ, S&P 500, NIFTY, DJI, etc. are going all guns but still your portfolio looks red?
Well, in all probability, each one has been there at some point in stock trading/investing. Let’s try to understand why exactly we find ourselves in such a catch 22 situation before eventually glancing over the possible solution for the same.
Being retail investors, we all came to the stock market to earn money but we have seen that NIFTY 50 is performing but our stocks are not. Even if we had selected the best stocks having the best fundamentals, the best management, all fundamental ratios are in favor to buy. We bought such stocks in our portfolio and keep accumulating such stocks in our portfolio, but after keeping them for a couple of weeks, months, years we found that NIFTY 50 has given good performance and the market is making new lifetime highs day by day but the stocks in my portfolio are not giving me such a return. Everywhere on TV, social media, newspapers, people are talking about market new highs. In this Race, retail investors feel betrayed and think to leave the market saying “it’s not my cup of tea, Share Market is a gambling, etc”. RD, FD, EPF, VPF, SSY, etc other small saving schemes are best for me.
Every retail investor’s problem is that their portfolio stocks are not performing as we are expecting. Everywhere we have seen that our portfolio must beat the benchmark indices. But this is very rare for retail investors. Why?
I am sharing my experience in this regard, I came to market in the end of the year 2015 and heard about the portfolio of Indian Big Bull Mr. Rakesh Jhunjhunwala. That few of his stocks had given him tremendous returns and he is still holding them. Aurobindo Pharma, Lupin, Titan, Sun Pharma, etc. These are the best companies in their areas and brokerage houses are giving the buy call for higher targets in the future. I also started to accumulate them and in fact, I accumulated most, which are falling most,a common tendency of retailers to average the falling stocks. While accumulating, I was feeling very happy that I am getting the stocks that are trading at higher prices and part of some big investors’ portfolios. After holding these stocks for a period of 6 to 7 years they came to my cost. Even though a few of them are still giving me negative returns.
We all know that from 2015 to till now where Indian Stock Market index NIFTY is.
The biggest problem for retail investors is that we work on Tips and wait for tips from friends, colleagues, TV, newspapers, social media, etc, but we never do our own analysis that is why I am putting my hard earn money into these stocks. Taking tips and buying the stocks on basis of Tips is like “ Sailing a boat to reach a destination without a sailor” what does it mean, it means that we took the position on basis of tips but the stocks gave a small move in our favor and we feel very happy that my stocks are in green but suddenly few of them start moving against our direction and we don’t know what to do. It’s something like that in mid of our sailing we don’t have sailor to take out if the situation is not in our favor.
If Tips are not going in our favor and already we are on the negative return of say 10%. First Thought that came to our mind is that I am a long-term investor I will hold this stock for my kid’s education etc and I will average this stock when it will came down to another 5 to 10 %. As we all know that equity is giving the best return in long term. So a trader became an investor and vice versa.
The real problem starts now, we keep holding the stocks which are not performing, whereas the whole market is performing. We keep on accumulating the stocks at lower levels in a hope that one day will come and our stocks will also perform (HUM HOONGE KAMAYAB EK DIN MAN ME HAI PURA BISWASH) and beat the benchmark indices. In that time frame may be Nifty has given a double return and our portfolio is still underperforming the Nifty rather it not come at the cost itself.
What is the solution? How to come out of such a situation?
The solution is very simple and it is with Us. No one can solve this problem except we ourselves. I will being by saying that one is not supposed to know all – to study the whole market, all the ratios, n numbers of indicators/patterns, etc. The more the better doesn’t hold true in every case. Rather a mastery over a few will reward better in the stock market.
So the first step of the solution rather is that we have to decide /ask ourselves why I have taken the position in the stock. I,e for trading or for long-term investing. If you have taken the position for a trading purpose never ever convert your position into long-term investing even if we have taken the position into the best companies. In trading, booking loss is the best idea if the trade is not in our favor.
The second step, If you have taken the position for long-term investing and trade is going in our favor never ever book small profits or convert your position into trading. In general, if our long-term investing stocks give us a 3 to 4% return in a couple of weeks we are tempted to book the returns and we did it. Avoid such mistakes. These performing stocks in your portfolio will beat the nifty and give you tremendous returns. Holding a profitable position is very difficult for retailers.
The third step is never holding the losing positions, just say bye-bye to the stocks which are not performing. We came to market for money making not for holding the losing position or for making a library of stocks in our portfolio.
- Decide and ask yourself for what purpose you have taken the position(Trading or Investing).
2. Never ever mix trading with investing and vice-versa.
3. Always bet on winning stocks in your portfolio and get rid of losing stocks at the first available opportunity. Remember, If you cannot take a small loss, sooner or later you will take the mother of all losses.
That is it for now buddies. Hope you found the article useful. Look forward to your feedback in the comments section.
Peace & Grace to all.
Vikas Pratap Singh
( An enthusiastic Indian Trader & Investor )
Don’t miss out on reading this extremely useful article for Stock Market Beginners :
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