Take for example, you decide to INVEST Rs.5,000/- per month. You buy 10 shares of a company for Rs.100 on 01.01.2018. On 20.01.2018, you found that the value of the share to be Rs.75. What will you do? Panic and sell, or accumulate more of it. Well…now let’s start from the beginning…in the first place why did you buy THAT particular share. You should have studied the business of the company, understood about the business, the promoter/management, that the business had wide MOAT, had strong CASH FLOW, had good ROCE(Return on Capital Employed), good dividend distribution policy, less or zero debt, etc.

Next important step would have been to ESTIMATE the fair price of the share in the present market conditions, which is the most difficult job. Well, how to go about it. Market price of a share is the price at which the market is willing to pay for the value to be unlocked in the future. Your future earnings depends on THIS price at which you BUY. Please remember that as long as the money is there with you, you are in control. Once you have purchased a stock or a property at a certain price, you are transferring the control YOU HAD, to the control of the MARKET i.e. what remains is your dependency on the market for the price at which you can sell. Hence, that PRICE at which you bought is a main factor for your future EARNINGS which will remain till the disposal of the stock or the property. Do your own research in purchase of stocks, if you have the time and energy. Else, just stick to an Index Fund or Index ETF. (I will explain why I prefer indexing in another post.)

Do not ever buy any stock based on the news of purchase by some well known investor. They may have SOLID REASONS for buying it. Those reasons may not be applicable for you and me. Well what may be the reasons. Let’s look at some of them. Businesses come to the stock market to earn big money. Big investors have big money. These big investors have direct contact with the promoter/management. Let’s take for example, if the price of the shares of “X” company is low and the promoter would like to offload some of his shares at a higher price. He approaches the BIG investor to invest in say “5%” in his company and the BIG investor agrees to buy it at that market price and subsequently the news is perpetually spread over media that the BIG investor has acquired 5% stake in this company, it will be more or less certain that the price of that stock will skyrocket. OK…now why should the BIG investor acquire the stake in that company just because the promoter has approached him. Well, there are different ways and means to legally “bribe” the BIG investor into acquiring the stake. One possibility is to undertake to offer job work to a related entity of the BIG investor for a “certain period”. Other could be that, the BIG investor would have been offered a high rate of interest for a “loan” borrowed for a “certain period” from his related entity. Most of these listed companies would have sourced some of their work to these big investors through their subsidiaries or sister concerns, which would always remain hidden from limelight. It could also be seen that the BIG investor would remain invested only if he sees that he could make more money in that business, else he would offload his stake after that “certain period”. Now, consider the DIFFERENCE in how we “ordinary people” buy a share and how the BIG investor does. Hence, PLEASE do your own research. BE RESPONSIBLE. TAKE RESPONSIBILITY FOR YOUR ACTIONS. BE YOUR OWN BOSS.

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