Market have brought back the 2008 ghosts to remind us that western debt will continue to haunt us life time. Only 'strong will investors' can survive this situation and emerge stronger than before. The rules are simple but very difficult to follow and withy little bit of understanding, anyone can make up their mind to stay and buy more while the market continues to fall.
It’s true that the market has fallen and the portfolio of retail investors is down by 25-30% minimum. But some expert and analyst are trying to act very smart with their words that they have predicted this situation long back and in actual sense it is not true. The investmenty went down not only to the retail investors but also for big businessmen like Mukesh Ambani. I will attempt to comparey the real life investments made by Mr. Ambani recently and how we can learn from this to remain calm and come back stronger.
Investment made by Mukesh Ambani-(EIH Ltd operates Oberoi Hotels}-:
Exactly in august 2010, Mukesh Ambani bought 5.54 cr shares {14.12% stake} in EIH Ltd. For 1021 cr rupees that is for Rs 184/share. Immediately after he bought this stake, EIH announced the right issue of 5 shares for every 11 shares held at Rs 65/share. So Mr. Ambani was eligible for additional 2.52 cr shares taking his investment to Rs 1183 cr and final price per share comes out to be Rs 146/share.
EIH Ltd. Is trading at Rs 86 now {Aug 26, 2011} and his investment is down by 41%. Do you think a businessman like Ambani did not do his due diligence before investing? Of course he did. But the truth is no matter who you are how you analyze, uncertainty and stock market are inseparable. Some people argue that some guys make money irrespective of the market. If that is true, why did great investors like Rajat Gupta {former Managing Director of McKinsey} was involved in insider trading? I agree some guys make money but only with this kind of unscrupulous practices}.
So the point I am making here is, you can be Ambani and still will not be able to predict what’s going to happen in the market. Do you think Mr. Ambani would have bought EIH shares at Rs 146 if he knew market will fall. If he knew then, he would have of course waited for the market to fall and bought the same stake for less than Rs 800cr and might have saved 500 cr in the process. But what’s the lesson here? Even though his investment declined in value, he remains calm and does not panic and sell. Once the market reverses the trend, he will not only get back his investment but generates decent return over investment as well. All he does is remain invested and ride out the volatility. Why can’t a retail investor do the same thing? It is possible if you stop looking at your portfolio every day.
Market has become far more attractive now and this is definitely a great opportunity who have missed out in 2008-09 market crash. Forget about where SENSEX is trading now, expert can say whatever they want {14 times EPS or 12 times EPA etc.}. If you are not buying now and wait for the bottom fishing, you will get poor quality of fish later on. Good stocks move up faster when market recovers. Most of them will trade at attractive valuation. But patience is the key here. One should not get panic when stock price goes down from purchase price. Believe in your Investment and keep averaging the good stocks. We need to take calculated risk in order to be successful in anything let alone the stock market.
Conclusion:
Stocks are available at very good valuation and investors who follow the disciplined investment process can reap rich rewards in the next few years.
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