Greed and Fear are two emotions which you should concentrate on eliminating when you are trading in stocks. These are your worst enemies. If not eliminate them, at least use them at the right time. Warren Buffett once said that we should be greedy when others are fearful and fearful when others are greedy. Everybody, or rather most, displayed greed in the year that went by and I was fearful all that time. Fearful enough not to invest any fresh money into the markets but not fearful enough to liquidate my portfolio. I did some portfolio churning but seeing the value of my current portfolio, it seems that wasn’t enough.
I know of an investor who had invested about Rs.15 lakhs (Rs.1.5 million) in the markets (mostly in equity based mutual funds) and had made a profit of more than Rs.5 lakhs. He wanted to buy a car out of those profits (after already having purchased a refrigerator and an LCD TV). His wife had asked him to take out his profits and buy a Maruti Suzuki Esteem or a Swift but he wanted to stay invested in the markets for some more time and then buy a Honda City after his profits increased to Rs.8 lakhs. Perfect example of greed. It was greed that ‘killed’ him. Today, he cannot even afford to buy the Tata Nano (the one lakh car) out of his profits. Thankfully, unlike most people, his capital is safe but all the profits are gone.
Most of us, me included, have seen our portfolio values reduced by 40 to 50%, and some even more. We have lost our confidence in the markets. We have learnt the hard way that markets can never give us anything but can only take. Whatever the markets give us is taken back by them and in much larger proportions. We have understood that we can never be successful in the markets. We are fearful. All of us. No, not all of us but most of us. Because I am not. I am being greedy these days. Being greedy because everyone else is fearful. This is the time to pump in additional capital in the markets.
In the market only those make money who are smart. The rest always lose money. The smart people buy when the markets are down, when there is a lot of panic. And they sell when there is a lot of hype, lot of greed, lot of expectations. They are the contrarions. The ones who do opposite of what the others do. And it is the contrarions who make money.
I once had the pleasure of meeting Mr. Madhusudan Kela, the head of equities of Reliance Mutual Fund, at a seminar to be followed by dinner. After the seminar when everybody assembled for dinner and went straight for the soups and salads, Mr. Kela made his way towards the desserts counter. When asked why he was starting with desserts, he came out with the reply, “Being a contrarion has just become a habit for me.”
Just last fortnight I was talking to a client who was asking for advice on what to do. And I told him that since the markets were in a panic now, it seemed to be the time to invest some additional money. He was scared of what would happen if the markets were to go down further. And I told him what I write in my newsletter. That we can never hope to catch the bottom. The best we can do is to buy close to the bottom. We can invest in times of panic and maintain the last bottom as the stop loss. We only lose a little that way. But we make it all up when the markets start going up.
The most common excuse for people at such times is that there is no money to invest because they did not get a chance to liquidate their portfolio when the market was at a high. I understand that. I have been in the same boat. But invest whatever you can invest in these difficult times. This is the money that will actually make money for you. It is today’s greed that you exhibit that will give you the confidence to be fearful when you see greed all around you.
I know of an investor who had invested about Rs.15 lakhs (Rs.1.5 million) in the markets (mostly in equity based mutual funds) and had made a profit of more than Rs.5 lakhs. He wanted to buy a car out of those profits (after already having purchased a refrigerator and an LCD TV). His wife had asked him to take out his profits and buy a Maruti Suzuki Esteem or a Swift but he wanted to stay invested in the markets for some more time and then buy a Honda City after his profits increased to Rs.8 lakhs. Perfect example of greed. It was greed that ‘killed’ him. Today, he cannot even afford to buy the Tata Nano (the one lakh car) out of his profits. Thankfully, unlike most people, his capital is safe but all the profits are gone.
Most of us, me included, have seen our portfolio values reduced by 40 to 50%, and some even more. We have lost our confidence in the markets. We have learnt the hard way that markets can never give us anything but can only take. Whatever the markets give us is taken back by them and in much larger proportions. We have understood that we can never be successful in the markets. We are fearful. All of us. No, not all of us but most of us. Because I am not. I am being greedy these days. Being greedy because everyone else is fearful. This is the time to pump in additional capital in the markets.
In the market only those make money who are smart. The rest always lose money. The smart people buy when the markets are down, when there is a lot of panic. And they sell when there is a lot of hype, lot of greed, lot of expectations. They are the contrarions. The ones who do opposite of what the others do. And it is the contrarions who make money.
I once had the pleasure of meeting Mr. Madhusudan Kela, the head of equities of Reliance Mutual Fund, at a seminar to be followed by dinner. After the seminar when everybody assembled for dinner and went straight for the soups and salads, Mr. Kela made his way towards the desserts counter. When asked why he was starting with desserts, he came out with the reply, “Being a contrarion has just become a habit for me.”
Just last fortnight I was talking to a client who was asking for advice on what to do. And I told him that since the markets were in a panic now, it seemed to be the time to invest some additional money. He was scared of what would happen if the markets were to go down further. And I told him what I write in my newsletter. That we can never hope to catch the bottom. The best we can do is to buy close to the bottom. We can invest in times of panic and maintain the last bottom as the stop loss. We only lose a little that way. But we make it all up when the markets start going up.
The most common excuse for people at such times is that there is no money to invest because they did not get a chance to liquidate their portfolio when the market was at a high. I understand that. I have been in the same boat. But invest whatever you can invest in these difficult times. This is the money that will actually make money for you. It is today’s greed that you exhibit that will give you the confidence to be fearful when you see greed all around you.
As mentioned in earlier newsletters, we are inviting our esteemed readers to send in their contributions in the form of articles to be published on this page. Take this opportunity to voice your opinions to the world about the financial situation today, the markets in general or anything remotely connected to the markets. Please e-mail your articles and don’t forget to mention your name and location so that you are given due credit for the article that is published.
Happy investing!!!
Happy investing!!!
No comments:
Post a Comment