To Ride The Bull Or Not To
Thu
23
Jul
2009
Investing in equity, as 'they' say, is on the basis of one simple rule - buy low and sell high.
It turns out for a neophyte invester that it is not that simple. How would one decided if the stock of a particular company is being traded at a lower value? Lower than what? Would it rise in the future or at least in the timeframe of that particular investor? Bottom line is that it is not that simple.
Let us put this aside, and try to make it simpler. Let us say, that you did buy the stocks of (fictious) company Achme at Rs.100 per share. The actual cost does not matter, so a US investor can say he bought it at $10. This investor, bought 100 shares at the rate of Rs.100 - that puts his investment amount at Rs.10000.
Since he bought it when the market was low earlier, and now due to various factors which the investor is not completely aware of, the market has gone up. It is in a bull market. The stocks of Achme are being traded at Rs.200. That brings his investment value to Rs.20000. Returns is a 100% over what he invested.
Should he sell now? One should buy low and sell high.
And there comes the catch. What if there is a lot more potential in the market? What if the market goes up and Achme trades at Rs.300?
Should the investor ride the bull some more, or should be bail out?
If he pulls out his investment now, he will be in the green by getting Rs.20000 and notching a Rs.10000 in profit.
If he stays put, then it all depends on how the market turns out. If the market goes further up, and he pulls out at a later point (when?) then he gets more profit. But if it starts facing down, even further down that Rs.100 per share, then he will be in the red zone.
Should he risk that loss. The investor has been exposed to this risk and now he has a chance of pulling it out, but he looses the opportunity to increase his returns.
To ride the bull or not to?
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It gets easier with
It gets easier with experience I guess! Being a newbie to the market, you should adopt a balanced (not too high..not too low) risk/return. Observe the market, see how a particular stock has performed over the weeks, months and may be years. And then start taking more risks may be... (buying/selling a less number of shares in a high risk category etc). :)
Definitely, experience allows for more calculated risk ...
... and keeping aside the question of what is high risk and low risk, should one ride the bull or not?
How does one tackle and approach this question?
I would say yes! But ..and
I would say yes! But ..and there is a "but"... of caution!
"Yes" for what?
One should ride the bull? That too a neophyte investor?
How can he/she reduce that risk. If the bull is ridden, where is that 'but' of caution?
I guess it is how a person
I guess it is how a person looks at it. I present my view here. When i invest say 100 bucks and invest on say 10 shares and then the price went to 200 bucks then first step is that i would sell off 5 shares. Which means that i have got my investment back. What that also means is that the shares that i still hold (5) are with me for free of cost and i am more relaxed in selling them and i can choose to hold it till a time i feel that i feel the market is offering best rate (e.g 52 week high!!). However, this is a medium risk idea with medium returns.
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