Anybody who tells you that buy and hold is a good investment policy is either a stock market wizard or pure dumb. Of all the shares listed currently on BSE and NSE, more than double the number of listed companies have already vanished into thin air. If someone could actually delve into companies’ data on these exchanges, maybe this number could be more than double, maybe 3-5 times!
So effectively, if you would have invested randomly in 25 stocks 25 years ago, the chances are that you would be holding nearly 15 stocks that are not even listed today.
The key to making money in stock markets is not just buy-and-hold, but prudent stock selection. This stock selection can be based on fundamental parameters, technical parameters or both. Investors can do some primary studies and research on their own to find stocks of their choice, or they can follow suggestions of a good stock broker or investment advisor.
Another, and perhaps even more important, aspect of making money in the stock market is timing of buying and selling a specific stock. Most lay advisors would tell you that such timing is ill-advised and could be bad for long-term investments.
…if you would have bought RCOM at listing around 240 in 2006, and would have held it through its peak around 800 in 2008, you would have got a stock of only Rs 14 in your portfolio in 2018.
But, believe me, such timing can be perfected with the help of algorithms and can help you generate maximum returns on your investments by advising you to enter a stock at a specific time, while advising you to exit from another stock at the same time.
Every industry goes through cycles of inception, growth, plateauing, and decline. Similarly, the companies within the sector also go through these cycles of growth and decline. The stock prices largely precede, and sometimes follow, financial cycles of the companies, and rise sharply or decline heavily following the fortunes of the company.
For example, take the telecom industry. The sector gathered momentum after Bharti Airtel IPO in 2002 and gathered frenzy after listing of Reliance Communications (RCOM) in 2006. But after 2008, the industry reached plateau and started rapid decline after 2016, when Reliance Jio entered the market.
So if you would have bought RCOM at listing around 240 in 2006, and would have held it through its peak around 800 in 2008, you would have got a stock of only Rs 14 in your portfolio in 2018. While on one hand it would have eroded considerable value of your portfolio, at the same time, it would have cost you huge in terms of opportunity value, the money you could have generated by investing in another good growth stock during this period of 10-12 years.
There can be hundreds, if not thousands, of such examples where Buy and Hold strategy would have cost you dearly. So while investing, always keep an open mind to select your choice stocks, take and follow recommendations of a good stock broker or investment advisor, and review your portfolio every month to measure performance of each stock based on market or sectoral performance. Go for portfolio rebalancing whenever needed based on good advice.
Investment in 10-15 good stocks based on good advice with timing of buy, sell or hold can make you much more money than equity mutual funds…
If your stock investment is Rs 2 lacs or below, it’s always advisable to invest in mutual funds who take care of your small portfolio. But if you have an investment of over Rs 2 lacs, find a good stock broker or investment advisor and invest directly in stock markets.
Investment in 10-15 good stocks based on good advice with timing of buy, sell or hold can make you much more money than equity mutual funds, which give out only average returns out of a massive portfolio consisting of 50 stocks or more.
Share Salaah is India’s first algorithm based stock advisory that offers FREE stock recommendations to its clients. For details, visit www.ShareSalaah.com or call 9235568476.
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