Stock lessons

#125 post

In December, I knew nothing about stocks.  But I had a fool’s courage: what the mutual fund experts can deliver, I will do it better for myself. They have no flexibility, they are burdened by huge overheads and cost of running a fund; these are advantages that an individual enjoys and if he/she is smart they can make it count. Also remember, mutual fund managers roll in luxury and fat salaries though you never see any FUND increase in value by more than 12-15%. They are not accountable to anyone; no one ever gets sacked for incompetence and an investor only becomes wiser after the damage is done. So I said to myself: I will rather lose my money from my own incompetence than any MBA, sugary, two suit of coat and boot.

            Thank God, destiny supports the brave and I chanced (my guardian angels at work) on Online Trading Academy and since then my investments have some rational basis. I have learnt so many lessons that it is worth recording if only for my own reference.

a)     Zee Entertainment: I bought 1000 shares for 434 and my heart was dreading when the price hit 420. All my reason said SELL IT while another foolish part of mine (I have some very foolish genes nailed in my brain with a glue thicker than Fevicol) said SEE IT AS ADVENTURE and let it float.  The stock fell precipitously. I was reduced to the metaphoric rabbits caught on headlights (which an idiom dictionary describes as both surprised and frightened) as Zee tumbled from 420 to 334. I was dazed as though someone hit my head as my losses were hitting a ONE LAKH mark. I sold it at 334. Then the price recovered to 354 and I bought 1000 shares hoping it would recover. It went further downhill as I sold them for 334 for another 20 k loss. At the end of the day, my portfolio bled “-1.25 lacs”. I did not lose any sleep; I wasn't over-dramatic refusing to be a nervous wreck or feel a burning sensation in the pit of the stomach But one part of my mind cried like a non-stop broken record: Sathya the foolish Sathya, the Sathya the fool who thinks he is wise. That I am not as flippant on money matters came as a very pleasant feeling and realization to me.  Lesson: When a stock jumps off a cliff, sell immediately. I need not be stubbornly foolish to insist on losing my trousers and shirts and undergarments even though watching a slide collapse with a thud is exciting! The lesson is simple: Never buy stocks when a stock is on a free fall; wait for the dust to settle, say wait at least ONE trading day to recover before you have a natural greedy instinct of a trader to buying good stocks at rock bottom prices.

b)     L&T results: L&T declared their Q3 results over a weekend and they were most impressive. The stock which was trading at 1285 had a pre-market opening at 1295. It rose dramatically to 1330 before sliding back to its natural slow steady range at 1285. I did not know anything about pre-market opening and the day's trading only begins after the prices are finalized by 9:08 am.  But I gained a learning: have eagle-eyed vision when a company is on the verge of declaring Quarterly and Annual results. The stocks do react dramatically and there is money to be made in half a day’s trading. Same thing happened to Bata India. At times the results are so bad that the stock loses a third of its price like Tata Motors – so be a little cautious as you pick these stocks from RESULTS declaring sprees.

c)      Cummins India: I bought 100 shares at 850 and it kept falling and I kept laughing - remember that foolish Sathya who gloats he can move mountains single-handedly  - knowing well that sometimes it has to reverse. It fell to 750 and I thought, “I made money on other trades and so it is only a 10 k loss. Let this stock be my learning experience.” That is when I realized the value of a STOP LOSS. Now anytime my stock goes below a point, I have no hesitation selling it for a loss. It is better to shave your mustache rather than have your head tonsured.

d)     IIFL holdings: I did the curve analysis, the trend was upside, and the Demand Zone and Supply zone perfect for a classic case study demonstration. I bought 1000 shares at 350 and watched it intently for a couple of days. Once it touched 330, I was despondent for I did not wish to have another Cummins on hand. So when the stock reached 350, I sold 500 and at once found peace with a thought: At 1000 shares, a drop of Rs. 10 is a minus 10 k while at 500 shares, a drop of Rs, 20 is just minus 10 and so there is more tolerance built-in, more patience and less of emotions at play. I watched IIFL touch Rs. 410, as it started to slide back I sold them at 407 when my calculations showed 420 to be a good selling zone. Later the price kept climbing past 450 and it is then I realized that I should not GLOAT when the prices rise, I need to have the patience of a SAINT and wait for the stock to hit my selling zone. This was a IGNITE recommendation where they pegged this stock for a Rs. 550 range; I was foolish to check out early.  I had a good chance to make a profit of 1 lakh instead I retired at 25 k. Lesson: As a weekly trader, a stock will not dramatically shift its direction in a huff; even if there is a dramatic rise or a fall it has to reach equilibrium in a day or so. There are no percentage points to be won for HURRY and IMPATIENCE. Rather one needs to be cool as cucumber with a ready supply of nerves, sumptuous greed and wits and a confidence of a trickster to realize that the last card is yet to drawn. Lesson: Sell without any labored analysis when a stock is in free-fall but when a stock is a fast climber then wait and wait to sell. Don’t be greedy to sell in haste just because you have caught a salmon. If you stay a bit longer, you may even find half a dozen. Again metaphorically for I am a strict veggie. 

e)     Wipro: I bought 500 shares at 261 and there was a huge supply as the stock was stuck at the 355 range like a tortoise for a week; only sideways upward and no falling off the platform in either direction. I sold it for 259 prematurely between 9:15 and 10:00 am which is not a bright idea at all (Wipro did reach 264 during the course of the day which for a tortoise Wipro is a hundred metres dash at Olympics). Wait for the market to stabilize for the day; the opening hours is always a jostle and a shove. Lesson: learn to wait before acting can be a golden rule of trading. Remember he who waits gets to laugh at the end; never the nervy jerky kinds. 
f)     Bharti Airtel: Every stock has a certain personality but don’t get lulled into a false sense of security. I picked up this stock at Rs. 300 and held it for a fortnight just for fun and room for an observation value. This stock just did not move, I thought it was another ITC (the most colourless and personality-less stock that I know) and sold it for Rs. 310.The next month this stock had a turbojet acceleration as it raced to Rs. 350 in a couple of days. It is like the worst dullard in a class suddenly topping an international quiz show. 

  The primary motivation of trading is NOT GREED or make money in a hurry but learning. This is a game of speculation and probabilities and there is set pattern to a way stock markets behave. For the educated and trained, every price point is an interplay of demand and supply. I am glad that I am still in the green; my portfolio may be growing at 5% per month and when I learn some of the virtues highlighted here; I might even get to the 10% gains per month which is PROFESSIONAL TRADER levels. Then I will jump out of my skin and kiss passerby; broadcast it over BBC and CNN and Doordarshan and all the air waves. I am glad the lessons are coming in fast and thick; time to make them count and make money using my wits and analysis. Finally I realize that Sathya is not all that foolish as time and lessons do come on the way.  Thanks to OTA, those online classes in February and beginner's luck.