In recent days, we have observed that Indian and non-Indian stock markets are not stable in their usual standard ranges. Constant little ups and more downs of the markets have compelled the most of the investors and/or traders to re-think whether to quit market with whatever the loss has occurred or increase investments still more to bring down costs of their holdings. Financial experts have proved themselves wrong in their predictions and Governments worldwide also have failed to save the markets from falling down leaps and bounds in spite of their supporting packages declared and all round measures taken. Market has become so sensitive that every second of the day increases the pulse rates of even giant players who deal online, sitting and staring towards their live market-watch all the times.
In such uncertainty of the stock-markets, nobody can show a hundred per cent successful remedy to cope with the worst situation. A well-known word ‘disclaimer’ is used here in this field the most presently as the loophole or escaping window by even the prominent Experts and Fund Managers. My attempt to put my ideas over the subject of this Article have resulted from my long experience in this regard and my consultation with, my not nephew but son, Aasif Musa in States who graduated from Michigan University in subjects related to our topic, a talented and genius young man of 25 in area of his work. To be frank, he has no any work experience of trading in stocks, but the very first company which he had joined after studies was pleased to greet him with high distinction among his analyst peers. We had mutual discussions through emails and just as our joint findings, I try to represent my/our counseling to the members of my blog family who might have involved in dealings of stocks.
For the recent declined stock markets, Mr. Aasif points out mainly two factors – one, worldly economic growth is slowing; and two, hedge and mutual funds are experiencing redemptions from their investors and hence they are forced to sell stocks to make payments to them on demand which is a principal cause for severely depressed prices. I add one more factor from my end and it is Psychological. Hearsays and rumors, irresponsible forecasts based on hypothesis, live stock market news reports during business hours and predictions of Astrologers or Futurists develop a mass mind to think over the downward trend of the market seriously.
Here, I am not going to give you any specific list of Dos and Don’ts related to this business. In this brief Article, some very important measures are suggested in the prevailing bearish tendency of market. You will excuse me if I also use the word ‘disclaimer’ and repeat my statement in spite of my clarification above that this is merely a counseling and not any guaranteed advice. My Readers are requested to follow their own intuition applying analytic intellect prior to come to a specific decision.
First of all, the investors should think about their funds invested whether they are interest bearing or their own. If interest liability is there, it is advisable that they should quit the market as early as possible. Looking towards prevailing situation of the market, it seems very clear that the burden of interest liability will trap you deeper. In view of many economists, it is now the beginning of the supposed world-wide recession and when it goes to its climax, the market position still may become the worst. Many factors are there behind it and we should presume that its recovery to the highest picks we have witnessed may take at least 3 to 4 years. Moreover, even if the funds may be your own, you must be sure that you won’t need the same till above presumed period. In both the above cases, it is obvious that you should cash the stocks and quit the market as the precaution of prevention is better than cure before you are put in an unbearable financial crisis.
Stock market is always entangled and puzzling. There are no formulas to be followed and also fit for all the times. In my opinion, maturity built through experience and increased immune power to maintain balance with market volatility can only work. Fifty two weeks’ high-lows, discounted prices compared to issue prices of recent or past issues of primary markets, Live Tips from your Brokers or other sources, reviews of scrips in news papers, analysises of experts on TV Channels or worshiping-like (!) mentality of Charts of particular Stocks or Market Trends are not reliable tools in this tuff situation. They are lame and sometimes they may misguide or mislead you to go for improper scrips for your day trading or long-mid-short term investments. Thousands of companies are there listed on your Stock Exchanges and out of which you have to find out only 3 to 5 and I think you can yourselves do it. In my view, you should give priority to only your known companies which are fundamentally strong, dividend paying, having promoters of good reputation with their more holdings compared to public and institutional and also volume making. If such scrips are available at the fallen prices, you should go for that first. When market starts to bullish trend, these scrips will rise up faster. Promoters’ holding ratio is very important as they know their company’s inner position very well. If they start to decrease their holdings, you must get out from that scrip immediately.
Practically speaking, it is not the time now to reap any profits, but to stay continued in the field and it is enough. Here, you have to pass through an acid test and show your skill with calm and comfortable mind. You have to be very conscious to maintain your portfolio smartly. If need be, you will have to take a hard decision to convert your dull scrip to a better one with whatever loss you have to bear. Such interchange of scrips may, perhaps, not earn any profits for you, but it will surely help you to minimize your possible losses.
Mr. Aasif states clearly that in such fluctuating market, one should avoid day trading. I add to his statement and say that you should not do so even with applying ‘stop loss’ technique. You may succeed for one time, but will fail for many times and as a result, you will get nothing but loss. Even though, if you are habituated playing with such vice of prank, you should never throw your any equity having lower price to your landing cost in such dangerous horse-play where there is the great risk of going it off from you hands. Forward sale in day trading is more risky as at any cost you will have to square off your trade during the market hours. Delivery- base trading is safer than Intra-day and one may adopt this style also just to have some more time to make your trade square. If you are facilitated by your broker with BNST (By Now Sell Tomorrow) system, it is also good provided that you will have to bear Delivery base brokerage which is costlier than Intra-day’s.
Further, it is very crucial to know the right time when to take an entry to buy stocks and an exit for sale, not only to maximize your earnings but also to protect you from ill fate of losses. There is a funny quote that when people start to be terrified then you know that you are somewhere nearby the bottom. I would like to represent here the view of Mr. Aasif once again for the new entrants and also those who can afford some more investments. In his view, this is the appropriate time to buy stocks as they are very cheap and such opportunity does not come frequently. When the market returns, they will come back rather quickly; therefore, if you are not invested, it will be easy to miss the chance. Our joint counseling in this regard is that you will have to presume bottom level of particular stock or Sensex. This bottom level can be judged only after their upward rise is seen and it is advisable to wait and watch still more, no matter you miss your first or second ride.
It is most practical and safer in our view that one should start to buy stocks in parts in either of the two situations, declining still more or going up. The first will bring your landing cost lower and the second will make your cost somewhat higher, nothing else. Your purchase in installments is better than buying your total purchase at a time.
It would be a wise step if you hold a diversified set of stocks spread across various sectors. But, over diversification will prove to be ‘Much Ado about nothing.’ Warren Buffet, the richest man in the world who made his money from investment once said, “Over diversification is only good for those who don’t know what they are doing. If you are sure that you know five good stocks then have faith in yourself and distribute your money among them instead of buying thirty random companies that you know nothing about. Diversification can scientifically reduce your returns especially when you believe that few stocks will go up in price by a good percentage.”
It is noteworthy and advisable to remain apart from those sectors which are influenced with changing policies of Government as there are always possibilities of extreme ups and downs. If you go for a banking sector, prefer always those Public Banks which are under direct management or control of Government rather than Private ones. In the times of financial crisis, the Government is surely to protect them by providing survival packages which may not be available to Private Banks.
Before summing up, we represent here our some personal views which we have adopted for some ethical and other reasons. We never deal in F&O or FOREX and also avoid trading in stocks of certain companies which may be manufacturing or dealing in such products for which our conscious does not permit us to believe them as good. To buy such stocks means to be the partner of the said companies and it is totally against our principles whether we hold them for long time or even for a while. We don’t impose our above thoughts on others; but as our friendly duty, we counsel you for some important Don’ts. They are :- (1) Not to go for day trading in volumes beyond your capacity. (2) To avoid frequent trading in particular single scrip on the same day; and, (3) Most importantly, if you love your family members the most and you are not going to put those innocents in trouble by going you-yourself broke, avoid F&O trading completely as it is 100% gambling and providing you an open ground for over-trading which is risky.
Hope you will consider our views to be the last as we don’t claim being ‘Professionals’. It would be a matter of our pleasure if our aim to help you succeeds with your adoption of even a single point to make your style of trading in stocks efficient and improved.
With best wishes,
– Valibhai Musa
November 1, 2008 at 2:43 pm
Really,I appreciate the contents you put into the Article.This shows your deep study regardind the prevailing Stock Market situation of the world.One should take guidelines after reading the contents and plan for further strategies if wants to remain survived .
Specially,I congratulate Mr.Aasif for his views,thoughts and guidelines regarding the critical situations of World economies.
Again I appreciate and congratulate………….
Thanks a lot…
Dr. Chandravadan Mistry
November 2, 2008 at 6:46 pm
Valibhai…THANKS for your Email & letting me know of the Articles on your Site, I read 1st the article on “Ilnlation & Insurance ” & then read this article…Both are vey informative.
This article, wriiten in conjuction with your nephew (like son ) Aasif is very well written & gives the ” general overview ” of the Stock Markets….how the diifferent approches are takenin this field & warns the readers to aviod the GREED & apply some COMMONSENSE to make their decisions.
CONGRATULATONS to Aasif for the degree in the Business/ Finncial field. THANKS to BOTH of you for publishing the post !
Both are invited to visit my Site CHANDRAPUKAR…your visit & COMMENTS appreciated. Chandravadan Mistry
November 6, 2008 at 4:48 pm
i endorse the views of AASIF MUSA about the world economy and recessional trend globally which will not spare India. at present government declares so many steps in view of ensuing elections but it will not help the country to come out of recession. only positive point for India and China is their own consumpation due to vast population. for example realty sector will not be able to survive except if thereis inherent strength in the company with sound financial support of their promoters. same may be the problem for IT sector as their main dependance is on USA which has declared not to outsource jobs Banking sector will be most affected sector which will result in increase of NPA and resultant in amalgmation and mergers Aviation industry and tourisam is already affected Export oriented units are affected with reduction in orders there is unending list of affected indusries. even one of my friend has gone to that extent that Indian Government will be forced to depreciate the Rupee only God can save investors. so all guidelines given in the article are 100% applicable but i add one more golden key to investors that at any point of time when you are able to earn profit on your investment immediately snatch it as there will be nimber of opportunities in the whole 2009 and not get the investors disheartened but resultant effect of recession will be sensex going upto 5000 to 6000 God save us i am also investor and actively engaged in share market
November 9, 2008 at 6:07 am
I APPRECIATE BOTH ARTICLES INFLATION AND INSURANCE, STOCK MARKET.
November 1, 2013 at 12:53 pm
I don’t understand what you say…! but I like style and stigma and………
November 1, 2013 at 3:08 pm
It is just as a counseling to the people like me who are involved in trading in Stock Market. Presently, the Stock Market is in Bullish trend; but during those some months of 2008, the market was bearish due to recession throughout the world. This article was written then with an aim of sharing my personal experiences with players in Stock Market. You will be surprised to know that the most part of women in India do this online business with no any risk of default from Broker’s side. As per T+2 system established by SEBI, a controlling Authority, due payment of business from both the sides is cleared strictly. Thanks for taking interest in the Article.